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SIGNATURE TANYA LODEN
TITLE CONTROLLER
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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[DESCRIPTION] Price Waterhouse LLP
<PAGE> 1
[LOGO]
[PRICE WATERHOUSE LLP LETTERHEAD]
January 31, 1995
To the Board of Directors of
American Capital Comstock Fund, Inc.
In planning and performing our audit of the financial statements of the
American Capital Comstock Fund, Inc. (the Fund) for the year ended December 31,
1994, we considered its internal control structure, including procedures for
safeguarding securities, in order to determine our auditing procedures for the
purposes of expressing our opinion on the financial statements and to comply
with the requirements of Form N-SAR, and not to provide assurance on the
internal control structure.
The management of the Fund is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and
related costs of internal control structure policies and procedures. Two of the
objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are appropriately
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it
may become inadequate because of changes in conditions or that the degree of
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions.
<PAGE> 2
[LOGO]
January 31, 1995
Page 2
However, we noted no matters involving the internal control structure,
including procedures for safeguarding securities, that we consider to be
material weaknesses as defined above as of December 31, 1994.
This report is intended solely for the information and use of management and
the Securities and Exchange Commission.
/s/ PRICE WATERHOUSE LLP
<PAGE> 3
[LOGO]
[PRICE WATERHOUSE LLP LETTERHEAD]
January 31, 1995
To the Board of Directors and Management of the
American Capital Comstock Fund, Inc.
We have examined the accompanying description of the specific control
objectives and the control procedures that achieve those objectives of the
American Capital Comstock Fund, Inc. (the Fund) relating to that segment of its
system for allocating the results of operations of the Fund to separate classes
of shares and calculating the respective net asset values and dividends and
distributions (the Multiple Class System) as of December 31, 1994. Our
examination included procedures to obtain reasonable assurance about whether
(1) the accompanying description presents fairly, in all material respects, the
aspects of the Fund's policies and procedures that may be relevant to
understanding the internal control structure relating to the Multiple Class
System and review, (2) the control structure policies and procedures included
in the description were suitably designed to achieve the control objectives
specified in the description, if those policies and procedures were complied
with satisfactorily, and (3) such policies and procedures had been placed in
operation as of December 31, 1994. The control objectives were specified by
management of the Fund. Our examination was performed in accordance with
standards established by the American Institute of Certified Public Accountants
and included those procedures we considered necessary in the circumstances to
obtain a reasonable basis for rendering our opinion.
In our opinion, the accompanying description of the Multiple Class System
presents fairly, in all material respects, the relevant aspects of the Fund's
policies and procedures that had been placed in operation as of December 31,
1994. Also, in our opinion, the policies and procedures, as described, are
suitably designed to provide reasonable assurance that the specified control
objectives would be achieved if the described policies and procedures were
complied with satisfactorily.
In addition to the procedures we considered necessary to render our opinion as
expressed in the previous paragraph, we applied tests to specific policies and
procedures in the Multiple Class System as listed in the Appendix (Price
Waterhouse LLP Tests of Operating Effectiveness) to obtain evidence about the
effectiveness of such policies and procedures in meeting the control objectives
during the year ended December 31, 1994. The specific policies and procedures
and the nature, timing, extent, and results of the tests are listed in the
Appendix of this report. In our
<PAGE> 4
[LOGO]
January 31, 1995
Page 2
opinion, the policies and procedures that were tested were operating with
sufficient effectiveness to provide reasonable, but not absolute, assurance that
the control objectives specified were achieved during the period indicated.
The description of specific policies and procedures of the Fund's Multiple
Class System is as of December 31, 1994, and information about tests of the
operating effectiveness of specified policies and procedures covered the period
from January 1, 1994 to December 31, 1994. Any projection of such information
to the future is subject to the risk that, because of change, the description
may no longer portray the system in existence. The potential effectiveness of
specific policies and procedures from the Fund's system under review is subject
to inherent limitations and, accordingly, errors or irregularities may occur
and not be detected. Furthermore, the projection of any conclusions, based on
our findings, to future periods is subject to the risk that changes may alter
the validity of such conclusions.
This report is intended solely for use by the Directors and management of the
Fund and the Securities and Exchange Commission and should not be used for any
other purpose.
/s/ PRICE WATERHOUSE LLP
[DESCRIPTION] American Capital Comstock By-Laws
<PAGE> 1
AMERICAN CAPITAL COMSTOCK FUND, INC.
BY-LAWS
(As amended December 1, 1994)
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. So long as the Corporation is
registered as an investment company under the Investment Company Act of 1940,
the Corporation shall not be required to hold an annual meeting in any year in
which the election of directors is not required to be acted upon under the
Investment Company Act of 1940. In the event that the Corporation is required
to hold an annual meeting of its stockholders by the Investment Company Act of
1940, such meeting shall be held: (a) at a date and time set by the Board of
Directors in accordance with the Investment Company Act of 1940 ("40 Act") if
the purpose of the meeting is to elect Directors or to approve an investment
advisory agreement or distribution agreement; and (b) on a date fixed by the
Board of Directors (i) in the fiscal year immediately following the fiscal year
in which independent accountants were appointed if the purpose of the meeting
is to ratify the selection of such independent accountants or (ii) in any
fiscal year if an annual meeting is to be held for any reason other than as
specified in the foregoing. Any stockholders' meeting held in accordance with
the preceding sentence shall for all purposes constitute the annual meeting of
stockholders for the fiscal year of the Corporation in which the meeting is
held. At any such meeting, the stockholders shall elect Directors to hold the
offices of any Directors who have held office for more than one year or who
have been elected by the Board of Directors to fill vacancies which result from
any cause. Except as the Charter or statute provides otherwise, any business
may be considered at an annual meeting without the purpose of the meeting
having been specified in the notice. Failure to hold an annual meeting does
not invalidate the Corporation's existence or affect any otherwise valid
corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval
between stockholders' meetings, a special meeting of the stockholders may be
called by the Chairman of the Board or the President or by a majority of the
Board of Directors by vote at a meeting or in writing (addressed to the
Secretary of the Corporation) with or without a meeting. Special meetings of
stockholders shall also be called by the Secretary upon the written request of
the holders of not less than ten percent (10%) of all the shares entitled to
vote at such meeting. Such request shall state the purpose or purposes of such
meeting and the matters proposed to be acted
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on thereat. No special meeting need be called upon the request of the holders
of less than a majority of all the shares entitled to vote at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of stockholders held during the preceding twelve months.
SECTION 1.03. Place of Meetings. Meetings of stockholders
shall be held at such place in the United States as is set from time to time by
the Board of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less
than ten nor more than 90 days before each stockholders' meeting, the Secretary
shall give written notice of the meeting to each stockholder entitled to vote
at the meeting and each other stockholder entitled to notice of the meeting.
The notice shall state the time and place of the meeting and, if the meeting is
a special meeting or notice of the purpose is required by statute, the purpose
of the meeting. Notice is given to a stockholder when it is personally
delivered to him, left at his residence or usual place of business, or mailed
to him at his address as it appears on the records of the Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to notice
waiver notice if he before or after the meeting signs a waiver of the notice
which is filed with the records of stockholders' meetings, or is present at the
meeting in person or by proxy.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter
provides otherwise, at a meeting of stockholders the presence in person or by
proxy of stockholders entitled to cast a majority of all the votes entitled to
be cast at the meeting constitutes a quorum, and a majority of all the votes
cast at a meeting at which a quorum is present is sufficient to approve any
matter which properly comes before the meeting, except that a plurality of all
the votes cast at a meeting at which a quorum is present is sufficient to elect
a director.
