<PAGE>
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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
THE SARATOGA ADVANTAGE TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
October 6, 1997
[LOGO]
[LOGO]
THE SARATOGA ADVANTAGE TRUST
Dear Shareholder:
We are pleased to invite you to a special meeting of shareholders of The
Saratoga Advantage Trust (the "Trust") to be held at 1501 Franklin Avenue,
Garden City, New York, 1st floor, at 10:00 a.m. (Eastern Time) on October 31,
1997 (the "Meeting").
The first purpose of the Meeting is to seek shareholder approval of each of
the new investment advisory agreements between OpCap Advisors and Saratoga
Capital Management ("SCM" or the "Manager"), the Manager of the Trust, with
respect to the Saratoga Municipal Bond Portfolio and the Saratoga Large
Capitalization Value Portfolio (together the "OpCap Portfolios"). OpCap Advisors
is the investment adviser to the two OpCap Portfolios. As you may know, PIMCO
Advisors L.P. and its affiliate, Thomson Advisory Group Inc. (together, the
"PIMCO Parties"), and Oppenheimer Group, Inc. and Oppenheimer Financial Corp.
have entered into an agreement for the PIMCO Parties to acquire a controlling
interest in Oppenheimer Capital (the "OpCap Transaction"), whose subsidiary is
OpCap Advisors. OpCap Advisors has advised the Board of Trustees of the Trust
(the "Board") that the PIMCO Parties have assured them that OpCap Advisors will
continue, after the OpCap Transaction, to provide the high-quality services to
which you have grown accustomed. However, the existing investment advisory
agreements with OpCap Advisors, as a matter of law, will automatically terminate
as a result of the OpCap Transaction. Therefore new investment advisory
agreements, which contain substantially the same terms as the prior agreements,
must be approved by shareholders of the OpCap Portfolios to ensure continuity of
management for the OpCap Portfolios.
It is important to keep in mind that the PIMCO Parties are acquiring OpCap
Advisors, not the OpCap Portfolios. Your Trust shares and the advisory fees
charged the Trust will not change as a result of the OpCap Transaction.
Secondly, the shareholders of the Saratoga Large Capitalization Growth
Portfolio (the "Large Capitalization Growth Portfolio") are being asked to
approve a new investment advisory contract between the successor of Harris
Bretall Sullivan & Smith, Inc. ("HBSS") and the Manager. HBSS is the investment
adviser to the Large Capitalization Growth Portfolio. HBSS has entered into an
agreement with Value Asset Management, Inc. ("VAM"), a holding company owned by
BancBoston Ventures, Inc., to form a limited liability company to be called
Harris Bretall Sullivan & Smith L.L.C. ("HBSS-L.L.C."). HBSS will transfer
substantially all of its assets to HBSS-L.L.C. and VAM will become the majority
owner of HBSS-L.L.C., (the "Harris Transaction"). As a matter of law, upon the
consummation of the Harris Transaction, the existing investment advisory
agreement between HBSS and the Manager will automatically terminate. Therefore a
new investment advisory agreement, which contains substantially the same terms
as the prior agreement, must be approved by shareholders of the Large
Capitalization Growth Portfolio to ensure continued management of that Portfolio
by HBSS-L.L.C.
<PAGE>
In addition, shareholders of each portfolio of the Trust (each, a
"Portfolio" and collectively, the "Portfolios") are being asked to consider a
proposal giving the Manager the ability, in the future, to select and contract
with one or more investment advisers to the Portfolios after obtaining the
approval of the Board, but without obtaining shareholder approval. This measure
would save the Trust and the Portfolios the additional time and expense of
obtaining shareholder approval for certain changes in investment advisory
arrangements between the Manager and the investment advisers. Shareholder
approval of this proposal will not result in any increase or decrease in the
total amount of investment management fees payable by each Portfolio to the
Manager nor eliminate the need for shareholder approval for any such changes.
Finally, the Board proposes eliminating, or reclassifying as
non-fundamental, certain fundamental investment restrictions of the Portfolios.
Certain of the Portfolios' investment restrictions were required by state laws
that are no longer applicable to the Portfolios or are more restrictive than
required by federal law. The elimination of certain restrictions will expand the
range of investment opportunities and techniques available without changing the
Portfolios' investment strategies. Reclassifying certain restrictions as
non-fundamental will permit the Trustees greater flexibility in the future to
amend a restriction when necessary without the delay and expense associated with
another shareholder meeting.
AFTER CAREFUL CONSIDERATION, THE BOARD, INCLUDING ITS INDEPENDENT TRUSTEES,
HAS UNANIMOUSLY APPROVED THE PROPOSALS RELATING TO THE TRUST AND RECOMMENDS THAT
ITS SHAREHOLDERS VOTE "FOR" EACH PROPOSAL. WHETHER OR NOT YOU INTEND TO ATTEND
THE MEETING, YOU MAY VOTE BY PROXY BY TELEPHONING 800-769-6414 OR BY SIGNING AND
RETURNING YOUR VOTING INSTRUCTION FORM IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
We thought it would be helpful to provide you with the accompanying
questions and answers regarding the OpCap Transaction, the Harris Transaction
and the other proposals. They are designed to help answer questions you may have
and help you cast your votes. They are being provided as a supplement to, not a
substitute for, the proxy statement, which we urge you to carefully review. As
always, we thank you for your confidence and support.
Please feel free to call us at 1-800-807-FUND with any questions that you
may have regarding the proposals or other related matters.
Sincerely,
/s/ Bruce E. Ventimiglia
Bruce E. Ventimiglia
CHAIRMAN OF THE BOARD, CEO AND
PRESIDENT OF THE SARATOGA ADVANTAGE
TRUST
<PAGE>
QUESTIONS & ANSWERS
PROPOSALS I.A. AND I.B.
Q. WHAT IS BEING ACQUIRED IN THE OPCAP TRANSACTION?
A. PIMCO Advisors L.P., a publicly traded investment management firm, and its
affiliate, Thomson Advisory Group Inc., have agreed to acquire a controlling
interest in Oppenheimer Capital, whose subsidiary, OpCap Advisors, is
investment adviser to the OpCap Portfolios. The Trust itself is not being
acquired.
Q. HOW WILL THE OPCAP TRANSACTION AFFECT ME AS A TRUST SHAREHOLDER?
A. Your Trust shares and the fees charged the Trust's Portfolios will not change
as a result of the OpCap Transaction. Moreover, OpCap Advisors has advised
the Trust's Board that the PIMCO Parties have assured them that OpCap
Advisors will continue, after the OpCap Transaction, to provide the high-
quality services to which you've grown accustomed. Consequently, management
of the Trust believes that the OpCap Transaction will not affect the
operations of the Trust.
Q. WHY AM I BEING ASKED TO VOTE ON THESE PROPOSALS?
A. As required by the Investment Company Act of 1940, consummation of the OpCap
Transaction will cause the automatic termination of the existing investment
advisory agreements between the Manager and OpCap Advisors with respect to
the OpCap Portfolios. Therefore, in order to ensure continuity of
management, shareholders are being asked to approve substantially identical
new agreements with OpCap Advisors.
PROPOSAL II.
Q. WHAT IS BEING ACQUIRED IN THE HARRIS TRANSACTION?
A. Value Asset Management, Inc., a Connecticut-based holding company 100% owned
by BancBoston Ventures, Inc. will be the majority owner of a new entity
(Harris Bretall Sullivan & Smith L.L.C.) holding substantially all the
assets and business of Harris Bretall Sullivan & Smith, Inc. ("HBSS").
Q. HOW WILL THE HARRIS TRANSACTION AFFECT ME AS A TRUST SHAREHOLDER?
A. Your Trust shares and the fees charged by the Trust's Portfolio will not
change as a result of the Harris Transaction. Furthermore, HBSS has advised
the Trust's Board that VAM representatives have assured them that the new
entity will be managed by the current management of HBSS and will continue
to provide the same high-quality services as you've received in the past.
Accordingly, management of the Trust believes that the Harris Transaction
will not affect Trust operations.
Q. WHY AM I BEING ASKED TO VOTE ON THIS PROPOSAL?
A. Pursuant to the Investment Company Act of 1940, the investment advisory
agreement between Saratoga Capital Management and HBSS with respect to the
Large Capitalization Growth Portfolio will automatically terminate upon the
change of ownership and control of HBSS. Therefore, in order to ensure
continued investment advisory services by HBSS's successor, shareholders are
being asked to approve a substantially identical investment advisory
agreement with the new entity.
<PAGE>
PROPOSAL III.
Q. WHAT ARE THE BENEFITS OF ENABLING THE MANAGER TO CHANGE SUBADVISERS WITHOUT
SHAREHOLDER APPROVAL?
A. Providing the Manager with the flexibility to perform the duties you expect
it to perform (I.E., selecting, supervising and evaluating advisers) without
incurring the unnecessary delay and expense of obtaining a shareholder vote
will enable the Trust to operate more efficiently. The Board of Trustees
will still be required to approve any new subadvisers and you will be
provided with extensive information in the event of a change of a
subadviser.
PROPOSAL IV.
Q. WHAT ARE THE BENEFITS OF ELIMINATING OR RECLASSIFYING AS NON-FUNDAMENTAL
CERTAIN OF THE PORTFOLIOS' FUNDAMENTAL INVESTMENT POLICIES?
A. Certain of the Portfolios' restrictions were adopted in response to state
requirements which are no longer allowed to be imposed by the states. As
such, these restrictions should be eliminated or reclassified as
non-fundamental. Reclassifying certain of the Portfolios' fundamental
investment policies as non-fundamental will enable the Trustees to amend
policies without the delay and expense of a shareholder meeting should the
portfolio managers need to expand the Portfolios' investment opportunities
and strategies.
Q. HOW DOES THE BOARD RECOMMEND THAT I VOTE?
A. AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING
ITS INDEPENDENT TRUSTEES, VOTED UNANIMOUSLY TO RECOMMEND THAT SHAREHOLDERS
VOTE "FOR" THE PROPOSALS.
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. Please feel free to call us at 1-800-769-6414 with any questions that you may
have regarding the transaction or other matters.
PLEASE VOTE
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
<PAGE>
THE SARATOGA ADVANTAGE TRUST
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 31, 1997
---------------------
TO THE SHAREHOLDERS:
Notice is hereby given that a special meeting of shareholders (the
"Meeting") of THE SARATOGA ADVANTAGE TRUST (the "Trust") will be held at 1501
Franklin Avenue, 1st Floor, Garden City, New York, on October 31, 1997 at 10:00
a.m., New York time, for the following purposes:
I.A. To approve the investment advisory agreement between Saratoga Capital
Management (the "Manager" or "SCM") and OpCap Advisors with respect to
the Municipal Bond Portfolio (to be voted on by shareholders of the
Municipal Bond Portfolio only);
I.B. To approve the investment advisory agreement between the Manager and
OpCap Advisors with respect to the Large Capitalization Value
Portfolio, (to be voted on by the shareholders of the Large
Capitalization Value Portfolio only);
II. To approve the investment advisory agreement between the Manager and
Harris Bretall Sullivan & Smith L.L.C. with respect to the Large
Capitalization Growth Portfolio (to be voted on by the shareholders of
the Large Capitalization Growth Portfolio only);
III. To approve a proposal to permit the Manager, in the future, to select
and contract with investment advisers for each portfolio of the Trust
(the "Portfolios") after obtaining the approval of the Board of
Trustees of the Trust (the "Board"), but without obtaining shareholder
approval;
In the past, to comply with state securities laws, the restrictions relating
to Proposals IV.A-E were fundamental policies of the Portfolios. The
restrictions proposed to be changed in Proposals IV.A-E are no longer required
by law, and, accordingly, the Trustees unanimously recommend that they be
eliminated or reclassified as non-fundamental as indicated below.
IV.A. To approve the elimination of the fundamental investment policy
restricting the Portfolios from investing in unseasoned issuers
(companies with a record of less than three years continuous
operation, including predecessors).
IV.B. To approve the elimination of the fundamental investment restriction
prohibiting the Portfolios from investing in oil, gas or other mineral
exploration or development companies.
IV.C. To approve the reclassification as non-fundamental the fundamental
investment restriction on investments by the Portfolios in companies
for the purpose of exercising control or management.
IV.D. To approve the elimination of the fundamental investment restriction
imposed on the Portfolios regarding investments in issuers whose
securities are owned by the Trustees or officers of the Trust, or
directors or officers of the investment advisers or Manager.
<PAGE>
IV.E. To approve the elimination of fundamental restrictions imposed by
state securities commissions on the Portfolios concerning aggregate
investments in restricted securities and unseasoned issuers.
IV.F. To approve the reclassification as non-fundamental the fundamental
investment policy of the Portfolios restricting investments in
illiquid securities.
IV.G. To approve the elimination of the fundamental investment policy of the
Portfolios from investing in other investment companies.
IV.H. To approve the reclassification as non-fundamental the fundamental
investment limitation imposed on the Portfolios concerning short
sales.
V. To act upon such other matters as properly may come before the Meeting
or any adjournment or adjournments thereof.
The close of business on September 30, 1997 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meeting and any adjournments thereof. Regardless of whether you plan to
attend the Meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED FORM
OF PROXY OR CALL 1-800-769-6414 TO VOTE BY TELEPHONE. If you are present at the
Meeting you may change your vote, if desired, at that time.