SECTION 1.06. Adjournments. Whether or not a quorum is
present, a meeting of stockholders convened on the date for which it was called
may be adjourned from time to time by the stockholders present in person or by
proxy by a majority vote.
Any business which might have been transacted at the meeting
as originally notified may be deferred and transacted at any such adjourned
meeting at which a quorum shall be present. No further notice of an adjourned
meeting other than by announcement shall be necessary if held on a date not
more than 120 days after the original record date.
SECTION 1.07. General Right to Vote; Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be voted
for as many individuals as there are directors to be elected and for whose
election the share is entitled to be voted. At all elections of directors of
the corporation each stockholder having voting power shall be entitled to
exercise the right of cumulative voting as provided in the Charter. A
stockholder may vote the stock the stockholder owns of record either in person
or by proxy. A stockholder may sign a writing authorizing another person to
act as proxy. Signing
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may be accomplished by the stockholder or the stockholder's authorized agent
signing the writing or causing the stockholder's signature to be affixed to the
writing by any reasonable means, including facsimile signature. A stockholder
may authorize another person to act as proxy by transmitting, or authorizing
the transmission of, a telegram, cablegram, datagram, or other means of
electronic transmission to the person authorized to act as proxy or to a proxy
solicitation firm, proxy support service organization, or other person
authorized by the person who will act as proxy to receive the transmission.
Unless a proxy provides otherwise, it is not valid more than 11 months after
its date. A proxy is revocable by a stockholder at any time without condition
or qualification unless the proxy states that it is irrevocable and the proxy
is coupled with an interest. A proxy may be irrevocable for so long as it is
coupled with an interest. The interest with which a proxy may be coupled
includes an interest in the stock to be voted under the proxy or another
general interest in the Corporation or its assets or liabilities.
SECTION 1.08. List of Stockholders. At each meeting of
stockholders, a full, true and complete list of all stockholders entitled to
vote at such meeting, showing the number and class of shares held by each and
certified by the transfer agent for such class or by the Secretary, shall be
furnished by the Secretary.
SECTION 1.09. Conduct of Voting. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided, by the chairman of the meeting. If demanded by stockholders,
present in person or by proxy, entitled to cast 10% in number of votes entitled
to be cast, or if ordered by the chairman, the vote upon any election or
question shall be taken by ballot, and upon like demand or order, the voting
shall be conducted by two inspectors, in which event the proxies and ballots
shall be received, and all questions touching the qualification of voters and
the validity of proxies and the acceptance or rejection of votes shall be
decided, by such inspectors. Unless so demanded or ordered, no vote need be by
ballot and voting need not be conducted by inspectors. The stockholders at any
meeting may choose an inspector or inspectors to act at such meeting, and in
default of such election the chairman of the meeting may appoint an inspector
or inspectors. No candidate for election as a director at a meeting shall
serve as an inspector thereat.
SECTION 1.10. Informal Action by Stockholders. Any action
required or permitted to be taken at a meeting of stockholders may be taken
without a meeting if there is filed with the records of stockholders' meetings
a unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
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ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and
affairs of the Corporation shall be managed under the direction of its Board of
Directors. All powers of the Corporation may be exercised by or under
authority of the Board of Directors, except as conferred on or reserved to the
stockholders by statute or by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The business and property
of the Corporation shall be conducted and managed by a Board of Directors
consisting of not less than five (5) nor more than seventeen (17) Directors,
which number may be increased or decreased as herein provided. By vote of a
majority of the entire Board of Directors, the number of Directors fixed by
these By-Laws may be increased or decreased from time to time, but the tenure
of office of a Director shall not be affected by any decrease in the number of
Directors to hold office until the next annual meeting and until their
successors are elected and qualify. Directors need not be stockholders.
SECTION 2.03. Election and Tenure of Directors. At each
annual meeting, the stockholders shall elect directors to hold office until the
next annual meeting and until their successors are elected and qualify;
provided, however, that through June 30, 1995 the term of office of each
director shall end at the time such director reaches the age of 76 1/2 or 73
1/2 for persons first elected on or after January 1, 1986 as a director of any
open end investment company managed by American Capital Asset Management, Inc.
and that on and after July 1, 1995 the term of office of each director shall
end at the time such director reaches the age of 76 1/2 or 72 1/2 for persons
first elected on or after January 1, 1986 as a director of any open end
investment company managed by American Capital Asset Management, Inc.
SECTION 2.04. Removal of Director. Unless statute or the
Charter provides otherwise, the stockholders may remove any director, with or
without cause, by the affirmative vote of a majority of the outstanding voting
securities as defined in Section 2(a)(42) of the 40 Act. Such action may be
taken at a special meeting of stockholders called for such purpose upon the
request of the holders of not less than 10% of the shares entitled to vote
pursuant to Section 1.02 hereof.
Whenever ten or more stockholders of record who have been such
for at least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at
least 1 per centum of the outstanding shares, whichever is less, shall apply to
the Board of Directors in writing, stating that they wish to communicate with
other stockholders with a view to obtaining signatures to a request for a
special meeting to remove any director and accompanied by a form of
communication and request which they wish to transmit, the Board shall within
five business days after receipt of such application either:
(a) afford to such applicants access to a list of the names and addresses of
all
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stockholders as recorded on the books of the Corporation; or
(b) inform such applicants as to the approximate number of
stockholders of record, and the approximate cost of mailing to them the
proposed communication and form of request.
If the Board elects to follow the course specified in
paragraph (b), the Board, upon the written request of such applicants,
accompanied by a tender of the material to be mailed and of the reasonable
expenses of mailing, shall, with reasonable promptness, mail such material to
all stockholders of record at their addresses as recorded on the books, unless
within five business days after such tender the Board shall mail to such
applicants and file with the Securities and Exchange Commission (the
"Commission") together with a copy of the material to be mailed, a written
statement signed by at least a majority of the directors to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
If the Commission shall enter an order refusing to sustain any
of such objections, or if, after the entry of an order sustaining one or more
of such objections, the Commission shall find, after notice and opportunity for
hearing, that all objections so sustained have been met, and shall enter an
order so declaring, the Board shall mail copies of such material to all
stockholders with reasonable promptness after the entry of such order and the
renewal of such tender.
SECTION 2.05. Vacancy on Board. The stockholders may elect a
successor to fill a vacancy on the Board of Directors which results from the
removal of a director. A director elected by the stockholders to fill a
vacancy which results from the removal of a director serves for the balance of
the term of the removed director. A majority of the remaining directors,
whether or not sufficient to constitute a quorum, may fill a vacancy on the
Board of Directors which results from any cause except an increase in the
number of directors and a majority of the entire Board of Directors may fill a
vacancy which results from an increase in the number of directors. A director
elected by the Board of Directors to fill a vacancy serves until the next
annual meeting of stockholders and until his successor is elected and
qualifies. The Board of Directors may not fill more than two directorships
resulting from an increase in the number of directors during the period between
any two successive annual meetings of stockholders.
SECTION 2.06. Regular Meetings. Any regular meeting of the
Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of the
Board of Directors may be called at any time by the Chairman of the Board or
the President or by a majority of the Board of Directors by vote at a meeting,
or in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place as may be designated from
time to time by the Board of Directors. In the absence of designation such
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meeting shall be held at such place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in
Section 2.06, the Secretary shall give notice to each director of each regular
and special meeting of the Board of Directors. The notice shall state the time
and place of the meeting. Notice is given to a director when it is delivered
personally to him, left at his residence or usual place of business, or sent by
telegraph or telephone, at least 24 hours before the time of the meeting or, in
the alternative, by mail to his address as it shall appear on the records of
the Corporation, at least 72 hours before the time of the meeting. Unless the
By-Laws or a resolution of the Board of Directors provides otherwise, the
notice need not state the business to be transacted at or the purposes of any
regular or special meeting of the Board of Directors. No notice of any meeting
of the Board of Directors need be given to any director who attends (except
where a director attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
convened), or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Any meeting of the Board of Directors, regular or special, may adjourn
from time to time to reconvene at the same or some other place, and no notice
need be given of any such adjourned meeting other than by announcement.
SECTION 2.09. Action by Directors. Unless statute or the
Charter or By-Laws requires a greater proportion, the action of a majority of
the directors present at a meeting at which a quorum is present is action of
the Board of Directors. A majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. In the absence of a
quorum, the directors present by majority vote and without notice other than by
announcement may adjourn the meeting from time to time until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified. Any action required or permitted to be taken at a meeting
of the Board of Directors may be taken without a meeting, if a unanimous
written consent which sets forth the action is signed by each member of the
Board and filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of
the Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting
by these means constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of
Directors a fixed sum and expenses, if any, for attendance at each regular or
special meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
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ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint
from among its members an Executive Committee and other committees composed of
two or more directors and delegate to these committees any of the powers of the
Board of Directors, except the power to declare dividends or other
distributions on stock, elect directors, issue stock other than as provided in
the next sentence, recommend to the stockholders any action which requires
stockholder approval, amend the Articles of Incorporation or By-Laws, approve
any merger or share exchange which does not require stockholder approval, elect
or remove officers or members of any such committee, fix the compensation or
any member of such committee, or any other power prohibited by law. If the
Board of Directors has given general authorization for the issuance of stock, a
committee of the Board, in accordance with a general formula or method
specified by the Board by resolution or by adoption of a stock option or other
plan, may fix the terms of stock subject to classification or reclassification
and the terms on which any stock may be issued, including all terms and
conditions required or permitted to be established or authorized by the Board
of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix
rules of procedure for its business. A majority of the members of a committee
shall constitute a quorum for the transaction of business and the act of a
majority of those present at a meeting at which a quorum is present shall be
the act of the committee. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member. Any action required or permitted to be taken at a
meeting of a committee may be taken without a meeting, if a unanimous written
consent which sets forth the action is signed by each member of the committee
and filed with minutes of the committee. The members of a committee may
conduct any meeting thereof by conference telephone in accordance with the
provisions of Section 2.10.
SECTION 3.03. Emergency. In the event of a state of disaster
of sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by
the Charter and the By-Laws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the aforegoing provisions of this Section. This Section
shall be subject to implementation by resolution of the Board of Directors
passed from time to time for that purpose, and any provisions of the By-Laws
(other than this Section) and any resolutions which are contrary to the
provisions of this Section or to the provisions of any such implementary
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resolutions shall be suspended until it shall be determined by any interim
Executive Committee acting under this Section that it shall be to the advantage
of the Corporation to resume the conduct and management of its affairs and
business under all the other provisions of the By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive and Other Officers. The Corporation
shall have a President, a Secretary, and a Treasurer who shall be the executive
officers of the Corporation. The Board of Directors may designate an officer
to serve as Chief Executive Officer, having general supervision of the business
and affairs of the Corporation, or as Chief Operating Officer, having
supervision of the operations of the Corporation; in the absence of designation
the President shall serve as Chief Executive Officer and Chief Operating
Officer. The Corporation may also have one or more Vice Presidents, assistant
officers, and subordinate officers as may be established by the Board of
Directors. A person may hold more than one office in the Corporation but may
not serve concurrently as both President and Vice President or as President and
Secretary of the Corporation. Officers may also be directors.
SECTION 4.02. Chairman of the Board. The Chairman of the
Board, if one be elected, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present; and, in
general, he shall perform all such duties as are from time to time assigned to
him by the Board of Directors. The Chairman of the Board shall be a director.
The Chairman of the Board, if one be elected, shall not be an officer of the
corporation unless expressly designated as an officer by the Board of
Directors; the Chairman shall be an executive officer if also expressly
designated as the Chief Executive Officer of the Corporation.
SECTION 4.03. President. The President, in the absence of
the Chairman of the Board, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present; he may sign and
execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation; and, in general, he shall perform all duties usually
performed by a president of a corporation and such other duties as are from
time to time assigned to him by the Board of Directors or the Chief Executive
Officer of the Corporation.
SECTION 4.04. Vice Presidents. The Vice President or Vice
Presidents, at the request of the Chief Executive Officer or the President, or
in the President's absence or during his inability to act, shall perform the
duties and exercise the functions of the President, and when so acting shall
have the powers of the President. If there be more than one Vice President,
the Board of Directors may determine which one or more of the Vice Presidents
shall perform any of such duties or exercise any of such functions, of if such
determination is not made by the Board of Directors, the Chief Executive
Officer, or the President may make such determination;
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otherwise any of the Vice Presidents may perform any of such duties or exercise
any of such functions. The Vice President or Vice Presidents shall have such
other powers and perform such other duties, and have such additional
descriptive designations in their titles (if any), as are from time to time
assigned to them by the Board of Directors, the Chief Executive Officer, or the
President.
SECTION 4.05. Secretary. The Secretary shall keep the
minutes of the meetings of the stockholders, of the Board of Directors and of
any committees (unless a committee has elected a different person as
secretary), in books provided for the purpose; he shall see that all notices
are duly given in accordance with the provisions of the By-Laws or as required
by law; he shall be custodian of the records of the Corporation; he may witness
any document on behalf of the Corporation, the execution of which is duly
authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and when so affixed, may attest the
same; and, in general, he shall perform all duties incident to the office of a
secretary of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the Chief Executive Officer, or the
President.
SECTION 4.06. Treasurer. The Treasurer shall have charge of
and be responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by the
Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of a treasurer of a corporation, and such other duties as are from time
to time assigned to him by the Board of Directors, the Chief Executive Officer,
or the President.
SECTION 4.07. Assistant and Subordinate Officers. The
assistant and subordinate officers of the Corporation are all officers below
the office of Vice President, Secretary, or Treasurer. The assistant or
subordinate officers shall have such duties as are from time to time assigned
to them by the Board of Directors, the Chief Executive Officer, or the
President.
SECTION 4.08. Election, Tenure and Removal of Officers. The
Board of Directors shall elect the officers. The Board of Directors may from
time to time authorize any committee or officer to appoint assistant and
subordinate officers. The President serves for one year. All other officers
shall be appointed to hold their offices, respectively, during the pleasure of
the Board. The Board of Directors (or, as to any assistant or subordinate
officer, any committee or officer authorized by the Board) may remove an
officer at any time. The removal of an officer does not prejudice any of his
contract rights. The Board of Directors (or, as to any assistant or
subordinate officer, any committee or officer authorized by the Board) may fill
a vacancy which occurs in any office for the unexpired portion of the term.