By Order of the Board of Trustees,
/s/ Bruce E. Ventimiglia
Bruce E. Ventimiglia
CHAIRMAN, PRESIDENT & CEO
October 6, 1997
<PAGE>
THE SARATOGA ADVANTAGE TRUST
NEW YORK, NEW YORK
------------------------
PROXY STATEMENT
---------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 31, 1997
---------------------
GENERAL
This proxy statement is furnished in connection with the solicitation of
proxies by the board of trustees (the "Board" or the "Trustees") of The Saratoga
Advantage Trust (the "Trust"), a Delaware business trust, from holders (the
"Shareholders") of shares of beneficial interest of the Trust (the "Shares"), no
par value, to be voted at a special meeting of Shareholders (the "Meeting") to
be held at 1501 Franklin Avenue, 1st Floor, Garden City, New York, on October
31, 1997 at 10:00 a.m. local time, and at any adjournments thereof, for the
purposes set forth in the accompanying Notice of Special Meeting of
Shareholders. The Notice of Meeting, Proxy Statement and accompanying form of
proxy will be first mailed on or about October 6, 1997.
The Trust consists of seven portfolios, (each of which is a separate series
of shares of beneficial interest), in the following series: U.S. Government
Money Market Portfolio, Municipal Bond Portfolio, Investment Quality Bond
Portfolio, Large Capitalization Value Portfolio, Large Capitalization Growth
Portfolio, Small Capitalization Portfolio, and International Equity Portfolio
(each, a "Portfolio" and collectively, the "Portfolios"). Shares of the
Portfolios will be voted separately, with each Portfolio voting as a single
class on a proposal. Each full share of the Portfolios outstanding is entitled
to one vote and each fractional share of the Portfolios outstanding is entitled
to a proportionate fractional share of one vote for such purposes.
The purpose of the Meeting is to:
(1) Seek Shareholder approval of a new investment advisory agreement with
respect to the Municipal Bond Portfolio and the Large Capitalization Value
Portfolio (together, the "OpCap Portfolios"), to take effect upon consummation
of the transaction (the "OpCap Transaction") contemplated by the Amended and
Restated Merger Agreement, dated as of July 22, 1997 (the "Amended Merger
Agreement"), by and among PIMCO Advisors L.P. ("PIMCO Advisors") and its
affiliate, Thomson Advisory Group Inc. ("TAG" and, collectively with PIMCO
Advisors, the "PIMCO Parties"), Oppenheimer Group, Inc. ("OGI") and its
subsidiary, Oppenheimer Financial Corp. ("Opfin" and, collectively with OGI,
"Oppenheimer") and certain related parties. Pursuant to the Amended Merger
Agreement, the PIMCO Parties will acquire a controlling interest in Oppenheimer
Capital, whose subsidiary, OpCap Advisors, serves as investment adviser to the
OpCap Portfolios. For a discussion of the OpCap Transaction, see "The OpCap
Transaction" under Proposal I below. As required by the Investment Company Act
of 1940, as amended (the "Investment Company Act"), consummation of the OpCap
Transaction will cause the automatic
2
<PAGE>
termination of the investment advisory agreements between Saratoga Capital
Management, the Manager of the Trust (the "Manager" or "SCM"), and OpCap
Advisors with respect to the OpCap Portfolios. Therefore, in order to ensure
continuity in the management of the OpCap Portfolios, Shareholders of each of
the OpCap Portfolios are being asked to approve a new investment advisory
agreement.
(2) Seek Shareholder approval of a new investment advisory agreement with
respect to the Large Capitalization Growth Portfolio, to take effect upon
consummation of a transaction contemplated by an agreement between Value Asset
Management, Inc. ("VAM") and Harris Bretall Sullivan & Smith, Inc. ("HBSS"),
(the "Harris Transaction"), whereby HBSS will transfer substantially all its
assets to Harris Bretall Sullivan and Smith L.L.C. ("HBSS-L.L.C.") and VAM will
maintain a majority equity interest in HBSS-L.L.C. As required by the Investment
Company Act, consummation of the Harris Transaction will cause the automatic
termination of the investment advisory agreement between the Manager and HBSS
with respect to the Large Capitalization Growth Portfolio. Therefore, in order
to ensure continuity in the management of the Large Capitalization Growth
Portfolio, Shareholders of that Portfolio are being asked to approve a new
investment advisory agreement between the Manager and HBSS's successor, HBSS-
L.L.C.
(3) Seek Shareholder approval of a proposal to afford the Trust Manager the
ability, in the future, to select and contract with one or more investment
advisers to the Portfolios after obtaining the approval of the Board, but
without obtaining Shareholder approval.
(4) Seek Shareholder approval of proposals to eliminate certain fundamental
investment policies of the Portfolios or to reclassify them as non-fundamental
investment policies. These proposals are as follows:
(a) To seek Shareholder approval to eliminate the fundamental investment
policy restricting the Portfolios from investing in unseasoned issuers
(companies with a record of less than three years continuous operation,
including predecessors).
(b) To seek Shareholder approval to eliminate the fundamental investment
restriction on investments in oil, gas or other mineral exploration or
development companies.
(c) To seek Shareholder approval to reclassify as non-fundamental the
fundamental investment restriction on investments by the Portfolios to
exercise control or management over other companies.
(d) To seek Shareholder approval to eliminate the fundamental investment
restriction regarding investments in issuers whose securities are owned by
the Trustees or officers of the Trust, or directors or officers of the
investment advisers or Manager.
(e) To seek Shareholder approval to reclassify as non-fundamental
certain fundamental restrictions imposed by state securities commissions on
the Portfolios concerning aggregate investments in restricted securities and
unseasoned issuers.
(f) To seek Shareholder approval to reclassify as non-fundamental the
fundamental investment policy on investments in illiquid securities by the
Portfolios.
(g) To seek Shareholder approval to eliminate the fundamental investment
policy of the Portfolios from investing in other investment companies.
(h) To seek Shareholder approval to reclassify as non-fundamental the
fundamental investment limitation imposed on the Portfolios concerning short
sales.
3
<PAGE>
The Board has fixed the close of business on September 30, 1997, as the
record date (the "Record Date") for the determination of Shareholders entitled
to notice of and to vote at the Meeting and any adjournment(s) thereof.
Shareholders on that date will be entitled to one vote for each Share held and a
fractional vote with respect to fractional Shares on each matter as to which
such Shares are entitled to vote.
The table below sets forth each proposal and those Shareholders who are
entitled to vote for each such proposal.
<TABLE>
<CAPTION>
PROPOSAL: I.A. I.B. II. III. IV.A. IV.B.
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO:
U.S. Government Money Market
Portfolio X X X
Municipal Bond Portfolio X X X X
Investment Quality Bond Portfolio X X X
Large Capitalization Value
Portfolio X X X X
Large Capitalization Growth
Portfolio X X X X
Small Capitalization Portfolio X X X
International Equity Portfolio X X X
<CAPTION>
PROPOSAL: IV.C. IV.D. IV.E. IV.F. IV.G. IV.H.
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO:
U.S. Government Money Market
Portfolio X X X X X X
Municipal Bond Portfolio X X X X X X
Investment Quality Bond Portfolio X X X X X X
Large Capitalization Value
Portfolio X X X X X X
Large Capitalization Growth
Portfolio X X X X X X
Small Capitalization Portfolio X X X X X X
International Equity Portfolio X X X X X X
</TABLE>
As of the close of business on the Record Date, the Trust had
Shares outstanding, allocated to the Portfolios as follows:
<TABLE>
<CAPTION>
NO. OF SHARES OUTSTANDING
PORTFOLIO ON RECORD DATE
<S> <C>
U.S. Government Money Market
Portfolio 27,184,700
Municipal Bond Portfolio 685,105
Investment Quality Bond
Portfolio 2,242,059
Large Capitalization Value
Portfolio 1,599,388
Large Capitalization Growth
Portfolio 2,645,514
Small Capitalization Portfolio 2,066,905
International Equity Portfolio 993,602
</TABLE>
4
<PAGE>
As of the Record Date, the following Shareholders held, as beneficial
owners, 5% or more of the Shares of the respective Portfolios listed below:
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS AMOUNT AND NATURE OF
PORTFOLIO OF SHAREHOLDER OF BENEFICIAL OWNERSHIP PORTFOLIO
- -------------------------------- -------------------------------- -------------------------------- -----------
<S> <C> <C> <C>
Small Capitalization Portfolio American Medical Association 764,075.99(1) 37%
Pension Trust
515 North State Street
Chicago, IL 60610-4320
</TABLE>
- ------------------------
(1) Shareholder has sole voting and investment power with regard to listed
Shares.
To the knowledge of the Board, no other person owned beneficially on that
date as much as 5% of the outstanding Shares of any Portfolio.
As of the Record Date, the following Trustees and officers held, as
beneficial owners, Shares of the respective Portfolios listed below:
<TABLE>
<CAPTION>
PERCENT
NAME OF AMOUNT AND NATURE OF
PORTFOLIO BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PORTFOLIO
- -------------------------------- -------------------------------- -------------------------------- --------------
<S> <C> <C> <C>
U.S. Government Money Market Bruce E. Ventimiglia 210,911(1) 0.7%
Portfolio
</TABLE>
- ------------------------
(1) Shareholder has sole voting and investment power with regard to listed
Shares.
To the knowledge of the Board, no other officer or Trustee owned
beneficially on that date 1% or more of the Shares of any Portfolio.
In order that you may be represented at the Meeting or any adjournment(s)
thereof, you are requested to call 800-769-6414 to vote by telephone or indicate
your voting instructions on the enclosed form of proxy, to date and sign the
form, and to mail the form promptly in the enclosed postage paid envelope,
allowing sufficient time for the form to be received before the Meeting.
Abstentions will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will not be deemed to have
been voted in favor of such matters.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Broker non-votes will be included for purposes
of determining whether a quorum is present at the Meeting, but will not be
deemed to be represented at the Meeting for purposes of calculating whether
matters to be voted upon at the Meeting have been approved.
It is anticipated that proxy solicitation will be made by mail and
telephone. Arrangements have been made for Shareholders to vote by either mail
or telephone. Arrangements have been made with brokers, custodians, nominees and
fiduciaries to send proxy material to beneficial owners. In addition,
arrangements have been made with D.F. King & Co., Inc., an independent
shareholder communication firm, to assist in the solicitation of proxies. D.F.
King & Co., Inc. may call Shareholders to ask if they would like to have their
votes recorded by telephone. A telephone voting procedure has been designed to
authenticate Shareholders' identities, to allow Shareholders to authorize the
voting of their shares in accordance with their instructions and to confirm that
their instructions have been recorded properly. The Trust has been
5
<PAGE>
advised by counsel that these procedures are consistent with the requirements of
applicable law. Shareholders voting by telephone would be asked for their social
security number or other identifying information and would be given an
opportunity to authorize proxies to vote their shares in accordance with their
instructions. To ensure that the Shareholders' instructions have been recorded
correctly, they will receive a confirmation of instructions in the mail. A
special toll-free number will be available in case the information contained in
the confirmation is incorrect.
A quorum for the Meeting will consist of thirty percent (30%) of the shares
of each of the Portfolios issued and outstanding and entitled to vote, present
in person or represented by proxy. If, by the time scheduled for the Meeting, a
quorum is not present or if a quorum is present but sufficient voting
instructions in favor of one or more proposals described in this Proxy Statement
are not received from Shareholders, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of voting
instructions from Shareholders. Any such adjournment will require the
affirmative vote of a majority of the shares of the Trust present in person or
by proxy at the session of the Meeting to be adjourned. The person named in the
proxy will vote in favor of any such adjournment if they determine that such
adjournment and additional solicitation are reasonable and in the interests of
the Portfolios' Shareholders.
The proxy may be revoked at any time prior to the voting thereof by: (i)
written instructions addressed to the Secretary of the Trust at 33 Maiden Lane,
New York, New York 10038; (ii) attendance at the Meeting and voting in person or
(iii) properly executing and returning a new proxy card (if received in time to
be voted).
All expenses of the preparation, distribution and solicitation of these
proxy materials and Meeting will be borne by the PIMCO Parties (33 1/3%),
Oppenheimer (16 2/3%), and HBSS (50%). The Trust will NOT bear any expenses
related to Proposal I and Proposal II. In addition to the solicitation of
proxies by the use of the mails, proxies may be solicited by officers and
employees of OpCap Advisors, HBSS, the Manager, or their respective affiliates,
personally or by telephone or telegraph.
6
<PAGE>
PROPOSALS I.A. AND I.B.
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS
BETWEEN OPCAP ADVISORS AND THE MANAGER
INTRODUCTION
OpCap Advisors serves as investment adviser to each of the OpCap Portfolios
pursuant to Investment Advisory Agreements dated April 14, 1997 (the "Existing
OpCap Agreements"). The Existing OpCap Agreements were approved initially by the
Board on July 25, 1994 and approved most recently by the Board on December 18,
1996 and February 3, 1997 and were approved by the Shareholders of the OpCap
Portfolios on April 14, 1997.
The Existing OpCap Agreements provide that they shall automatically
terminate in the event of an assignment as defined in the Investment Company
Act. Consummation of the OpCap Transaction will constitute an assignment of the
Existing OpCap Agreements. Therefore, in anticipation of the OpCap Transaction,
the Board is proposing that the Shareholders of each OpCap Portfolio approve new
investment advisory agreements between the Manager and OpCap Advisors (the "New
OpCap Agreements") on behalf of the respective OpCap Portfolio. The New OpCap
Agreements are substantially identical, except for the termination and effective
dates, to the Existing OpCap Agreements.