SECTION 4.09. Compensation. The Board of Directors shall
have power to fix the salaries and other compensation and remuneration, of
whatever kind, of all officers of the Corporation. It may authorize any
committee or officer, upon whom the power of appointing
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assistant and subordinate officers may have been conferred, to fix the
salaries, compensation and remuneration of such assistant and subordinate
officers.
ARTICLE V.
STOCK
SECTION 5.01. Certificates for Stock. Upon written request
therefor in accordance with such procedures as may be established by the Board
of Directors from time to time, each stockholder is entitled to certificates
which represent and certify the shares of stock he holds in the Corporation.
Each stock certificate shall include on its face the name of the corporation
that issues it, the name of the stockholder or other person to whom it is
issued, and the class of stock and number of shares it represents. It shall be
in such form, not inconsistent with law or with the Charter, as shall be
approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a Vice
President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is
valid and may be issued whether or not an officer who signed it is still an
officer when it is issued.
SECTION 5.02. Transfers. The Board of Directors shall have
power and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of transfer
agent and registrar may be combined.
SECTION 5.03. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date or direct that the stock transfer
books be closed for a stated period for the purpose of making any proper
determination with respect to stockholders, including which stockholders are
entitled to notice of a meeting, vote at a meeting, receive a dividend, or be
allotted other rights. The record date may not be more than 90 days before the
date on which the action requiring the determination will be taken; the
transfer books may not be closed for a period longer than 20 days; and, in the
case of a meeting of stockholders, the record date or the closing of the
transfer books shall be at least ten days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a
stock ledger which contains the name and address of each stockholder and the
number of shares of stock of each class which the stockholder holds. The stock
ledger may be in written form or in any other
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form which can be converted within a reasonable time into written form for
visual inspection. The original or a duplicate of the stock ledger shall be
kept at the offices of a transfer agent for the particular class of stock, or,
if none, at the principal office in the State of Texas or the principal
executive offices of the Corporation.
SECTION 5.05. Certification of Beneficial Owners. The Board
of Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may certify; the purpose for which the
certification may be made; the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books, within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board considers necessary or desirable. On receipt of a certification
which complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set
forth in the certification, the holder of record of the specified stock in
place of the stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of
Directors of the Corporation may determine the conditions for issuing a new
stock certificate in place of one which is alleged to have been lost, stolen,
or destroyed, or the Board of Directors may delegate such power to any officer
or officers of the Corporation. In their discretion, the Board of Directors or
such officer or officers may refuse to issue such new certificate save upon the
order of some court having jurisdiction in the premises.
ARTICLE VI.
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and
orders for the payment of money, notes and other evidences of indebtedness,
issued in the name of the Corporation, shall, unless otherwise provided by
resolution of the Board of Directors, be signed by the President, a Vice
President or an Assistant Vice President and countersigned by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. The President
shall prepare annually a full and correct statement of the affairs of the
Corporation, to include a balance sheet and a financial statement of operations
for the preceding fiscal year. The statement of affairs shall be submitted at
the annual meeting of the stockholders and, within 20 days after the meeting,
placed on file at the Corporation's principal office.
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SECTION 6.03. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of Directors.
SECTION 6.04. Dividends. If declared by the Board of
Directors at any meeting thereof, the Corporation may pay dividends on its
shares in cash, property, or in shares of the capital stock of the Corporation,
unless such dividend is contrary to law or to a restriction contained in the
Charter.
ARTICLE VII.
SUNDRY PROVISIONS
SECTION 7.01. Books and Records. The Corporation shall keep
correct and complete books and records of its accounts and transactions and
minutes of the proceedings of its stockholders and Board of Directors and of
any executive or other committee when exercising any of the powers of the Board
of Directors. The books and records of a Corporation may be in written form or
in any other form which can be converted within a reasonable time into written
form for visual inspection. Minutes shall be recorded in written form but may
be maintained in the form of a reproduction. The original or a certified copy
of the By-Laws shall be kept at the principal office of the Corporation.
SECTION 7.02. Corporate Seal. The Board of Directors shall
provide a suitable seal, bearing the name of the Corporation, which shall be in
the charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule, or regulation relating to a corporate seal to
place the word "Seal" adjacent to the signature of the person authorized to
sign the document on behalf of the Corporation.
SECTION 7.03. Bonds. The Board of Directors may require any
officer, agent or employee of the Corporation to give a bond to the
Corporation, conditioned upon the faithful discharge of his duties, with one or
more sureties and in such amount as may be satisfactory to the Board of
Directors.
SECTION 7.04. Voting Upon Shares in Other Corporations.
Stock of other corporations or associations, registered in the name of the
Corporation, may be voted by the President, a Vice President, or a proxy
appointed by either of them. The Board of Directors, however, may by
resolution appoint some other person to vote such shares, in which case such
person shall be entitled to vote such shares upon the production of a certified
copy of such resolution.
12
<PAGE> 13
SECTION 7.05. Mail. Any notice or other document which is
required by these By-Laws to be mailed shall be deposited in the United States
mails, postage prepaid.
SECTION 7.06. Execution of Documents. A person who holds
more than one office in the Corporation may not act in more than one capacity
to execute, acknowledge, or verify an instrument required by law to be
executed, acknowledged, or verified by more than one officer.
SECTION 7.07. Amendments. Subject to the special provisions
of Section 2.02, (a) any and all provisions of these By-Laws may be altered or
repealed and new by-laws may be adopted at any annual meeting of the
stockholders, or at any special meeting called for that purpose, and (b) the
Board of Directors shall have the power, at any regular or special meeting
thereof, to make and adopt new by-laws, or to amend, alter or repeal any of the
By-Laws of the Corporation.
ARTICLE VIII.
CUSTODIAN
SECTION 8.01. Employment of Custodian. All assets of the
Corporation shall be held by one or more custodian banks or trust companies
meeting the requirements of the Investment Company Act of 1940, as amended (the
"1940 Act"), and having capital, surplus and undivided profits of at least
$2,000,000 and may be registered in the name of the Corporation, including the
designation of the particular class or series to which such assets belong, or
any such custodian, or the nominee of either of them. The terms of any such
custodian agreement shall be determined by the Board of Directors, which terms
shall be in accordance with the provisions of the 1940 Act. If so directed by
vote of the holders of a majority of the outstanding shares of a particular
class or series or by vote of the Board of Directors, the custodian of the
assets belonging to such class or series shall deliver and pay over such assets
as specified in such vote.
Subject to such rules, regulations and orders as the
Securities and Exchange Commission (the "Commission") may adopt, the
Corporation may direct a custodian to deposit all or any part of the securities
owned by the Corporation in a system for the central handling of securities
established by the Federal Reserve system or by a national securities exchange
or a national securities association registered with the Commission, or
otherwise in accordance with the 1940 Act, pursuant to which system, all
securities of a particular class or issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without the physical delivery of such securities, provided that all such
deposits shall be subject to withdrawal only upon the order of the Corporation
or a custodian.
13
<PAGE> 14
ARTICLE IX.
INDEMNIFICATION
SECTION 9.01. Indemnification of Directors and Officers. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than a proceeding by or in the right of the Corporation in which such person
shall have been adjudged to be liable to the Corporation), by reason of being
or having been a director or officer of the Corporation, or serving or having
served at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another entity in which the Corporation has an
interest as a shareholder, creditor or otherwise (a "Covered Person"), against
all liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and reasonable expenses
(including attorney's fees) actually incurred by the Covered Person in
connection with such action, suit or proceeding, except (a) liability in
connection with any proceeding in which it is determined that (i) the act or
omission of the Covered Person was material to the matter giving rise to the
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty, or (ii) the Covered Person actually received an improper
personal benefit in money, property or services, or (iii) in the case of any
criminal proceeding, the Covered Person had reasonable cause to believe that
the act or omission was unlawful and (b) liability to the Corporation or its
security holders to which the Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office (any or all of
the conduct referred to in clauses (a) and (b) being hereinafter referred to as
"Disabling Conduct").
SECTION 9.02. Procedure for Indemnification. Any
indemnification under this By-law shall (unless ordered by a court) be made by
the Corporation only as authorized for a specific proceeding by (a) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the Covered Person to be indemnified was not liable by reason of
Disabling Conduct, (b) dismissal of the proceeding against the Covered Person
for insufficiency of evidence of any Disabling Conduct, or (c) a reasonable
determination, based upon a review of the facts, by a majority of a quorum of
the directors who are neither "interested persons" of the Corporation as
defined in the 40 Act nor parties to the proceeding ("disinterested, non-party
directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination
of any proceeding by judgment, order or settlement shall not create a
presumption that the Covered Person did not meet the required standard of
conduct; the termination of any proceeding by conviction, or a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, shall create a rebuttable presumption that the Covered Person did not
meet the required standard of conduct. Any determination pursuant to this
Section IX shall not prevent recovery from any Covered Person of any amount
paid to him in accordance with this By-Law as indemnification if such Covered
Person is subsequently adjudicated by a court of competent jurisdiction to be
liable by reason of Disabling Conduct.
14
<PAGE> 15
SECTION 9.03. Advance Payment of Expenses. Reasonable
expenses (including attorney's fees) incurred by a Covered Person may be paid
or reimbursed by the Corporation in advance of the final disposition of an
action, suit or proceeding upon receipt by the Corporation of (a) a written
affirmation by the Covered Person of his good faith belief that the standard of
conduct necessary for indemnification under this By-Law has been met and (b) a
written undertaking by or on behalf of the Covered Person to repay the amount
if it is ultimately determined that such standard of conduct has not been met,
so long as either (i) the Covered Person has provided a security for his
undertaking, (ii) the Corporation is insured against losses arising by reason
of any lawful advances, or (iii) a majority of a quorum of the disinterested,
non-party directors, or an independent legal counsel in a written opinion, has
determined, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
SECTION 9.04. Exclusivity, Etc. The indemnification and
advance of expenses provided by this By-Law shall not be deemed exclusive of
any other rights to which a Covered Person seeking indemnification or advance
of expenses may be entitled under any law (common or statutory), or any
agreement, vote of stockholders or disinterested directors, or other provision
that is consistent with law, both as to action in an official capacity and as
to action in another capacity while holding office or while employed by or
acting as agent for the Corporation, shall continue in respect of all events
occurring while the Covered Person was a director or officer after such Covered
Person has ceased to be a director or officer, and shall inure to the benefit
of the estate, heirs, executors and administrators of such Covered person. All
rights to indemnification and advance of expenses under the Charter and
hereunder shall be deemed to be a contract between the Corporation and each
director or officer of the Corporation who serves or served in such capacity at
any time while this By-Law is in effect. Nothing herein shall prevent the
amendment of this By-Law, provided that no such amendment shall diminish the
rights of any Covered Person hereunder with respect to events occurring or
claims made before its adoption or as to claims made after its adoption in
respect of events occurring before its adoption. Any repeal or modification of
this By-Law shall not in any way diminish any rights to indemnification or
advance of expenses of a Covered Person or the obligations of the Corporation
arising hereunder with respect to events occurring, or claims made, while this
By-Law or any provision hereof is in force.
SECTION 9.05. Insurance. The Corporation may purchase and
maintain insurance on behalf of any Covered Person against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such; provided, however, that the Corporation shall not
purchase insurance to indemnify any Covered Person against liability for
Disabling Conduct.
SECTION 9.06. Severability: Definitions. The invalidity or
unenforceability of any provision of this Article IX shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article IX means this Article IX in its entirety.
15
[DESCRIPTION] Multiple Class Funds
<PAGE> 1
AMERICAN CAPITAL MUTUAL FUNDS
MULTIPLE CLASS FUNDS
SECTION I
DESCRIPTION OF THE ALTERNATE PURCHASE PLANS
Mutual Funds that adopt a multiple class of share structure are required to
maintain records that account for each class of shares of the fund. Shares
which are subject to contingent deferred sales load (CDSL) versus paying only a
front-end sales load (FESL) are charged with a higher distribution fee (12b-1
fee) on a daily basis. Since the 12b-1 fees charged will be higher for CDSL
shares and multiple classes of shares exist, separate Net Asset Values (NAV)
and dividend/distributions must be calculated for each class of shares.
NAV CALCULATIONS
Income: Income of the Fund (all classes combined) will be allocated to the
individual classes based on the relative adjusted net assets of each class or
the relative value of adjusted dividend qualifying shares of each class (the
net assets at the beginning of the day after reflecting the prior day's capital
share transactions) as appropriate, depending on the type of fund.
Expenses: Expenses of the Fund not specific to one or more classes will be
allocated to all classes based on the adjusted net assets of each class or the
relative value of adjusted dividend qualifying shares of each class. Expenses
attributable to a particular class will be charged only to that class. Expenses
attributable to a particular class may include the following:
o Rule 12b-1 fees
o Transfer agent cost
UNREALIZED APPRECIATION/DEPRECIATION AND REALIZED GAINS/LOSSES
The change in the market value of investments will be allocated each day based
on the relative adjusted net assets of each class or the relative value of
adjusted dividend qualifying shares of each class as appropriate, depending on
the type of fund. Realized gains and losses will be allocated to the classes on
the same basis.
DIVIDEND/DISTRIBUTIONS PAID TO SHAREHOLDERS
The amount of dividends and distribution of gains paid to shareholders of each
class will be determined by the dividend/distribution calculation methodology
described below. The actual amounts paid to each class will be used to
calculate the net asset value of each class.
<PAGE> 2
PRICING WORKSHEET
The Multiple Shares NAV Worksheet (Exhibit III) will be used in the daily net
asset value calculation. Utilizing data reviewed by the fund accountant, the
computer system generates the above worksheet for the total fund and each
respective class.
For non-daily dividend funds, the class allocation is based on the relative
adjusted net assets of each class. The allocation is derived by taking prior
day's net assets plus the actual dollars booked from prior day capital stock
activity for each class compared to the total fund. For daily dividend funds,
the class allocation is based on the relative value of adjusted dividend
qualifying shares of each class. The allocation is derived by using dividend
shares times prior day's NAV compared to the fund total.
This class allocation is used to allocate income, non-class-specific expenses,
and realized and unrealized gains and losses. Class specific expenses and
dividend/distributions are applied to the apprpriate class. This determines the
net assets for the current day which is divided by outstanding shares for the
NAV per share for each class.
DIVIDEND/DISTRIBUTIONS CALCULATION METHODOLOGY
The amount available for dividends, or the projected amount available, will be
based on the combined undistributed net investment income of the Fund. The per
share dividend rates for each class will differ by approximately the expense
rate differential, based on average daily NAV, between the classes of shares
for the applicable period, i.e. daily, monthly, etc.