INFORMATION ABOUT OPCAP ADVISORS
OpCap Advisors is a 99%-owned subsidiary of Oppenheimer Capital, a
registered investment adviser with approximately $57 billion in assets under
management on June 30, 1997. Opfin, a holding company, is a 1.0% general partner
of OpCap Advisors. Opfin also holds a one-third managing general partner
interest in Oppenheimer Capital, and Oppenheimer Capital, L.P., a Delaware
limited partnership whose units are traded on the New York Stock Exchange and of
which Opfin is the sole 1.0% general partner, owns the remaining two-thirds
interest. Opfin currently is a wholly-owned subsidiary of OGI, 71% of the common
stock of which currently is owned by Oppenheimer & Co., L.P.
The principal business address of OpCap Advisors, Oppenheimer Capital and
their affiliates is Oppenheimer Tower, 200 Liberty Street, One World Financial
Center, New York, New York 10281. The principal business address of OpCap
Advisors is not expected to change following the OpCap Transaction. Joseph La
Motta is Chairman Emeritus of Oppenheimer Capital and OpCap Advisors. George
Long is Chairman and President of Oppenheimer Capital and Bernard H. Garil is
President of OpCap Advisors.
Attached to this Proxy Statement as Exhibit A is a list of other funds
advised or subadvised by OpCap Advisors that have similar investment objectives
to those of the OpCap Portfolios, their net assets and the rate of the advisory
fee paid to OpCap Advisors.
INFORMATION CONCERNING THE PIMCO PARTIES
PIMCO Advisors, with approximately $110 billion in assets under management
as of June 30, 1997 is one of the largest publicly traded money management firms
in the United States. PIMCO Advisors' address is 800 Newport Center Drive, Suite
100, Newport Beach, California 92660.
PIMCO Partners, G.P. ("PIMCO GP") owns approximately 42.83% and 66.37%
respectively (and will at the closing of the OpCap Transaction own a majority of
the voting stock of TAG, which owns
7
<PAGE>
approximately 14.94% and 25.06%, respectively), of the total outstanding Class A
and Class B units of limited partnership interest ("Units") of PIMCO Advisors
and is PIMCO Advisors' sole general partner. PIMCO GP is a California general
partnership with two general partners. The first of these is Pacific Investment
Management Company, which is a California corporation and is wholly-owned by
Pacific Financial Asset Management Company, a direct subsidiary of Pacific
Mutual Life Insurance Company ("Pacific Mutual").
PIMCO Partners L.L.C. ("PPLLC"), a California limited liability company, is
the second, and managing general partner of PIMCO GP. PPLLC's members are the
Managing Directors (the "PIMCO Managers") of Pacific Investment Management
Company, a subsidiary of PIMCO Advisors (the "PIMCO Subpartnership"). The PIMCO
Managers are: William H. Gross, Dean S. Meiling, James F. Muzzy, William F.
Podlich, III, Frank B. Rabinovitch, Brent R. Harris, John L. Hague, William S.
Thompson Jr., William C. Powers, David H. Edington, Benjamin Trosky, William R.
Benz, II and Lee R. Thomas, III.
PIMCO Advisors is governed by an Operating Board and an Equity Board.
Governance matters are allocated generally to the Operating Board and the
Operating Board delegates to the Operating Committee the authority to manage
day-to-day operations of PIMCO Advisors. The Operating Board is composed of
twelve members, including the chief executive officer of the PIMCO
Subpartnership as Chairman and six PIMCO Managers designated by the PIMCO
Subpartnership.
The authority of PIMCO Advisors' Operating Board and Operating Committee to
take certain specified actions is subject to the approval of PIMCO Advisors'
Equity Board. Equity Board approval is required for certain major transactions
(E.G., issuance of additional PIMCO Advisors' Units and appointment of PIMCO
Advisors' chief executive officer). In addition, the Equity Board has
jurisdiction over matters such as actions which would have a material effect
upon PIMCO Advisors' business taken as a whole and (after an appeal from an
Operating Board decision) matters likely to have a material adverse economic
effect on any subpartnership of PIMCO Advisors. The Equity Board is composed of
twelve members, including the chief executive officer of PIMCO Advisors, three
members designated by a subsidiary of Pacific Mutual, the chairman of the
Operating Board and two members designated by PPLLC.
Because of its power to appoint (directly or indirectly) seven of the twelve
members of the Operating Board as described above, the PIMCO Subpartnership may
be deemed to control PIMCO Advisors. Because of direct or indirect power to
appoint 25% of the members of the Equity Board, (i) Pacific Mutual and (ii) the
PIMCO Managers and/or the PIMCO Subpartnership may each be deemed, under
applicable provisions of the Investment Company Act, to control PIMCO Advisors.
Pacific Mutual, PIMCO Subpartnership and the PIMCO Managers disclaim such
control.
THE OPCAP TRANSACTION
On July 22, 1997, the PIMCO Parties entered into the Amended Merger
Agreement with Oppenheimer and certain related parties which agreement modified
the merger agreement between the PIMCO Parties and Oppenheimer entered into on
February 13, 1997. Pursuant to the Amended Merger Agreement, the PIMCO Parties
will acquire, among other interests, the one-third managing general partner
interest in Oppenheimer Capital, the 1.0% general partnership interest in OpCap
Advisors, and the 1.0% general partner interest in Oppenheimer Capital L.P. and
TAG will merge with and into OGI and immediately thereafter, OGI will be renamed
PA Holdings, Inc. ("PA Holdings"). The aggregate purchase price is approximately
$262 million including the issuance of convertible preferred stock and
assumption of
8
<PAGE>
certain indebtedness. The amount of preferred stock comprising the purchase
price is subject to reduction in certain circumstances. The obligations of the
PIMCO parties and Oppenheimer to consummate the OpCap Transaction are subject to
the satisfaction or waiver on or prior to the effective date of certain
conditions, including the consummation of the sale by OGI and Oppenheimer
Equities, Inc. of all of the stock of Oppenheimer Holdings, Inc. and Oppenheimer
& Co., Inc. ("Opco"), OpCap Advisors' broker-dealer affiliate, to CIBC Wood
Gundy Securities Corp. (the "CIBC Sale"), approval of the OpCap Transaction by
certain regulatory authorities and the consent of certain clients. All of the
issued and outstanding stock of Opco is owned by Oppenheimer Holdings, Inc.,
which in turn is a wholly-owned subsidiary of Oppenheimer Equities, Inc.
Oppenheimer Equities, Inc. is a wholly-owned subsidiary of Opfin, which in turn
is a wholly-owned subsidiary of OGI. The CIBC Sale will have no effect on the
ownership of OGI and Opfin including its general partner interests in
Oppenheimer Capital and OpCap Advisors. Under the terms of the Amended Merger
Agreement, the OpCap Transaction can take place only if the CIBC Sale takes
place first. It is contemplated that the OpCap Transaction will be consummated
after the CIBC Sale is concluded. As a result, there will only be a change of
control of Oppenheimer Capital and OpCap Advisors upon consummation of the OpCap
Transaction.
If for any reason the OpCap Transaction is not consummated, each Existing
OpCap Agreement will remain in effect according to its terms.
EFFECTS OF THE OPCAP TRANSACTION
Upon consummation of the OpCap Transaction, Oppenheimer Capital and OpCap
Advisors will be controlled by PIMCO Advisors. PIMCO Advisors has advised OGI
that it anticipates that the senior portfolio management team of Oppenheimer
Capital will continue in their present capacities; that the eligibility of OpCap
Advisors to serve as an investment adviser or subadviser will not be affected by
the OpCap Transaction; and that Oppenheimer Capital and OpCap Advisors will be
able to continue to provide advisory and management services with no material
changes in operating conditions. PIMCO Advisors has further advised OGI that it
currently anticipates that the OpCap Transaction will not affect the ability of
Oppenheimer Capital and OpCap Advisors to fulfill their obligations under their
investment advisory or subadvisory agreements.
SECTION 15(f) OF THE INVESTMENT COMPANY ACT
All of the parties to the OpCap Transaction have agreed that they will
comply and use reasonable efforts to cause compliance with Section 15(f) of the
Investment Company Act. Section 15(f) provides in substance that when a sale of
a controlling interest in an investment adviser occurs, the investment adviser
or any of its affiliated persons may receive any amount or benefit in connection
therewith as long as two conditions are satisfied. First, an "unfair burden"
must not be imposed on the investment company as a result of the transaction
relating to the sale of such interest, or any express or implied terms,
conditions or understandings applicable thereto. The term "unfair burden" (as
defined in the Investment Company Act) includes any arrangement during the
two-year period after the transaction whereby the investment adviser (or
predecessor or successor adviser), or any "interested person" (as defined in the
Investment Company Act) of any such adviser, receives or is entitled to receive
any compensation, directly or indirectly, from the investment company or its
security holders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company. No
compensation arrangements of the type described above
9
<PAGE>
are contemplated in the OpCap Transaction. Moreover, the PIMCO Parties have
agreed with Oppenheimer that they will use commercially reasonable efforts to
insure that no unfair burden will be imposed on the Trust by or as a result of
the OpCap Transaction during such two-year period. The second condition of
Section 15(f) is that during the three-year period following the consummation of
a transaction, at least 75% of the investment company's board of directors must
not be "interested persons" of the investment adviser or predecessor adviser.
The Trust's compliance with or exemption from such 75% disinterested board
requirement is a condition to consummation of the OpCap Transaction, and the
PIMCO Parties have entered into related agreements with Oppenheimer with respect
to such requirement during such three-year period. The composition of the Board
is presently in compliance with the 75% requirement and will continue to be so
if the OpCap Transaction is consummated.
EXISTING AND NEW OPCAP AGREEMENTS
THE EXISTING OPCAP AGREEMENTS AND THE NEW OPCAP AGREEMENTS ARE MATERIALLY
IDENTICAL EXCEPT FOR EFFECTIVE AND TERMINATION DATES. The following description
of the New OpCap Agreements is qualified in its entirety by reference to the
form of the New OpCap Agreements attached hereto as Exhibit B.
Each of the Existing OpCap Agreements provides that OpCap Advisors is
obligated to manage the securities held by the OpCap Portfolio in accordance
with the OpCap Portfolio's stated investment objectives and policies, make
investment decisions for the OpCap Portfolio and place orders to purchase and
sell securities on behalf of the OpCap Portfolio.
As compensation for its services, OpCap Advisors, pursuant to each Existing
OpCap Agreement, receives the annual fees set forth below based on the average
net assets of the respective Portfolio:
<TABLE>
<CAPTION>
PORTFOLIO FEE RATE
- ------------------------------------------------------------ ---------
<S> <C>
Municipal Bond Portfolio.................................... 0.20%
Large Capitalization Value Portfolio........................ 0.30%
</TABLE>
The foregoing fees are computed daily and paid monthly. During the fiscal
year ended August 31, 1997, the Manager paid OpCap Advisors advisory fees, as
follows:
<TABLE>
<CAPTION>
ADVISORY FEE
PORTFOLIO PAID DURING 1997
- ------------------------------------------------------------ ----------------
<S> <C>
Municipal Bond Portfolio.................................... $ 12,586.01
Large Capitalization Value Portfolio........................ $ 73,447.91
</TABLE>
Each of the Existing OpCap Agreements provides that OpCap Advisors shall not
be liable for any investment loss suffered by the respective Portfolio in
connection with matters to which each agreement relates, except in the case of
OpCap Advisors' negligence, misconduct or violation of any applicable statute.
With respect to each of the Existing OpCap Agreements, the fees are paid by
the Manager, and in no case by the OpCap Portfolios or their Shareholders.
10
<PAGE>
The OpCap Portfolios pay investment advisory fees directly to the Manager as
compensation for its services. The annual fees received by the Manager are set
forth in the table below, payable by each OpCap Portfolio, expressed as a
percentage of the Portfolio's average daily net assets:
<TABLE>
<CAPTION>
MANAGER FEE
PORTFOLIO RATE
- ------------------------------------------------------------ -----------
<S> <C>
Municipal Bond Portfolio.................................... 0.55%
Large Capitalization Value Portfolio........................ 0.65%
</TABLE>
The fee is computed daily and payable monthly. During the fiscal year ended
August 31, 1997, the Trust accrued to the Manager management fees of $34,611.53
and $159,075.13 with respect to the Municipal Bond Portfolio and the Large
Capitalization Value Portfolio, respectively. For the fiscal year ended August
31, 1997, the Manager reimbursed expenses to the Municipal Bond Portfolio and
the Large Capitalization Value Portfolio of $108,419.81 and $59,075.56,
respectively.
EVALUATION BY THE BOARD OF TRUSTEES
THE BOARD HAS DETERMINED THAT CONTINUITY AND EFFICIENCY OF PORTFOLIO
MANAGEMENT SERVICES AFTER THE OPCAP TRANSACTION CAN BEST BE ASSURED BY APPROVING
THE NEW OPCAP AGREEMENTS. THE BOARD BELIEVES THAT THE NEW OPCAP AGREEMENTS WILL
ENABLE THE TRUST TO CONTINUE TO OBTAIN ADVISORY SERVICES OF HIGH QUALITY AT
COSTS WHICH IT DEEMS APPROPRIATE AND REASONABLE AND THAT APPROVAL OF THE NEW
OPCAP AGREEMENTS IS IN THE BEST INTERESTS OF THE TRUST AND THE SHAREHOLDERS OF
THE OPCAP PORTFOLIOS.