The maximum distribution rate per share for net realized gains will be
determined by dividing the total fund shares outstanding on the ex-dividend
date into the undistributed net realized gains of the fund (all classes
combined) for the applicable period.
SECTION II
SPECIFIED CONTROL OBJECTIVES
The following are the specific control objectives of the system of internal
accounting control relating to the allocation of income and expenses and the
calculation of net asset values and dividend distribution amounts for the
multiple classes of shares contemplated above:
1. That the expenses attributable to a particular class are properly recorded
for that class.
2. That income, other operating expenses, and realized and unrealized gains
and losses are allocated properly to each class as described in Section I.
3. That capital share transactions, including dividends and distributions,
are properly allocated as described in Section I.
4. That net asset value is properly calculated as described in Section I.
- 2 -
<PAGE> 3
SECTION III
POLICIES AND PROCEDURES TO ACHIEVE SPECIFIED CONTROL OBJECTIVES
The following procedures are designed to account for the various classes of
shares in each fund. From time to time, policies and procedures may be revised
to improve or enhance operations and maintain adherence to specified control
objectives.
1. On a daily basis, the fund accountant completes the "Daily Net Asset
Reconciliation and NAV Proof" (proof sheet) on Exhibit II.
2. Using the proof sheet, the fund accountant reviews the allocation of daily
income and expenses and realized and unrealized gains and losses of each
class.
3. The fund accountant verifies the shares outstanding on the proof sheet to
the amounts supplied by the Transfer Agent.
4. On a daily basis, the fund supervisor reviews the allocations and the net
asset value calculation. On a test basis, the supervisor verifies the
amounts entered by the fund accountant on the proof sheet by agreeing the
amounts entered to source documents and reviewing for reasonableness. The
supervisor initials the worksheet to evidence this review.
5. On a monthly basis, the fund supervisor reviews the monthly financial
statement including the calculations of all income and expense items.
6. For periodic distributions (monthly, quarterly or annually, as applicable),
the calculation is performed by the fund accountant according to the
methodology described in Section I. The calculation is verified by a
supervisor by agreeing the amounts to the source documents. This review is
documented by the supervisor's initials on the calculation.
SECTION IV
FINANCIAL STATEMENT DISCLOSURE FOR FUNDS WITH MULTIPLE CLASSES OF SHARES
Portfolio of Investments
o Will be shown in accordance with standard reporting practices.
Statement of Assets and Liabilities
o Assets and liabilities will be disclosed on a combined basis.
o Net asset value and offering price per share data will be presented for
each class.
o The composition of net assets (Summary of Shareholders Equity) will be
presented on a combined basis, but will include a description of each class
(par, outstanding shares, etc.).
Statement of Operations
o A standard reporting format will be used.
-3-
<PAGE> 4
Statement of Changes in Net Assets
o A standard reporting format will be used with separate disclosure of
dividends and capital gain distributions to shareholders and dollar value
of capital share transactions for each class.
Financial Highlights
o A standard reporting format will be used and the per share data and ratios
will be shown for each class (portfolio turnover which will be shown in
total).
Notes to Financial Statements
The notes to the financial statements will include the following additional
disclosures in the footnotes:
o Description of each class of shares and the related class-specific
expenses.
o Information on the 12b-1 fee arrangements for each class.
o Capital shares transactions for each class for the most recent period and
the prior year.
-4-
[DESCRIPTION] Price Waterhouse LLP Tests Of Operating
<PAGE> 1
APPENDIX
(Page 1 of 2)
PRICE WATERHOUSE LLP TESTS OF OPERATING EFFECTIVENESS
AMERICAN CAPITAL MUTUAL FUNDS
NET ASSET VALUE ("NAV") AND DIVIDEND/DISTRIBUTION
DETERMINATION FOR MULTIPLE CLASS OF SHARES
The following are the tests of operating effectiveness which we performed with
respect to the Fund's use of the Multiple Class System. We randomly selected
days throughout the year ended December 31, 1994, in which to test the
operating effectiveness of the Fund's policies and procedures. In addition, we
tested the net investment income and capital gain distributions for the Fund.
Finally, we reviewed the disclosure of the Fund as included in the December 31,
1994 financial statements. Our performance of the tests of operating
effectiveness, described below, did not result in any exceptions.
<TABLE>
<CAPTION>
Price Waterhouse LLP
Control Objective Tests of Operating Effectivenes
----------------- --------------------------------
<S> <C>
1. That the direct expenses attributable For the days selected, we obtained the Worksheet and related
to each class of shares are correctly trial balances and noted full completion and performed the
recorded in the Fund accounting following procedures:
records as charged to each class of
shares. o We recalculated the relative class allocation
percentages (i.e., "% of Net Assets by Class" and "% of
2. That income, other operating expenses Dividend Share Value by Class"). To arrive at these
and realized and unrealized allocation percentages, we agreed the components of the
gains/losses are allocated properly calculation to the Fund's primary accounting records.
to each class of shares based upon
the relative "% of Net Assets by o We agreed income, fund-level operating expenses, and
Class", or the relative "% of realized and unrealized gain/loss amounts, as listed on
Dividend Share Value by Class", as the Worksheet, to the Fund's primary accounting records.
appropriate.
o We recomputed the allocation of income, fund-level
operating expenses and realized and unrealized
gain/loss amounts to each share class based upon the
relative "% of Net Assets by Class" or the relative "%
of Dividend Share Value by Class", as appropriate.
</TABLE>
<PAGE> 2
APPENDIX
(Page 2 of 2)
<TABLE>
<CAPTION>
Price Waterhouse LLP
Control Objective Tests of Operating Effectiveness
----------------- --------------------------------
<S> <C>
o We recalculated the Advisor's fee for the Fund by using
the beginning of the day's total net assets of the Fund
multiplied by the daily rate per the Fund's prospectus.
o We recalculated the class-level 12b-1 fees for the Fund
which represented the current-day accrual calculated
using the beginning of day's net assets attributable to
each class based on the respective class rate per the
Fund's prospectus.
o We agreed the capital stock activity for each respective
class to the Fund's primary accounting records.
o We recalculated NAV per share by class by dividing the
ending total net assets applicable to a class by the
number of shares outstanding relating to that class.
3. That the capital share transactions, o For the net investment income and capital gain
including dividends and distributions, distributions selected for testing, we recalculated the
are properly based on the combined distribution rates for each class of shares and
undistributed net investment income, determined that they reflected the proper net
gain and loss amounts and the proper investment income and capital gain allocation.
amount of any direct expenses charged
to each class of shares.
4. That net asset value is properly o We tested the multiple shares NAV worksheet generated by
calculated based on capital stock the American Capital computer system for correct
activity, income, expense and gain calculation of NAV for each respective class.
and loss amounts.