In evaluating the New OpCap Agreements, the Board requested and reviewed,
with the assistance of independent legal counsel, materials furnished by OpCap
Advisors and PIMCO Advisors. These materials included financial statements as
well as other written information regarding PIMCO Advisors and its personnel,
operations, and financial condition. A representative of OpCap Advisors made a
presentation to the Board on OpCap Advisors, the OpCap Portfolios and the OpCap
Transaction, and responded to questions of the Trustees. Consideration by the
Board was given to comparative performance and cost information concerning other
mutual funds with similar investment objectives, including information prepared
by Lipper Analytical Services, Inc. The Board also reviewed and discussed the
terms and provisions of the New OpCap Agreements and compared them to the
Existing OpCap Agreements as well as the arrangements of other mutual funds,
particularly with respect to the allocation of various types of expenses, levels
of fees and resulting expense ratios. The Board evaluated the nature and extent
of services provided by other investment advisers to their respective funds and
also considered the benefits OpCap Advisors would obtain from its relationship
with the Trust and the economies of scale in costs and expenses to OpCap
Advisors associated with its providing such services.
The Board considered, with its counsel, (i) the quality of the operations
and service which have been provided to the Trust, on behalf of the OpCap
Portfolios, by OpCap Advisors and which are expected to continue to be provided
after the OpCap Transaction, with no change in fee rates, (ii) the overall
experience and reputation of OpCap Advisors in providing such services to
investment companies, and the likelihood of its continued financial stability,
(iii) the capitalization of PIMCO Advisors, (iv) the aspects of the OpCap
Transaction that would affect the ability of OpCap Advisors to retain and
attract qualified personnel and (v) the benefits of continuity in the services
to be provided under the New OpCap Agreements. Based upon its review, the Board
of Trustees concluded that the terms of the New OpCap Agreements are reasonable,
fair and in the best interests of the Trust and the Shareholders of the OpCap
Portfolios, and that the fees provided therein are fair and reasonable in light
of the usual and customary
11
<PAGE>
charges made by others for services of the same nature and quality. Accordingly,
the Board concluded that continuing to retain OpCap Advisors as investment
adviser to the OpCap Portfolios after the OpCap Transaction is desirable and in
the best interests of the OpCap Portfolios and the Shareholders. Based on these
and other considerations, the Board unanimously recommended approval of the New
OpCap Agreements and the submission to Shareholders of the OpCap Portfolios for
their approval. The New OpCap Agreements will become effective on the date that
the OpCap Transaction is consummated or the date Shareholders approve the New
OpCap Agreements, whichever occurs later. The New OpCap Agreements will continue
in effect until two years from their effective date, and thereafter for
successive annual periods as long as such continuance is approved in accordance
with the Investment Company Act. If the OpCap Transaction is not consummated,
the Existing OpCap Agreements will remain in effect according to their terms.
VOTE REQUIRED
As provided under the Investment Company Act, approval of the New OpCap
Agreements will require the vote of a majority of the outstanding voting
securities of each of the OpCap Portfolios. Under the Investment Company Act,
the vote of a "majority of the outstanding voting securities" of an investment
company (or a series thereof) means the vote, at a duly-called annual or special
meeting of shareholders, of 67% or more of the shares present at such meeting,
if the holders of more than 50% of the outstanding shares of such company or
series are present or represented by proxy, or of more than 50% of the total
outstanding shares of such company or series, whichever is less.
THE TRUSTEES, INCLUDING THE TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE
TRUST, OPCAP ADVISORS, PIMCO ADVISORS AND THEIR AFFILIATES, UNANIMOUSLY
RECOMMEND THAT THE SHAREHOLDERS OF THE MUNICIPAL BOND PORTFOLIO AND THE LARGE
CAPITALIZATION VALUE PORTFOLIO VOTE TO APPROVE THE RESPECTIVE NEW OPCAP
AGREEMENTS BETWEEN THE MANAGER AND OPCAP ADVISORS.
ADDITIONAL INFORMATION
The following tables present information as to the allocation of brokerage
commissions paid by the OpCap Portfolios for the year ended August 31, 1997 to
Oppenheimer & Co., Inc. ("Opco"), which is an affiliated person of OpCap
Advisors.
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS TOTAL AMOUNT OF
PAID TO OPCO TRANSACTION WHERE
-------------------------------------- BROKERAGE COMMISSIONS
TOTAL PAID TO OPCO
BROKERAGE -----------------------
COMMISSIONS DOLLAR DOLLAR
NAME OF PORTFOLIO PERIOD PAID AMOUNT % AMOUNT %
- ------------------------------------- ---------------------- -------------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Large Capitalization Value
Portfolio.......................... Year Ended 8/31/97 15,327.45 275 1.8% 533,263.50 .31%
</TABLE>
12
<PAGE>
PROPOSAL II
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
BETWEEN HARRIS BRETALL SULLIVAN & SMITH, L.L.C. AND THE MANAGER
INTRODUCTION
HBSS serves as investment adviser to the Large Capitalization Growth
Portfolio pursuant to an Investment Advisory Agreement dated April 14, 1997 (the
"Existing Harris Agreement"). The Existing Harris Agreement was approved
initially by the Board on July 25, 1994 and approved most recently by the Board
on December 18, 1996 and February 3, 1997 and was approved by the Shareholders
of the Large Capitalization Growth Portfolio on April 14, 1997.
The Existing Harris Agreement provides that it shall automatically terminate
in the event of an assignment as defined in the Investment Company Act.
Consummation of the Harris Transaction will constitute an assignment of the
Existing Harris Agreement. Therefore, in anticipation of the Harris Transaction,
the Board is proposing that the Shareholders of the Large Capitalization Growth
Portfolio approve a new investment advisory agreement between the Manager and
HBSS-L.L.C. (the "New Harris Agreement"). The New Harris Agreement is
substantially identical, except for the termination and effective dates, to the
Existing Harris Agreement.
INFORMATION ABOUT HBSS
HBSS was founded in 1971 and provides investment management to individuals
and institutions, and on June 30, 1997 had assets under management of
approximately $2.7 billion. HBSS serves as investment adviser to two other
investment company portfolios having similar investment objectives to the Large
Capitalization Growth Portfolio: The Harris Bretall Sullivan & Smith, Inc.
Growth and Equity Fund, with approximate net assets of $3,000,000 (as of
12/31/96) and an advisory fee rate of 0.75%, (HBSS has agreed to reimburse this
fund for expenses exceeding 1.29% of net assets); and Jones Heward American Fund
(Canada) with approximate net assets of $12,200,000 (as of 9/30/97) and an
advisory fee rate of 0.45%.
The principal business address of HBSS is One Sansome Street, Suite 3300,
San Francisco, CA 94104. HBSS-L.L.C. is expected to maintain this same address
after the Harris Transaction. W. Graeme Bretall is President, Director and
Portfolio Manager of HBSS. John J. Sullivan is Treasurer, Director and Portfolio
Manager of HBSS. Henry B. Dunlap Smith is Secretary, Director and Portfolio
Manager of HBSS.
INFORMATION CONCERNING VAM
VAM is 100% owned by BancBoston Ventures, Inc., itself a subsidiary of Bank
Boston, N.A. VAM is a Connecticut-based holding company that invests in
privately owned asset management firms with assets under management of between
$500 million and $10 billion. VAM seeks to create an institutional investment
group to offer quality performance and client service.
THE VAM TRANSACTION
On September 3, 1997, HBSS entered into an agreement with VAM to form
HBSS-L.L.C., a limited liability company.
13
<PAGE>
HBSS will transfer substantially all of its assets and business to
HBSS-L.L.C. It is anticipated that all the key personnel will transfer to the
new entity. Executive Vice-Presidents John J. Sullivan and Henry B. Dunlap Smith
will continue their responsibilities and ownership roles. W. Graeme Bretall, the
current President of HBSS, will also remain with HBSS-L.L.C. and become a member
of the board of directors of VAM. Co-Founder David Harris also will continue in
his role in Research for HBSS. VAM will be the majority owner of HBSS-L.L.C.
VAM and HBSS have indicated that the new structure is designed to enable the
organization to retain and attract top industry talent, enhance returns and
offer additional services. Three current officers of HBSS will become equity
holders of HBSS-L.L.C.: Susan Foley, Senior Vice-President and Portfolio
Manager; Gordon Ceresino, Senior Vice-President and Director of Marketing and
Client Service; and David S. Post, Director of Research. All of Messrs. Bretall,
Sullivan and Smith, as well as the three new equity holders, have agreed to
enter into five-year employment agreements with HBSS-L.L.C. It is anticipated
that the Harris Transaction will be consummated on or about November 15, 1997.
If for any reason the Harris Transaction is not consummated, the Existing
Harris Agreement will remain in effect according to its terms.
EFFECTS OF THE VAM TRANSACTION
Consummation of the Harris Transaction would constitute an "assignment" (as
that term is defined in the Investment Company Act), of the Existing Harris
Agreement because of the change of "control" (within the meaning of the
Investment Company Act) of HBSS. Upon consummation of the Harris Transaction,
HBSS-L.L.C., the successor of HBSS, will be controlled by VAM. As required by
the Investment Company Act, the Existing Harris Agreement provides for automatic
termination of the agreement in the event of its assignment. In anticipation of
the Harris Transaction, it is proposed that a New Harris Agreement be approved
by Shareholders of the Large Capitalization Growth Portfolio.
Representatives of VAM and HBSS have represented that HBSS-L.L.C.'s
investment process and management team will remain substantially the same and
that although VAM will obtain majority equity interest in HBSS-L.L.C., the
current managers of HBSS will maintain management autonomy in the new entity.
SECTION 15(f) OF THE INVESTMENT COMPANY ACT
All of the parties to the Harris Transaction have agreed that they will
comply and use reasonable efforts to cause compliance with Section 15(f) of the
Investment Company Act. Section 15(f) provides in substance that when a sale of
a controlling interest in an investment adviser occurs, the investment adviser
or any of its affiliated persons may receive any amount or benefit in connection
therewith as long as two conditions are satisfied. First, an "unfair burden"
must not be imposed on the investment company as a result of the transaction
relating to the sale of such interest, or any express or implied terms,
conditions or understandings applicable thereto. The term "unfair burden" (as
defined in the Investment Company Act) includes any arrangement during the
two-year period after the transaction whereby the investment adviser (or
predecessor or successor adviser), or any "interested person" (as defined in the
Investment Company Act) of any such adviser, receives or is entitled to receive
any compensation, directly or indirectly, from the investment company or its
security holders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company. No
compensation arrangements of the type described above
14
<PAGE>
are contemplated in the Harris Transaction. The second condition of Section
15(f) is that during the three-year period following the consummation of a
transaction, at least 75% of the investment company's board of directors must
not be "interested persons" of the investment adviser or predecessor adviser.
The composition of the Board is presently in compliance with the 75% requirement
and will continue to be so if the Harris Transaction is consummated.
EXISTING AND NEW HARRIS AGREEMENTS
THE EXISTING HARRIS AGREEMENT AND THE NEW HARRIS AGREEMENT ARE MATERIALLY
IDENTICAL EXCEPT FOR EFFECTIVE AND TERMINATION DATES. The following description
of the New Harris Agreement is qualified in its entirety by reference to the
form of the New Harris Agreement attached hereto as Exhibit B.
The Existing Harris Agreement provides that HBSS is obligated to manage the
securities held by the Large Capitalization Growth Portfolio in accordance with
that Portfolio's stated investment objectives and policies, make investment
decisions for such Portfolio and place orders to purchase and sell securities on
behalf of the Portfolio.
As compensation for its services, HBSS, pursuant to each Existing Harris
Agreement, receives the annual fees set forth below based on the average net
assets of the respective Portfolio:
<TABLE>
<CAPTION>
PORTFOLIO FEE RATE
- ------------------------------------------------------------ ---------
<S> <C>
Large Capitalization Growth Portfolio....................... 0.30%
---
</TABLE>
The foregoing fees are computed daily and paid monthly. During the fiscal
year ended August 31, 1997, the Manager paid HBSS advisory fees, as follows:
<TABLE>
<CAPTION>
ADVISORY FEE
PORTFOLIO PAID DURING 1997
- ------------------------------------------------------------ ----------------
<S> <C>
Large Capitalization Growth Portfolio....................... $ 124,637.00
----------------
</TABLE>
The Existing Harris Agreement provides that HBSS shall not be liable for any
investment loss suffered by the Portfolio in connection with matters to which
each agreement relates, except in the case of HBSS' negligence, misconduct or
violation of any applicable statute.
With respect to the Existing Harris Agreement, the fees are paid by the
Manager, and in no case by the Portfolio or its Shareholders.
The Large Capitalization Growth Portfolio pays investment advisory fees
directly to the Manager as compensation for its services. The annual fees
received by the Manager are set forth in the table below, payable by the
Portfolio, expressed as a percentage of the Portfolio's average daily net
assets:
<TABLE>
<CAPTION>
MANAGER FEE
PORTFOLIO RATE
- -------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Large Capitalization Growth Portfolio................................................................... 0.65%
---
</TABLE>
The fee is computed daily and payable monthly. During the fiscal year ended
August 31, 1997, the Trust accrued to the Manager management fees of of
$270,046.82 with respect to the Large Capitalization Growth Portfolio.
15
<PAGE>
EVALUATION BY THE BOARD OF TRUSTEES
THE BOARD HAS DETERMINED THAT CONTINUITY AND EFFICIENCY OF PORTFOLIO
MANAGEMENT SERVICES AFTER THE HARRIS TRANSACTION CAN BEST BE ASSURED BY
APPROVING THE NEW HARRIS AGREEMENT WITH RESPECT TO THE LARGE CAPITALIZATION
GROWTH PORTFOLIO. THE BOARD BELIEVES THAT THE NEW HARRIS AGREEMENT WILL ENABLE
THE TRUST TO CONTINUE TO OBTAIN ADVISORY SERVICES OF HIGH QUALITY AT COSTS WHICH
IT DEEMS APPROPRIATE AND REASONABLE AND THAT APPROVAL OF THE NEW HARRIS
AGREEMENT IS IN THE BEST INTERESTS OF THE TRUST AND THE SHAREHOLDERS OF THE
LARGE CAPITALIZATION GROWTH PORTFOLIO.
At its meeting on September 22, 1997, the Board of Trustees, including a
majority of the Trustees who are not interested persons of the Trust or its
affiliates (the "Independent Trustees"), evaluated the New Harris Agreement with
respect to the Large Capitalization Growth Portfolio. In evaluating the New
Harris Agreement the Board, including the Independent Trustees, requested and
reviewed, with the assistance of independent legal counsel, materials furnished
by HBSS and VAM. The materials included background information on VAM personnel
and a brochure describing VAM operations. In addition, oral presentations were
made by representatives of VAM and HBSS and these representatives responded to
questions of the Board.
Based on its review, the Board of Trustees believes that the terms of the
New Harris Agreement with respect to the Large Capitalization Growth Portfolio
are fair to, and in the best interests of, the Trust and the Portfolio's
Shareholders. Accordingly, the Board of Trustees, including all the Independent
Trustees, unanimously recommends approval by the Shareholders of the Large
Capitalization Growth Portfolio of the New Harris Agreement. In making this
recommendation, the Trustees primarily evaluated (i) the experience, reputation,
qualifications and background of HBSS-L.L.C.'s investment personnel, (ii) the
nature and quality of operations and services that HBSS-L.L.C. is expected to
provide the Portfolio with no change in fee rates, (iii) the benefits of
continuity in services to be provided under the New Harris Agreement, and (iv)
the aspects of the Harris Transaction that would affect the ability of
HBSS-L.L.C. to retain and attract qualified personnel.
The Trustees also gave careful consideration to factors deemed relevant to
the Trust and the Portfolio, including, but not limited to: (1) the performance
of the Portfolio since commencement of its operations; (2) the distinct
investment objective and policies of the Portfolio; (3) that the compensation to
be paid by the Manager to HBSS-L.L.C. under the proposed New Harris Agreement
will be the same as the rate paid to HBSS-L.L.C.'s predecessor, HBSS; (4) that
the terms of the New Harris Agreement are substantially the same as the terms of
the Existing Harris Agreement, except for different effective and termination
dates; (5) the financial conditions of HBSS and VAM; (6) the commitment of
HBSS-L.L.C. and VAM to pay or reimburse the Trust for expenses incurred in
connection with the VAM Transaction; (7) the benefits expected to be realized as
a result of HBSS-L.L.C.'s ownership by VAM; and (8) other factors deemed
relevant.
The Board viewed as significant the representation of HBSS-L.L.C. and VAM
that the same persons who are presently responsible for the investment advisory
operations of HBSS will continue in such positions following the Harris
Transaction, and that no changes in the investment adviser's method of operation
or location, and no diminution of the scope and quality of advisory services
provided to the Portfolio will result from the Harris Transaction.
BASED ON THE ABOVE, AND OTHER CONSIDERATIONS, THE BOARD UNANIMOUSLY
RECOMMENDED APPROVAL OF THE NEW HARRIS AGREEMENT BETWEEN THE MANAGER AND
HBSS-L.L.C. AND ITS SUBMISSION TO SHAREHOLDERS OF THE LARGE CAPITALIZATION
GROWTH PORTFOLIO FOR THEIR APPROVAL. The New Harris Agreement will become
effective
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on the date the Harris Transaction is consummated or the date the Shareholders
approve the New Harris Agreement, whichever occurs later. The New Harris
Agreement will continue in effect for two years from the effective date, and
thereafter for successive annual periods as long as such continuance is approved
in accordance with the Investment Company Act.
VOTE REQUIRED
As provided under the Investment Company Act, approval of the New Harris
Agreement will require the vote of a majority of the outstanding voting
securities of the Large Capitalization Growth Portfolio. Under the Investment
Company Act, the vote of a "majority of the outstanding voting securities" of an
investment company (or a series thereof) means the vote, at a duly-called annual
or special meeting of shareholders, of 67% or more of the shares present at such
meeting, if the holders of more than 50% of the outstanding shares of such
company or series are present or represented by proxy, or of more than 50% of
the total outstanding shares of such company or series, whichever is less.
THE TRUSTEES, INCLUDING THE TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE
TRUST, HBSS, VAM AND THEIR AFFILIATES, UNANIMOUSLY RECOMMEND THAT THE
SHAREHOLDERS OF THE LARGE CAPITALIZATION GROWTH PORTFOLIO VOTE TO APPROVE THE
NEW HARRIS AGREEMENT BETWEEN THE MANAGER AND HBSS-L.L.C.
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PROPOSAL III
APPROVAL OF PROPOSAL TO PERMIT THE BOARD OF TRUSTEES AND
SCM TO SELECT INVESTMENT ADVISERS OR TO AMEND
INVESTMENT ADVISORY AGREEMENTS WITHOUT
OBTAINING FURTHER SHAREHOLDER APPROVAL, AND
TO APPROVE A TECHNICAL AMENDMENT TO EACH PORTFOLIO'S
INVESTMENT ADVISORY AGREEMENT
SUMMARY
At the Board of Trustee's Meeting held on June 20, 1997, the Trustees,
including the Independent Trustees, unanimously approved and recommended that
Shareholders of each Portfolio approve a policy to permit SCM, subject to the
approval of the Board, to appoint investment advisers, to enter into investment
advisory agreements and to amend existing investment advisory agreements without
further Shareholder approval (the "Investment Adviser Approval Policy"). The
implementation of the Investment Adviser Approval Policy is subject to the
receipt of an exemptive order from the Securities and Exchange Commission (the
"SEC") and approval by Shareholders.
THE SECTION 15 EXEMPTIVE ORDER
The Trust and SCM intend to file an exemptive application with the SEC
requesting an order of the SEC (the "Exemptive Order") for relief from the
provisions of Section 15(a) of the Investment Company Act and Rule 18f-2 under
the Investment Company Act. The provisions of the Investment Company Act require
that shareholders of a mutual fund approve an investment advisory agreement with
the investment adviser and material amendments to an existing investment
advisory agreement. If the Exemptive Order is granted by the SEC, and
Shareholders approve this proposal, SCM will be authorized, subject to approval
by the Board, to evaluate, select and retain new investment advisers for the
respective Portfolios or modify a Portfolio's existing investment advisory
agreement without obtaining further approval of the affected Portfolio's
Shareholders whenever SCM and the Board believe such actions will benefit that
Portfolio and its Shareholders. There can be no assurance that the SEC will
grant the relief requested in the exemptive application.
SCM AND THE INVESTMENT ADVISERS
SCM has served as the investment manager to the Trust since its inception in
1994 pursuant to an investment management agreement between the Trust, on behalf
of each Portfolio, and SCM. Since 1994, SCM has selected investment advisers and
recommended that the Board approve those investment advisers to make the
day-to-day investment decisions for the Portfolios. Since that time, SCM has
represented itself as an investment manager whose strength, experience and
expertise lies, in large part, in its ability to evaluate, select and supervise
those investment advisers who can add value to a Shareholder's investments in
the respective Portfolios.
CURRENT INVESTMENT ADVISER APPROVAL PROCESS. SCM, with respect to each
Portfolio, enters into a separate investment advisory agreement with the
respective investment adviser selected by SCM. Under the terms of the investment
advisory agreements, the investment advisers have authority to provide the
applicable Portfolios with advice concerning the investment management of the
Portfolio's assets. The investment advisers direct the investments of the
Portfolio's assets on a discretionary basis in accordance
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with: applicable law; the investment objectives, policies and restrictions set
forth in the then-current Prospectus and Statement of Additional Information
relating to the Portfolio (and contained in the Registration Statement under the
Investment Company Act and the Securities Act of 1933, as amended); the
investment objectives, policies and restrictions from time to time provided by
the Board and communicated by SCM to the investment adviser; and, subject to
such further reasonable limitations as SCM may from time to time impose by
written notice to the investment adviser. For these investment advisory services
to the Portfolios, SCM pays each investment adviser a monthly fee at an annual
rate based on the average daily net assets of the Portfolio as specified in the
applicable investment advisory agreement. Each investment adviser bears its own
expenses of providing investment advisory services to the respective Portfolio.
Neither the Trust nor the Portfolios have any responsibility to pay investment
advisory fees to any investment adviser. Therefore, any increase or decrease in
the fee payable to any investment adviser would not change the management fee
payable by each Portfolio. Each Portfolio's investment advisory arrangements are
subject to approval by the Board, including the Independent Trustees, and in the
absence of exemptive relief from the SEC, each investment advisory agreement is
subject to the approval of the affected Portfolio's Shareholders.
PROPOSED INVESTMENT ADVISER APPROVAL POLICY. The Board of Trustees of the
Trust, including the Independent Trustees, will continue to evaluate and approve
all new investment advisory agreements between SCM and the investment advisers
as well as all changes to existing investment advisory agreements. In addition,
if the requested relief is granted by the SEC, the Trust and SCM will likely be
subject to several conditions imposed by the SEC to ensure that the interests of
the Portfolios' Shareholders are adequately protected whenever SCM acts under
the Investment Adviser Approval Policy. The SEC has recently imposed conditions
upon applicants granted the requested relief, including, but not limited to the
following:
1. The applicant must furnish to its shareholders all information about a
new investment adviser or investment advisory agreement for a Portfolio
that would be included in a proxy statement. Such information will
include any change in such disclosure caused by the addition of a new
investment adviser or any proposed material change in a Portfolio's
investment advisory agreements.
2. The applicant must disclose in its prospectus the existence, substance
and effect of the Exemptive Order.
3. The investment manager must continue to provide management services to
the Portfolios and subject to review and approval by the Board will (a)
set the Portfolios' overall investment strategies; (b) select investment
advisers; (c) monitor and evaluate the performance of investment
advisers; (d) allocate Portfolio assets among investment advisers if a
Portfolio has more than one investment adviser; (e) implement procedures
reasonably designed to ensure that the investment advisers comply with
the investment objectives, polices and restrictions of the Portfolios.
4. The investment manager will not enter into an investment advisory
agreement with any "affiliated person," as defined under the Investment
Company Act, other than by reason of serving as investment adviser to
the Trust, without that agreement, including the compensation to be paid
thereunder, being approved by the shareholders of the applicable
Portfolio.
5. At all times, a majority of the Trust's Board of Trustees will continue
to be Independent Trustees and the nomination of new Independent
Trustees will be left to the discretion of the then existing Independent
Trustees.
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6. When an investment adviser change is proposed for a Portfolio with an
affiliated investment adviser, the Trust's Trustees, including a
majority of the Independent Trustees, will make a separate finding that
the change is in the best interests of the Portfolio and its
shareholders and does not involve a conflict of interest from which the
investment manager or the affiliated adviser derives an inappropriate
advantage.
7. The exemption applies solely to the investment advisory agreements
between the investment manager and the investment advisers, and does not
apply to the management agreements between the investment manager and
the Trust and its Portfolios.
8. The implementation of the Exemptive Order must be approved by a majority
of the outstanding voting securities of each Portfolio.
9. No Trustee or officer of the Trust or, partner or officer of the
investment manager will own directly or indirectly (other than through a
pooled investment vehicle that is not controlled by that Trustee,
director or officer) any interest in an investment adviser except for:
(i) ownership of interests in the investment manager or any entity that
controls, is controlled by, or is under common control with the
investment manager, or (ii) ownership of less than 1% of the outstanding
securities of any class of equity of debt of a publicly-traded company
that is either an investment adviser or an entity that controls, is
controlled by or is under common control with an investment adviser.
There is no assurance that the Exemptive Order will be granted. In addition,
the Exemptive Order could be granted subject to different conditions than those
set forth above. The Board of Trustees will decide what action to take if the
above listed conditions are materially changed by the SEC upon application by
the Trust for the Exemptive Order.
AS NOTED ABOVE, SHAREHOLDER APPROVAL OF THIS PROPOSAL WILL NOT RESULT IN AN
INCREASE OR DECREASE IN THE TOTAL AMOUNT OF INVESTMENT MANAGEMENT FEES PAID BY
THE PORTFOLIOS TO SCM. If the Trust implements this policy, SCM, pursuant to the
investment management agreement, on behalf of each Portfolio, will continue to
provide the same level of management services to the Portfolios as it has always
provided.