</TABLE>
[DESCRIPTION] Daily Net Asset Reconciliation and NAV Proof
<PAGE> 1
Exhibit II
DAILY NET ASSET RECONCILIATION AND NAV PROOF Page 1
FUND: ________________ DATE: _________________
DAILY NAV PROOF
<TABLE>
<CAPTION>
________________________________________________________________________________
Line Activity CLASS A CLASS B CLASS C TOTAL FUND
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Current Shares Outstanding _______ ________ _______ _________
1 Prior Day's NAV (4 decimals) _______ ________ _______ _________
PER SHARE IMPACT ON NAV
CAPITAL SHARE TRANSACTIONS
2 Capital Share Transactions _______ ________ _______ _________
(from Page 3) _______ ________ _______ _________
NET INVESTMENT INCOME
3 Today's Net Investment Income* $_______ $________ $_______
*(from R707 Cost-P)
4 Net Investment Income _______ ________ _______ _________
_______ ________ _______ _________
EX-DIVIDEND/DISTRIBUTION
5 Income Dividend (from Page 3) (_______) (________) (_______) (_________)
(_______) (________) (_______) (_________)
Capital Gain Distribution
per class (_______) (________) (_______) (_________)
(_______) (________) (_______) (_________)
MARKET VALUE ACTION
7 Per Class Allocation
(9 DECIMALS FROM R707) _______ ________ _______
8 Total impact (line 23 x
line 7) $_______ $________ $_______
9 Per Share Effect of Market
Change _______ ________ _______ _________
_______ ________ _______ _________
10 Calculated Price Per Share _______ ________ _______ _________
(SUM OF LNES 1,2,4,5,6,&9)
11 System Generated Price (_______) (________) (_______) (_________)
12 Difference should not exceed
.0002 _______ ________ _______ _________
_______ ________ _______ _________
MARKET VALUE ACTION
13 R403 Current Market Value of
all Investments _______
14 R403 Today's Mark-to Market
on Futures _______
15 P/D R403 Prior Day's Market Value (________)
16 R314 Today's Discount Earned (________)
17 R314 Today's Accretion of OID (________)
18 R314 Today's Amortization of
Premium ________
19 R309 Investments purchased - at c (________)
20 R309 Investments sold - at proceeds ________
21 R810 P I K / I O Adjustments (________)
R309 Adjusting Marks on Futures
Trades ________
Subtotal (_______)
23 Change in Market Value _______
_______
</TABLE>
<PAGE> 2
Exhibit II
DAILY NET ASSET RECONCILIATION AND NAV PROOF Page 1
FUND: ______________________________ DATE: _______________
DAILY NET ASSET RECONCILIATION
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________
G/L PRIOR Percentage
Line Report Activity ACCT DAY Amount of change
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
DAILY ACCRUALS
INCOME
1 R303 Dividend Income CP05 _______________ _______________ ___________%
2 R810 Bond Interest Income Non-taxable CP10 _______________ _______________ ___________%
3 R810 Bond Interest Income Taxable CP13 _______________ _______________ ___________%
4 R810 Short-term Interest Income Non-taxable CP16 _______________ _______________ ___________%
5 R810 Short-term Interest Income Taxable CP19 _______________ _______________ ___________%
6 R314 Acquisition Discount Earned CP31 _______________ _______________ ___________%
7 R314 Accretion of OID - Taxable CP34 _______________ _______________ ___________%
8 R314 Accretion of OID - Non-taxable CP35 _______________ _______________ ___________%
9 R314 Amortization of Premium - Taxable CP37 (_______________) (_______________) ___________%
10 R314 Amortization of Premium - Non-taxable CP38 (_______________) (_______________) ___________%
11 Other Income CP45 _______________ _______________ ___________%
12 Interim Income Adjustments CP46 _______________ _______________ ___________
13 GROSS INVESTMENT INCOME _______________
_______________
EXPENSES
14 Operating Expense Accrual CP5095 (_______________)
15 12-b 1 Expense Accrual CP53/CP54B/CP54C +\-_______________
Direct Expense Payments +/-_______________
16 NET INVESTMENT INCOME TODAY _______________
_______________
To Page 1, line 3 TF
To Page 2, Line 18
NET ASSETS AT COST RECONCILIATION
17 R701 Prior Day's Net Assets at Cost _______________
18 Today's Net Investment Income (Line 16, page 2) _______________
19 Today's Total Net Share Activity (Line 6, page 3) _______________
20 R302 Today's Net Gain/Loss (excl. Futures) _______________
21 R309 Mark-to-Market on Futures _______________
22 R810 PIK/IO Adjustments _________________________ (_______________)
23 Today's Distributions (Line 31, page 3 or amounts from
Line 5 & 6, page 1) (_______________)
24 Below Adjustments *_______________
25 R701 TODAY'S NET ASSETS AT COST _______________
_______________
(Pre-priced)
* DETAIL OF ADJUSTMENTS
$ ____________________________
$ ____________________________
$ ____________________________
$ ____________________________
</TABLE>
<PAGE> 3
EXHIBIT II
DAILY NET ASSET RECONCILIATION AND NAV PROOF Page 3
FUND: ______________________________ DATE: ________________
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
Line Report Activity Amount
___________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Current Shares Outstanding
CAPITAL SHARE TRANSACTIONS-IMPACT ON NAV
CLASS A CLASS B CLASS C
1 S/R Today's Net Dollars to Fund ________________ ________________ ________________
2 Est. Today's Net Est. Dollars ________________ ________________ ________________
3 P/D Reverse P/D Net Est. Dollars ________________ ________________ ________________
4 Reinvestment Dollars to Fund ________________ ________________ ________________
5 Today's Dollar Impact = ________________ = ________________ = ________________
6 TODAY'S TOTAL DOLLAR IMPACT +A+B+C = ________________
7 S/R Today's Net Shares to Fund ________________ ________________ ________________
8 Est. Today's Net Est. Shares ________________ ________________ ________________
9 P/D Reverse P/D Net Est. Shares ________________ ________________ ________________
10 Reinvestment Shares to Fund ________________ ________________ ________________
11 Today's Share Impact per ( = ________________ = ________________ = ________________
12 Prior Day's NAV x ________________ x ________________ x ________________
13 = (________________) = (________________) = (________________)
15 Change in Capital Shares (L5 - L13) ________________ = ________________ = ________________
________________ ________________ ________________
PER SHARE EFFECT ** ________________ ________________ ________________
________________ ________________ ________________
+A+B+C = ________________
18 **IF ANSWER EXCEEDS +/- .0005 NOTIFY SUPERVISOR PER SHARE TF ________________