If the Exemptive Order is granted, the relief could apply to at least the
following situations: (i) the investment adviser is removed for substandard
performance; (ii) the individual employee responsible for a Portfolio moves from
employment with one investment adviser to another; (iii) there is a change of
control of the investment adviser; (iv) SCM decides to diversify a Portfolio's
management by adding another investment adviser; (v) there is a change in
investment style of the Portfolio; and (vi) SCM negotiates a reduction (or the
investment adviser negotiates an increase) in the investment advisory fee that
SCM pays to the investment adviser which may result in a financial benefit (or
in the case of an investment adviser increase, a disadvantage) to SCM.
As of the date of this Proxy Statement, neither the Trust nor SCM is aware
of any reason why a Portfolio's investment adviser will not continue to serve in
that capacity and under the terms of the existing investment advisory agreement,
except as described in Proposals I.A. and I.B. and Proposal II for the Municipal
Bond Portfolio, the Large Capitalization Value Portfolio and the Large
Capitalization Growth Portfolio, respectively, for which new investment advisory
agreements with terms substantially identical, except for termination and
effective dates, are proposed. However, some events that affect an investment
adviser, such as a change of control of the investment adviser, can occur
suddenly and without advance notice to all parties that might be affected.
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REASONS FOR REQUESTING SECTION 15 EXEMPTIVE RELIEF
THE TRUSTEES BELIEVE THAT PROVIDING SCM WITH MAXIMUM FLEXIBILITY TO PERFORM
THOSE DUTIES THAT SHAREHOLDERS EXPECT SCM TO PERFORM, I.E., SELECTING,
SUPERVISING AND EVALUATING INVESTMENT ADVISERS, WITHOUT INCURRING THE
UNNECESSARY DELAY OR EXPENSE OF OBTAINING FURTHER SHAREHOLDER APPROVAL IS IN THE
BEST INTERESTS OF EACH PORTFOLIO'S SHAREHOLDERS BECAUSE IT WILL ALLOW EACH
PORTFOLIO TO OPERATE MORE EFFICIENTLY. Currently, in order for SCM to appoint an
investment adviser or materially modify an investment advisory agreement, the
Trust must call and hold a Shareholder meeting of the affected Portfolio, create
and distribute proxy materials, and solicit votes from the Portfolio's
Shareholders. This process is time-intensive, costly and slow and is borne
entirely by the respective Portfolio. Without the delay inherent in holding
Shareholder meetings, each Portfolio would be able to act more quickly and with
less expense to appoint an investment adviser when the Trustees and SCM feel
that the appointment would benefit the Portfolio.
Also, the Trustees believe that it is appropriate to vest the selection,
supervision and evaluation of the investment advisers in SCM (subject to review
by the Board of Trustees) in light of the management structure of the Trust, as
well as SCM's experience and expertise in selecting investment advisers and the
Shareholder's expectation that SCM will utilize that expertise to select
competent investment advisers. SCM has demonstrated that is has the requisite
expertise to evaluate, select and supervise investment advisers. For the past
three years, SCM has continually evaluated and refined its investment adviser
selection process. The Trustees believe that many investors choose to invest in
the Trust because of SCM's experience and expertise in evaluating and choosing
investment advisers who can add value to a Shareholder's investment in the
Trust.
Finally, the Trustees will provide sufficient oversight of the investment
adviser selection process to ensure that Shareholders' interests are protected
whenever the Adviser selects an investment adviser or modifies an investment
advisory agreement. The Board, including a majority of the Independent Trustees,
will continue to evaluate and approve all new investment advisory agreements as
well as any modification to existing investment advisory agreements. In their
review, the Trustees will analyze all factors that they consider to be relevant
to the determination, including the nature, quality and scope of services
provided by the investment advisers. The Trustees will compare the investment
performance of the assets managed by the investment advisers with other accounts
with similar investment objectives managed by other investment advisers and will
review the investment advisers' compliance with federal securities laws and
regulations. The Trustees believe that their comprehensive review will ensure
that SCM continues to act in the best interests of each Portfolio and its
Shareholders. Each investment advisory agreement will continue to be subject to
all provisions of the Investment Company Act, except for the specific provisions
of the Investment Company Act for which relief is granted by the SEC.
TECHNICAL AMENDMENT TO THE INVESTMENT ADVISORY AGREEMENTS
SCM, with respect to each Portfolio, has entered into investment advisory
agreements with the investment adviser (each an "Investment Advisory Agreement"
and collectively, "Investment Advisory Agreements"). Each Investment Advisory
Agreement contains a clause that specifically states that it will become
effective as of a certain date and, unless sooner terminated as therein
provided, shall remain in effect for two years from said date subject to the
approval of the Trust's Shareholders. In order to obviate any interpretive
conflict between the provisions of the Exemptive Order and the Investment
Advisory Agreements, the Trustees, including the Independent Trustees, have
unanimously approved an amendment to the Investment Advisory Agreements to
eliminate the clause "subject to the approval of the Trust's
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Shareholders." Except for this technical amendment, and with respect to the
OpCap Portfolios and the Large Capitalization Growth Portfolio, termination and
effective dates (as discussed under Proposal I and Proposal II), all other
provisions in each Portfolio's Investment Advisory Agreement will remain
unchanged.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMEND THAT
THE SHAREHOLDERS VOTE IN FAVOR OF PROPOSAL III.
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PROPOSAL IV
APPROVAL OF CERTAIN CHANGES TO THE FUNDAMENTAL INVESTMENT
POLICIES OF THE PORTFOLIOS OF THE TRUST
REASONS FOR PROPOSED CHANGES
Pursuant to the Investment Company Act, each of the Portfolios has adopted
certain fundamental investment restrictions and policies, which are set forth in
the Trust's Prospectus and/or Statement of Additional Information, and which may
be changed only with Shareholder approval. Restrictions and policies that a
Portfolio has not specifically designated as being fundamental are considered to
be "non-fundamental" and may be changed by the Board without Shareholder
approval.
Certain of the Portfolios' restrictions, as discussed in Proposals IV.A-E.,
were adopted in response to state "Blue Sky" laws and regulations restricting
certain types of investment company investments and practices. The states no
longer have the power to impose these restrictions and the elimination or
reclassification of the restrictions may expand the range of investment
opportunities and techniques available in connection with the management of the
Portfolios. In addition, certain previously adopted fundamental policies are
proposed to be reclassified as non-fundamental. This reclassification and
liberalization will grant the Trustees the ability to change these previously
adopted fundamental policies as needed, without seeking further approval from
Shareholders.
PROPOSAL IV.A.
INVESTMENT POLICY CONCERNING UNSEASONED ISSUERS
To comply with state securities laws, each Portfolio has a fundamental
policy, which cannot be changed without Shareholder approval, prohibiting it
from investing more than 5% (10% with respect to the Small Capitalization
Portfolio) of its respective total assets in companies with a record of less
than three years' continuous operation, including predecessors. This restriction
is no longer required by law and, accordingly, the Trustees recommend that it be
eliminated.
Under the amended policy, each Portfolio will be permitted to invest in
unseasoned issuers subject to the Portfolio's policy on diversification. The
diversification policy limits each Portfolio's investments in a single issuer to
5% of the Portfolio's total assets (with respect to 75% of the Portfolio's total
assets). This means that under the amended policy a Portfolio could invest up to
25% of its total assets in the securities of a single unseasoned issuer.
Unseasoned issuers are typically small "start up" companies in business for
less than three years, whose earnings potential may not be realized for several
years. These companies represent an opportunity for a Portfolio to purchase
securities of companies that have significant growth potential. Because many of
these companies may be businesses in the early phase of the business life cycle,
the companies may be subject to a greater risk of failure than more established
companies.
PROPOSAL IV.B.
INVESTMENT POLICY ON OIL, GAS OR OTHER MINERAL EXPLORATION OR DEVELOPMENT
PROGRAMS OR LEASES
The existing restriction prohibiting the Portfolios from investing in oil,
gas or other mineral exploration or development programs or leases is not
required by the Investment Company Act and is no longer
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required by state law. In order to be able to respond to regulatory and market
developments without the delay and expense of a Shareholder vote, it is proposed
that Shareholders vote in favor of eliminating this restriction.
Investments in companies involved in oil, gas and other mineral exploration
programs may be more volatile than investments in other securities, because they
are subject to risks occasioned by changes in the price, demand for and supply
of fuels and minerals. Demand and supplies may fluctuate significantly over
short periods of time due to a variety of factors, such as domestic and foreign
political and regulatory developments, exploration and production spending,
energy conservation efforts and the development and implementation of new forms
or sources of such commodities. Elimination of this fundamental limitation will
not change the Portfolios' investment objectives, but would give each Portfolio
investment flexibility to choose such investments, to the extent consistent with
its investment objective and other investment policies, without seeking
additional Shareholder approval. It is not currently expected, however, that
elimination of the fundamental restriction will have a material impact on the
Portfolios' investment practices.
PROPOSAL IV.C.
INVESTMENT POLICY ON INVESTMENTS TO EXERCISE CONTROL
Each Portfolio has a fundamental policy not to invest in companies for the
purpose of exercising control or management. This restriction is not required by
the Investment Company Act and is no longer required by state law. In order to
respond to regulatory and market developments without the delay and expense of a
Shareholder vote, it is proposed that Shareholders vote in favor of
reclassifying this fundamental investment limitation as non-fundamental. As
discussed above, while non-fundamental limitations can be changed without
Shareholder approval, such changes still require Board approval. The proposed
change will not affect the operations of the Portfolios. However, adoption of a
non-fundamental restriction will enable the Portfolios to respond more promptly
if circumstances suggest a change in the future.
PROPOSAL IV.D.
FUNDAMENTAL RESTRICTION REGARDING INVESTMENTS IN ISSUERS WHOSE SECURITIES ARE
OWNED BY THE TRUSTEES OR OFFICERS OF THE TRUST, OR DIRECTORS OR OFFICERS OF
THE INVESTMENT ADVISERS
The Portfolios currently have a fundamental investment restriction that
prohibits them from investing in securities of any issuer if any officer or
Trustee of the Trust or any officer or director of any of the Advisers owns more
than of 1% of the outstanding securities of such issuer, and such officers,
Trustees and directors who own more than of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer. This restriction was originally
adopted to address state law requirements that no longer apply. The Trustees
recommend that this fundamental investment restriction be eliminated. Although
this restriction has not precluded Portfolio investments in the past,
elimination of the restriction would potentially increase an investment
adviser's flexibility when selecting investments for the Portfolio in the
future. The ability of the Portfolios to invest in companies in which the
Trustees or officers of the Trust or directors or officers of the Portfolio's
investment advisers hold interests would continue to be restricted by the
Investment Company Act, whether or not the current fundamental investment
restriction is eliminated.
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PROPOSAL IV.E.
FUNDAMENTAL RESTRICTIONS ON AGGREGATE INVESTMENTS IN RESTRICTED SECURITIES AND
UNSEASONED ISSUERS AS IMPOSED BY STATE SECURITIES COMMISSIONS
To comply with state securities laws, each Portfolio has agreed to limit its
investments in restricted securities (excluding 144A securities) to 10% of its
respective total assets, and to limit its aggregate investment in restricted
securities (including 144A securities) and unseasoned issuers to no more than
15% of its respective total assets. These restrictions are no longer required
and, accordingly, the Trustees recommend that they be eliminated. As discussed
in the Prospectus, Rule 144A securities will not be considered illiquid so long
as its is determined by the Trustees or the Portfolio's investment adviser,
acting under guidelines approved and monitored by the Board, which has the
ultimate responsibility for any determination regarding liquidity, that an
adequate trading market exists for that security. To the extent a Rule 144A
security is considered illiquid, it will be covered by the policies on
illiquidity described above. Proposed new investment policies with respect to
unseasoned issuers are described above as well.
PROPOSAL IV.F.
INVESTMENT POLICY ON INVESTMENTS IN ILLIQUID SECURITIES
Each Portfolio has a fundamental investment limitation concerning illiquid
securities that provides that a Portfolio shall not invest more than 15% (10%
with respect to the U.S. Government Money Market Portfolio) of the value of its
net assets in securities that are illiquid, including certain government
stripped mortgage related securities, repurchase agreements maturing in more
than seven days and that cannot be liquidated prior to maturity and securities
that are illiquid by virtue of the absence of a readily available market. The
Trustees recommend that Shareholders approve reclassifying this fundamental
limitation as non-fundamental.
Under the rules established by the SEC, investment companies are required to
price their shares daily and to offer daily redemptions with payment to follow
within seven days of the redemption request. In order to ensure that funds can
satisfy these requirements, the SEC requires investment companies to limit their
holdings in illiquid securities to 15% of their net assets (10% for money market
funds). This is due to the fact that illiquid securities may be difficult to
value daily and difficult to sell promptly at an acceptable price.
The percentage limitation restricting the amount an investment company may
invest in illiquid securities has been changed by the SEC over time. In order to
be able to respond to regulatory and market developments without the delay and
expense of a Shareholder vote, it is proposed that Shareholders vote in favor of
eliminating this fundamental investment limitation and replace it with a similar
non-fundamental limitation. While non-fundamental limitations can be changed
without Shareholder approval, such changes still require the approval of the
Board. The proposed change will not affect the operation of the Portfolios.
However, adoption of a non-fundamental restriction will enable the Portfolios to
respond more promptly if circumstances suggest such a change in the future.
PROPOSAL IV.G.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Portfolios' current fundamental limitation concerning investments in
other investment companies states that a Portfolio shall not invest more than
10% of its assets in securities of other investment
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companies or more than 5% of its assets in the securities of one investment
company or more than 3% of the outstanding voting securities of such company,
except in connection with a merger, consolidation, reorganization or acquisition
of assets. Shareholders are being asked to approve the elimination of this
policy. The ability of investment companies to invest in other investment
companies is restricted by the Investment Company Act. These restrictions, as
previously identified above, will remain applicable to the Portfolios whether or
not they are recited in a fundamental limitation. As a result, elimination of
the above fundamental limitation is not expected to have any impact on the
Portfolios' investment practices, except to the extent that regulatory
requirements may change in the future.
PROPOSAL IV.H.
FUNDAMENTAL LIMITATION CONCERNING SHORT SALES
Each Portfolio is currently subject to a fundamental investment restriction
which provides that a Portfolio shall not sell or purchase securities on margin
(except for such short-term loans as are necessary for the clearance of
purchases of Portfolio securities) or make short sales of securities except
"against the box." If the proposal is approved, the current fundamental
limitation will be replaced with a non-fundamental limitation which could be
changed without a Shareholder vote. While reclassifying the restriction from
fundamental to non-fundamental will not impact the operation of the Portfolios
at this time, in the event of a change in federal regulatory requirements, the
Portfolios will be able to alter their investment practices without the delay
and expense of a Shareholder vote. As previously discussed, such changes will
still require Board approval.
THE TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND THAT THE SHAREHOLDERS VOTE IN FAVOR OF
PROPOSALS IV.A., IV.B., IV.C., IV.D., IV.E., IV.F., IV.G. AND IV.H.
RECEIPT OF SHAREHOLDERS PROPOSALS
Under the proxy rules of the SEC, shareholder proposals meeting tests
contained in those rules may, under certain conditions, be included in the
Trust's proxy statement and proxy for a particular annual meeting. Those rules
require that at the time the shareholder submits the proposal the shareholder be
a record or beneficial owner of at least 1% or $1,000 in market value of
securities entitled to be voted on the proposal and have held such securities
for a least one year prior thereto, and continue to hold such shares through the
date on which such meeting is held. Another of these conditions relates to the
timely receipt by the Trust of any such proposal. Under these rules, proposals
submitted for inclusion in the Trust's proxy material for the next annual
meeting after the meeting to which this proxy statement relates must be received
by the Trust not less than 120 days before the first anniversary of the date
stated on the first page of this Proxy Statement relating to the first mailing
of this Proxy Statement. The date for such submission could change, depending on
the scheduled date for the next annual meeting.
The fact that the Trust receives a Shareholder proposal in timely manner
does not insure its inclusion in its proxy material, since there are other
requirements in the proxy rules relating to such inclusion.
Shareholders should be aware that under the law of the state in which the
Trust is established, Delaware, annual meetings of Shareholders are not required
as long as there is no particular requirement under the Investment Company Act
which must be met by convening such a Shareholder's meeting. As it is the
intention of the Board of Trustees not to hold annual Shareholder meetings in
the future unless
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required to do so under the Investment Company Act, there can be no assurance
that Shareholder proposals validly submitted to the Trust will be acted upon at
a regularly scheduled annual Shareholders' meeting.
ADMINISTRATOR
Unified Advisers, Inc., 429 North Pennsylvania Street, Indianapolis, IN
46204, serves as administrator to the Trust.
PRINCIPAL UNDERWRITER
Unified Management Corporation, 429 North Pennsylvania Street, Indianapolis,
IN 46204, acts as the general distributor for the Trust.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP are the independent auditors of the Trust. A
representative of the firm is not expected to be present at the Meeting.
MAILING OF ANNUAL REPORT
THE TRUST WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT FOR THE
YEAR ENDED AUGUST 31, 1996 AND ITS SEMI-ANNUAL REPORT ENDED FEBRUARY 28, 1997 TO
A SHAREHOLDER UPON REQUEST. SUCH REQUEST SHOULD BE MADE TO SCOTT KANE, SARATOGA
CAPITAL MANAGEMENT, 33 MAIDEN LANE, NEW YORK, NY 10038, OR BY CALLING
1-800-807-FUND. THE REPORT WILL BE SENT BY FIRST CLASS MAIL WITHIN THREE
BUSINESS DAYS OF THE REQUEST.
OTHER BUSINESS
The Trust's management knows of no business other than the matters specified
above which will be presented at the Meeting. Inasmuch as matters not known at
the time of the solicitation may come before the Meeting, the proxy as solicited
confers discretionary authority with respect to such matters as may properly
come before the Meeting and it is the intention of the person named in the proxy
to vote in accordance with their judgment on such matters.
By Order of the Board of Trustees
Bruce E. Ventimiglia
PRESIDENT
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EXHIBIT A
OpCap Advisors is the manager or subadviser to the registered investment
companies listed below. These investment companies have similar investment
objectives to at least one of the Portfolios managed by OpCap Advisors.
<TABLE>
<CAPTION>
APPROXIMATE NET ASSETS
FUND (AS OF 8/4/97) ADVISORY FEE RATE
- ------------------------------ ---------------------- ------------------------------------------------
<S> <C> <C>
Oppenheimer Quest Value Fund, $ 1,003,593,276 1.0% on the first $400 million;
Inc. .90% on the next $400 million;
.85% of net assets in excess of $800 million (1)
Oppenheimer Quest Capital 353,495,645 1.0% on the first $400 million;
Value Fund, Inc. .90% on the next $400 million;
.85% of the net assets in excess of $800
million(2)
Enterprise Accumulation Trust:
Equity Portfolio 458,862,923 .40% on the first $1 billion;
.30% on assets over $1 billion;
and .25% for assets in excess of $2 billion(3)
Enterprise Group of Funds
Equity Portfolio 3,021,498 .40% on the first $100 million;
.30% on assets in excess of $100 million(4)
Penn Series Funds, Inc.:
Value Equity Fund 278,355,410 .50%(5)
Endeavor Series Trust:
Value Equity Portfolio 188,046,428 .40%(6)
OCC Accumulation Trust [23,162,792] .80% on the first $400 million;
Equity Portfolio .75% on the next $400 million;
.70% of net assets in excess of $800 million(7)
</TABLE>
- ------------------------
(1) With respect to this fund, OppenheimerFunds, Inc. ("OFI") is the investment
adviser and OpCap Advisors is the sub-adviser. OFI pays OpCap Advisors
monthly an annual fee based on the average daily net assets of the fund
equal to 40% of the advisory fee collected by OFI based on the total net
assets of the fund as of November 22, 1995 (the "base amount") plus 30% of
the investment advisory fee collected by OFI based on the total net assets
of the fund that exceed the base amount.
(2) OFI is the investment adviser and OpCap Advisors is the sub-adviser. OFI
pays OpCap a sub-advisory fee equal to 40% of the net advisory fee
calculated by OFI for the fund based on the total net assets of the fund as
of February 28, 1997 and remaining 120 days later (the "base amount") plus
30% of the investment advisory fee collected by OFI based on the total net
assets that exceed the base amount.
(3) These fees are for investment advisory services only. Management services
are provided to the portfolios by a third party, not OpCap Advisors. The
manager, who pays the investment advisory fee to OpCap Advisors, receives a
management fee, on an annual basis, of 0.80% of the first $400 million
28
<PAGE>
of the average daily net assets; .75% on the next $400 million and .70% on
assets above $800 million of each of the portfolios.
(4) This fee is for investment advisory services only. Management services are
provided to the portfolio by a party other than OpCap Advisors. The manager,
who pays the investment advisory fee to OpCap Advisors, receives a
management fee of .75% of the average daily net assets of the Portfolio.
(5) These fees are for investment advisory services only. Administrative
services are provided to these funds by a third party, not OpCap Advisors.
The funds are each charged on an annual basis a fee for administrative
services of 0.15% of their respective average daily net assets.
(6) This fee is for investment advisory services only. Management services are
provided to the portfolio by a party other than OpCap Advisors. The manager,
who pays the investment advisory fee to OpCap Advisors, receives a
management fee of .80% of average daily net assets of the portfolios.
(7) OpCap Advisors will waive its management fee and reimburse expenses so that
the total operating expenses (net of any expense offsets) and excluding the
amount of any interest, taxes, brokerage commissions and extraordinary
expenses) do not exceed 1.25% of the Portfolio's average daily net assets.
29
<PAGE>
EXHIBIT B
INVESTMENT ADVISORY AGREEMENT
BETWEEN
SARATOGA CAPITAL MANAGEMENT
AND
REGARDING THE PORTFOLIO
THE SARATOGA ADVANTAGE TRUST AGREEMENT MADE THIS DAY OF , 1997
BETWEEN SARATOGA CAPITAL MANAGEMENT, A DELAWARE GENERAL PARTNERSHIP (THE
"MANAGER") AND , A ORGANIZED UNDER THE LAWS OF THE STATE
OF (THE "ADVISOR").
WHEREAS, the Manager has entered into a Management Agreement (the "Manager's
Agreement") with The Saratoga Advantage Trust (the "Trust"), an open-end
investment company organized in series form with at least seven (7) separate
portfolios, one of which is the (the "Portfolio"), a diversified
portfolio, pursuant to which the Manager furnishes continuous investment advice
and direction; and
WHEREAS, the Manager's Agreement provides that the Manager may, at its own
expense, contract for such advisory and research services as it deems necessary
or desirable to fulfill such obligations; and
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940; and
WHEREAS, the Manager desires to retain the Advisor to provide continuous
investment and direction concerning the Portfolio and the Advisor is willing to
provide such management;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the Manager and the Advisor as follows:
1. APPOINTMENT. The Manager hereby retains the Advisor to manage the
Portfolio, subject to the provisions of the Trust registration statement and the
Portfolio's prospectus and overall supervision by the Manager and the Trust's
Board of Trustees. The Manager will continue to have general responsibility for
all services to be provided to the Trust pursuant to the Manager's Agreement and
will oversee and review the Advisor's performance of its duties under this
Agreement. The day-to-day management of the Portfolio's assets will be the
responsibility of the Advisor.
2. EXPENSES. The Advisor assumes as its own expense, or agrees to pay the
cost of all services provided by it pursuant to Paragraph 1, above, provided
that it will not be responsible for any expenses specifically assumed by the
Trust pursuant to the Manager's Agreement. The Advisor will, for all purposes
herein, be deemed to be an independent contractor and will, except as expressly
provided or authorized (herein or otherwise) have no authority to act for or on
behalf of the Trust in any way or otherwise be deemed to be an agent of the
Trust.
3. INVESTMENT ACTIVITIES. (a) The Advisor will direct the investment of
the Portfolio's assets on a discretionary accordance with applicable law and the
investment objectives, policies and restrictions set forth in the then-current
Prospectus and Statement of Additional Information relating to the Portfolio
30
<PAGE>
contained in its Registration Statement under the Investment Company Act of 1940
and the Securities Act of 1933, as amended; in accordance with the investment
objectives, policies and restrictions from time to time provided by the Board of
Trustees of the Trust (the "Board"), and communicated by the Manager to the
Advisor and; subject to such further reasonable limitations as the Manager may
from time to time impose by written notice to the Advisor. The Advisor hereby
acknowledges that it has carefully reviewed the Prospectus, Statement of
Additional Information, Declaration of Trust and By-laws, if any, of the Trust
and it agrees that it will make investments solely for the purpose of achieving
the stated investment objectives of the Portfolio.
(b) The Advisor hereby specifically acknowledges and represents:
(i) The Advisor has provided the Manager with full information
regarding the historical track record of investment performance.
(ii) The Advisor has carefully reviewed the portions of the
Prospectus and Statement of Additional Information stating the Advisor's
historical track record of investment performance and investment
methodology and that all representations made therein are accurate and
true and there are no material omissions.
(iii) The Advisor will direct the investment of the Portfolio's
assets in the same manner in which the Advisor has directed the
investment of the assets which produced the historical track record of
investment performance as stated in the Prospectus and Statement of
Additional Information. The Advisor represents that nothing contained in
Paragraph 3(a) or elsewhere in this Agreement, the Prospectus, or the
Statement of Additional Information is inconsistent with the Advisor
directing the investment of the Portfolio's assets in said manner.
(c) The Advisor will place orders to purchase and sell securities (and
where appropriate commodity futures contracts and other investments) for the
Portfolio.
4. BROKERAGE. (a) The Advisor agrees that it will place orders pursuant to
its investment determinations for the Portfolio either directly with the issuer
or with brokers or dealers by it in accordance with the standards specified in
Subparagraphs 4(b) and 4(c) below. The Advisor may place orders for the
Portfolio with affiliates or interested parties of the Trust or the Manager in
accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder, Section 17(e) of the Investment Company Act of 1940 and
Rule 17e-1 thereunder and other applicable laws and regulations.
(b) In placing orders with brokers and dealers, the Advisor will use its
best efforts to best overall terms available. In assessing the best overall
terms available for portfolio transaction, the Advisor will consider all factors
it deems relevant including, but not limited to, the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of any commission for
the specific transaction and on a continuing basis.
(c) In selecting brokers or dealers to execute a particular transaction and
in evaluating the best overall terms available, the Advisor may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) provided to the Trust.
5. COMPENSATION. (a) As compensation for services performed and costs
assumed hereunder, the Manager agrees to pay the Advisor a fee that is computed
daily and paid monthly at the annual rate of basis points per annum on net
assets (the "Portfolio Advisory Fee"), reduced in the same percentage as the
Manager when the Manager reduces its fee to the Portfolio.
31
<PAGE>
(b) The Portfolio Advisory Fee shall accrue as of the date that the
Portfolio commences investment operations. Upon any termination of this
Agreement the Advisory Fee will cease to accrue as of the termination date
specified in the notice of termination to the Advisor. Accrued Portfolio
Advisory Fees will be paid to the upon receipt by the Manager of its fees for
the same accrual period from the Portfolio.
(c) For the purpose of determining fees payable to the Advisor, the value of
the Trust's net assets shall be computed at the times and in the manner
specified in the Trust's Prospectus and/or the Statement of Additional
Information.
6. DURATION AND TERMINATION. (a) This Agreement will become effective as
of the date hereof and, unless sooner terminated as herein provided, shall
remain in effect for two years from said date. Thereafter, this Agreement will
continue in effect from year to year, subject to its termination provisions and
all other terms and conditions hereof if such continuation shall be specifically
approved at least annually by the Board and by the vote of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party or by vote of a majority of the outstanding voting
securities of the Trust. The Advisor shall furnish to the Manager or the Board,
promptly upon request, such information as may reasonably be necessary to
evaluate the terms of this Agreement or any extension, renewal or amendment
hereof.
(b) This Agreement may not be amended, transferred, sold or in any manner
hypothecated or pledged by the Advisor without the affirmative vote of a
majority of the outstanding voting securities of the Trust. The Manager may
immediately terminate this Agreement without notice to any party in the event of
its assignment by the Advisor.
(c) This Agreement may be terminated at any time, without the payment of any
penalty, by the Manager, by the Board or by vote of a majority of the
outstanding voting securities of the Trust, upon written notice to the Advisor.
This Agreement may be terminated by the Advisor upon 100 days written notice to
the Manager and the Trust.
7. INFORMATION TO BE PROVIDED TO THE MANAGER AND THE TRUST. (a) The
Advisor will keep the Manager and the Trust immediately informed of all
developments materially affecting the Portfolio, the Advisor's ability to direct
the investment of the Portfolio and/or the perception of the Advisor as an
appropriate source of investment advice and shall, on the Advisor's own
initiative, furnish immediately to the Manager and the Trust such information as
is appropriate for this purpose.
The information deemed appropriate for the purpose of this Subparagraph
includes, but is not limited to, any matters with regard to: the personnel of
the Advisor, the investment or discipline of the Advisor, the financial
condition of the Advisor, the historical investment performance of the Advisor,
changes or amendments to any federal, state, or local registration statements or
other licensing documents, the securities of the Portfolio and all matters
reasonably related to the Manager's retention of the Advisor.
(b) The Advisor agrees that it will immediately notify the Manager and the
Trust in the event that the Advisor or any of its affiliates: (i) becomes
subject to a statutory disqualification that prevents the Advisor from serving
as investment advisor pursuant to this Agreement; or (ii) is or expects to
become the subject of an administrative proceeding or enforcement action by the
SEC or other regulatory authority. The Advisor has provided the information
about itself set forth in the Trust's Registration Statement and has reviewed
the entire description of its operations, duties and responsibilities as stated
therein and acknowledges that they are true and correct and contain no material
misstatement or omission, and it further agrees to notify the Manager and the
Trust's Administrator immediately of any material fact known to the
32
<PAGE>
Advisor respecting the Advisor that is not contained in the Prospectus or
Statement of Additional Information of the Trust, or any amendment or supplement
thereto, or any statement contained therein that becomes untrue in any material
respect.
(c) The Advisor represents that it is an investment adviser registered under
the Investment Advisers Act of 1940 and other applicable laws and that the
statements contained in the Advisor's registration under the Investment Advisers
Act of 1940 on Form ADV, as of the date hereof, are true and correct and do not
omit any material facts required to be stated therein or necessary in order to
make the statements therein not misleading. The Advisor agrees to maintain the
completeness and accuracy of its registration on Form ADV in accordance with all
legal requirements relating to that Form and to timely provide the Manager with
an amended or changed copy whenever such is required to be filed. The Advisor
acknowledges that it is an "investment advisor" to the portfolio within the
meaning of the Investment Company Act of 1940 and the Investment Advisers Act of
1940.
(d) The Advisor will make available promptly upon the Manager's request such
reports as the Manager may reasonably use in discharging its duties under the
Manager's Agreement, which reports may be distributed by the Manager to the
Board. A representative of the Advisor will attend, at the request of the
Manager, regular quarterly meetings of the Board, meetings of the Trust's
shareholders and special meetings upon reasonable notice.
(e) The Advisor will maintain and keep current and preserve on behalf of the
Trust all records required by the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
as well as those that may be required by the Investment Advisors Act of 1940,
the Internal Revenue Code, applicable and state securities laws and laws of
foreign countries and juridical subdivisions, in the manner provided by such
laws or regulations and such additional records as required by the Manager. The
Advisor acknowledges that such records are the property of the Trust and will be
surrendered to the Trust promptly upon request. The Manager agrees to furnish to
the Advisor at its principal office all prospectuses, proxy statements, reports
to stockholders, sales reports and any other information relative to management
of the assets or organization and qualifications of the Trust.
8. SERVICES TO OTHER COMPANIES OR ACCOUNTS. (a) It is understood that the
services of the Advisor are not exclusive, and nothing in this Agreement shall
prevent the Advisor from providing investment management or similar services or
from engaging in other activities, except as provided in Subparagraphs 8(b),
8(c), and 8(d) below.
(b) The Advisor agrees that, during the term of this Agreement, neither it
nor any of its affiliated persons (as defined in the Investment Company Act of
1940) shall accept retention as an investment advisor, investment subadvisor,
investment manager, or similar service provider to any investment company
registered under the Investment Company Act of 1940 nor any investment firm that
seeks to market an asset allocation program similar in nature to the Trust.
(c) In the event that the Advisor voluntarily terminates this Agreement, the
Advisor agrees that neither it nor any of its affiliated persons (as defined in
the Investment Company Act of 1940) shall for a period of one (1) year after the
termination of this Agreement accept or solicit any assets, accounts, or clients
of the Trust for any purpose whatsoever.
(d) In the event that the Advisor is terminated by the Manager, the Advisor
agrees neither it nor any of its affiliated persons (as defined in the
Investment Company Act of 1940) shall accept or solicit any
33
<PAGE>
assets, accounts, or clients of the Trust for any purpose whatsoever for a
period of one (1) year from the termination of this Agreement.
(e) The provisions set forth in Subparagraphs 8(a), 8(b), 8(c), and 8(d)
above shall not apply to the continuation of any contractual relationship to
which the Advisor is a party that is in effect on the date of this Agreement and
that is disclosed in writing to the Manager prior to the execution of this
Agreement.
(f) When the Advisor recommends the purchase or sale of a security for other
investment companies and other clients, and at the same time the Advisor
recommends the purchase or sale of the same security for the Trust, it is
understood that in light of its fiduciary duty to the Trust, such transactions
will be executed on a basis that is fair and equitable to the Trust.
9. MISCELLANEOUS. (a) The Advisor shall not be liable for any investment
loss suffered by the Portfolio in connection with matters to which this
Agreement relates, except in the case of the Advisor's negligence, actual
misconduct or violation of any applicable statute; provided, however, that this
limitation shall not act to relieve the Advisor from any responsibility, or duty
which the Advisor may have under any federal or state securities acts or other
applicable statutes.
(b) Any questions of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act shall be resolved by reference to such term or
provision of the Investment Company Act, to rules, regulations or the Securities
and Exchange Commission validly issued pursuant to said Act and interpretations
thereof, if any, by the United States courts. Specifically, the terms "vote of a
majority of the outstanding voting securities", "interested persons",
"assignment", and "affiliated person", as used herein, shall have the meanings
assigned to them by Section 2(a) of the Investment Company Act. In addition,
where the effect of a requirement of Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities and
Exchange Commission, whether of special or of general application, such
provisions shall be deemed to incorporate the effect of such rule, regulation or
order.
(c) The Manager shall indemnify and hold harmless the Advisor, its officers
and directors and each person, if any, who controls the Advisor within the
meaning of Section 15 of the Securities Act of 1933 (any and all such persons
shall be referred to as "Indemnified Party"), against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or and reasonable counsel
fees incurred in connection therewith), arising by reason of any matter to which
this Agreement relates. However, in no case (i) is this indemnity to be deemed
to protect any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of misfeasance, bad faith
or negligence in the performance of its duties or by reason of disregard of its
obligations and duties under this Agreement; nor (ii) is the Manager to be
liable under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have notified
the Manager in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Advisor or such controlling persons.
The Advisor shall indemnify and hold harmless the Manager and the Trust and
each of their directors and officers and each person, if any, who controls the
Manager and the Trust against any loss, liability, claim, damage or expense
described in the foregoing indemnify but only with respect to the Advisor's
misfeasance, bad faith or negligence in the performance of its duties under this
Agreement. In case any action shall be brought against the Manager or any person
so indemnified, in respect of which indemnity
34
<PAGE>
may be sought against the Advisor, the Advisor shall have the rights and duties
given to the Advisor by the provisions of Subsections (i) and (ii) of this
Subparagraph.
(d) Except as otherwise provided in Subparagraph 9(b) hereof, and as may be
required under applied federal law, this Agreement shall be governed by the laws
of the State of New York.
(e) The Advisor acknowledges that the name of the Trust may be changed at
any time at the sole discretion of the Trustees and that such change will in no
way effect the obligations of the Advisor under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals, if any, to be hereunto affixed, as of the day and
year first written.
<TABLE>
<S> <C>
SARATOGA CAPITAL MANAGEMENT
Attest: By:
----------------------------------------
Attest: By:
----------------------------------------
</TABLE>
35
<PAGE>
YOUR VOTE IS IMPORTANT
PLEASE RETURN YOUR PROXY CARD PROMPTLY
OR CALL 800-769-6414 TO VOTE BY TELEPHONE
Shareholders who do not expect to attend the Meeting are requested to call
800-769-6414 to vote by telephone or indicate voting instructions on the proxy
card for each of the Portfolios of the Trust in which they own shares and to
date, sign and return it in the envelope provided, which needs no postage if
mailed in the United States. We ask for your cooperation in mailing your proxy
card no matter how large or small your holdings may be.
PLEASE RESPOND -- YOUR VOTE IS IMPORTANT
<PAGE>
THE SARATOGA ADVANTAGE TRUST
----------------
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 31, 1997
The undersigned shareholder of ____________________________ (the
"Portfolio") a portfolio of The Saratoga Advantage Trust (the "Trust"), does
hereby appoint BRUCE E. VENTIMIGLIA, as attorney-in-fact and proxy of the
undersigned, with the full power of substitution, to attend the Special Meeting
of Shareholders of the Portfolio to be held on October 31, 1997, at 1501
Franklin Avenue, 1st Floor, Garden City, New York, at 10:00 a.m., and at all
adjournments thereof and to vote the shares held in the name of the undersigned
on the record date for said meeting for the Proposals specified on the reverse
side hereof. Said attorney-in-fact shall vote in accordance with his best
judgment as to any other matter.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES. THE BOARD OF TRUSTEES
UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSALS LISTED ON THE REVERSE SIDE
HEREOF. THE SHARES PRESENTED HEREBY WILL BE VOTED AS INDICATED ON THE REVERSE
SIDE OR FOR IF NO CHOICE IS INDICATED.
Please call 1-800-769-6414 toll-free to vote by telephone or mark your
proxy, date and sign it on the reverse side and return it promptly in the
accompanying envelope, which requires no postage if mailed in the United States.
<PAGE>
Please mark boxes /O/ or /X/ in blue or black ink.
The Proposals:
I.A. Approval of the new investment advisory agreement on behalf of the
Saratoga Large Capitalization Value Portfolio between Saratoga Capital
Management and OpCap Advisors (to be voted on by shareholders of the
Saratoga Large Capitalization Value Portfolio only).
FOR / / AGAINST / / ABSTAIN / /
I.B. Approval of the new investment advisory agreement on behalf of the
Saratoga Municipal Bond Portfolio between Saratoga Capital Management
and OpCap Advisors (to be voted on by shareholders of the Saratoga
Municipal Bond Portfolio only).
II. Approval of the new investment advisory agreement between Saratoga
Capital Management and Harris Bretall Sullivan & Smith, L.L.C.
FOR / / AGAINST / / ABSTAIN / /
III. Approval of proposal to permit Saratoga Capital Management, in the
future, to select and contract with investment advisers for each
portfolio of the Trust (the "Portfolios") after obtaining the
approval of the Board of Trustees, but without obtaining shareholder
approval.
FOR / / AGAINST / / ABSTAIN / /
IV. Approval of the proposed changes to the Portfolios' investment
restrictions. To vote against the proposed changes to one or more of
the specific fundamental investment restrictions but to approve the
others, fill in the box below and indicate the number(s) and letter(s)
(as set forth in the proxy statement) of the investment restrictions
you do not want to change on this line: _____________________________.
FOR / / AGAINST / / ABSTAIN / /
<PAGE>
Dated: ___________________, 1997
(Month) (Day)
___________________________
Signature(s)
___________________________
Signature(s)
Please read both sides of this
ballot.
NOTE: PLEASE SIGN EXACTLY AS
YOUR NAME(S) APPEAR HEREON. When
signing as custodian, attorney,
executor, administrator,
trustee, etc., please give your
full title as such. All joint
owners should sign this proxy.
If the account is registered in
the name of a corporation,
partnership or other entity, a
duly authorized individual must
sign on its behalf and give his
or her title.