________________
Equalization Factor ________________ ________________ ________________
CLASS A CLASS B CLASS C
19 S/R Current Shares Outstanding ________________ ________________ ________________
20 Est. Share Estimates - Sales ________________ ________________ ________________
21 Est. Share Est - Redemptions (________________) (________________) (________________)
22 Est. Share Est - Reinvestments ________________ ________________ ________________
23 Adj Shares Outstanding GL Total = ________________ ________________ ________________
24 S/R Unsettled Sales CS80A (________________)CS80B(________________)CS80C(________________)
25 S/R Unsettled Redemptions CS90A ________________ CS90B ________________ CS90C ________________
26 Current Distribution Shares GL Total________________ ________________ ________________
TOTAL OUTSTANDING SHARES A+B+C ______________________________
______________________________
DIVIDENDS AND DISTRIBUTIONS
27 S/R T/A Reported Amount ________________ ________________ ________________
28 P/D Estimate Div ________________ ________________ ________________
29 Tie-in Adjustment Needed ________________ ________________ ________________
30 Current Day's Total Dividend ** ________________ ________________ ________________
________________ ________________ ________________
** Line 23 or 26 x Line 31
31 Dividend Rate ________________ ________________ ________________
</TABLE>
<PAGE> 4
DAILY NET ASSET RECONCILIATION AND NAV PROOF Page
FUND:__________________________________________ DATE: _______________
PAR/SHARES AND COST RECONCILIATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Line Report Activity Long Positions Short Positions
Par/Shares Cost Par/Shares Cost
1 P/D R104 Prior Day's Total Par/Shares & Cost +_____________ _____________ +_____________ _____________
2 Trade Tkts Purchases - L/T Inv. +_____________ _____________ +_____________ _____________
3 Trade Tkts Purchases - S/T Inv. +_____________ _____________ +_____________ _____________
4 Trade Tkts Opening Contracts +_____________ _____________ +_____________ _____________
5 R302 Sales -_____________ _____________ -_____________ _____________
6 P/D R104 Maturities -_____________ _____________ -_____________ _____________
7 R302 Closing Contracts -_____________ _____________ -_____________ _____________
8 R104 Current Day's Total Par/Shares & Cost =_____________ _____________ =_____________ _____________
9 R301/04/05 Capital Change Impact +_____________ _____________ _____________ _____________
10 Corrct Tkts Correcting Adjustments +/-_____________ _____________ +/-_____________ _____________
11 R104 Rev Revised Par/Shares & Cost =_____________ _____________ =_____________ _____________
12 R104 Subtract Futures Par & Cost -_____________ _____________ -_____________ _____________
13 Total Par & Cost =_____________ _____________ =_____________ _____________
_____________ _____________ _____________ _____________
G/L Acct G/L Acct
GENERAL LEDGER COST RECONCILIATION
12 R701 Investments at Cost/Written Options AS10 +_____________ LS10 +_____________
13 R701 Short-term Investments (cost) AS70 +_____________ _____________
14 R701 Short Securities _____________ _____________ LS20 +_____________
16 Total Reconciled Cost Above (Line 13) =_____________ =_____________
_____________ _____________
17 Proof of R403 Par/Shares _____________
_____________
Prepared by __________________________________________________ Reviewer's initials: ________________________
</TABLE>
[DESCRIPTION] Multiple Shares NAV Worksheet
<PAGE> 1
EXHIBIT III
AMERICAN CAPITAL
REPORT # R707
NAV-P MULTIPLE SHARES NAV WORKSHEET - PERIODIC DIVIDEND FUND
FOR THE PERIOD 10/12/93 THROUGH 10/13/93
REPORT IDENTIFIER NAV-P
NAV WORKSHEET FOR TOTAL FUND
- ----------------------------
NET ASSETS - PRIOR DAY
CAPITAL STOCK ACTIVITY AS OF PRIOR DAY
ADJUSTED NET ASSETS
CLASS ALLOCATION ON ADJUSTED NET ASSETS
NET INVESTMENT INCOME:
GROSS INVESTMENT INCOME
EXPENSES:
DISTRIBUTION FEES
SERVICE FEES
OTHER EXPENSES
NET ADJUSTMENT TO EXPENSES
NET EXPENSES
NET INVESTMENT INCOME
UNDISTRIBUTED INCOME - PRIOR DAY
INCOME AVAILABLE FOR DISTRIBUTION
INCOME AVAILABLE PER SHARE
DIVIDENDS DECLARED
GAINS DISTRIBUTIONS DECLARED
GAINS/LOSSES - ALLOCATED ON ADJUSTED NET ASSETS:
NET REALIZED GAINS/LOSSES
NET UNREALIZED GAINS/LOSSES
INCREASE/DECREASE IN NET ASSETS
NET ASSETS - CURRENT DAY
CAPITAL SHARES OUTSTANDING CURRENT DAY
FOR STATISTICAL USE ONLY
------------------------
NAV PER SHARE:
UNROUNDED
ROUNDED
PRIOR DAY NAV - ROUNDED
CHANGE IN NAV (CENTS)
NET ASSETS FOR TOTAL FUND PER NAV WORKSHEET
NET ASSETS FOR TOTAL FUND PER R403
DIFFERENCE
<PAGE> 2
EXHIBIT III
AMERICAN CAPITAL
REPORT # R707
NAV-P MULTIPLE SHARES NAV WORKSHEET - PERIODIC DIVIDEND FUND
FOR THE PERIOD 10/12/93 THROUGH 10/13/93
NAV WORKSHEET FOR CLASS A SHARES
- --------------------------------
NET ASSETS - PRIOR DAY
CAPITAL STOCK ACTIVITY AS OF PRIOR DAY
ADJUSTED NET ASSETS
CLASS ALLOCATION ON ADJUSTED NET ASSETS
NET INVESTMENT INCOME:
GROSS INVESTMENT INCOME
EXPENSES:
SERVICE FEES
OTHER EXPENSES
NET ADJUSTMENT TO CLASS A EXPENSES
NET EXPENSES
NET INVESTMENT INCOME
UNDISTRIBUTED INCOME - PRIOR DAY
INCOME AVAILABLE FOR DISTRIBUTION
INCOME AVAILABLE PER SHARE
DIVIDENDS DECLARED
GAINS DISTRIBUTIONS DECLARED
GAINS/LOSSES - ALLOCATED ON ADJUSTED NET ASSETS:
NET REALIZED GAINS/LOSSES
NET UNREALIZED GAINS/LOSSES
INCREASE/DECREASE IN NET ASSETS
NET ASSETS - CURRENT DAY
CAPITAL SHARES OUTSTANDING CURRENT DAY
NAV PER SHARE:
UNROUNDED
ROUNDED
PRIOR DAY NAV - ROUNDED
CHANGE IN NAV (CENTS)
CLASS A FRONT-END LOAD FACTOR (1 - LOAD)
MAXIMUM OFFERING PRICE (CLASS A)
NET ASSETS FOR CLASS A PER NAV WORKSHEET
NET ASSETS FOR CLASS A PER R403
DIFFERENCE
<PAGE> 3
EXHIBIT III
AMERICAN CAPITAL
REPORT # R707
NAV-P MULTIPLE SHARES NAV WORKSHEET - PERIODIC DIVIDEND FUND
FOR THE PERIOD 10/12/93 THROUGH 10/13/93
NAV WORKSHEET FOR CLASS B SHARES
- --------------------------------
NET ASSETS - PRIOR DAY
CAPITAL STOCK ACTIVITY AS OF PRIOR DAY
ADJUSTED NET ASSETS
CLASS ALLOCATION ON ADJUSTED NET ASSETS
NET INVESTMENT INCOME:
GROSS INVESTMENT INCOME
EXPENSES:
DISTRIBUTION FEES
SERVICE FEES
OTHER EXPENSES
NET EXPENSES
NET INVESTMENT INCOME
UNDISTRIBUTED INCOME - PRIOR DAY
INCOME AVAILABLE FOR DISTRIBUTION
INCOME AVAILABLE PER SHARE
DIVIDENDS DECLARED
GAINS DISTRIBUTIONS DECLARED
GAINS/LOSSES - ALLOCATED ON ADJUSTED NET ASSETS:
NET REALIZED GAINS/LOSSES
NET UNREALIZED GAINS/LOSSES
INCREASE/DECREASE IN NET ASSETS
NET ASSETS - CURRENT DAY
CAPITAL SHARES OUTSTANDING CURRENT DAY
NAV PER SHARE:
UNROUNDED
ROUNDED
PRIOR DAY NAV - ROUNDED
CHANGE IN NAV (CENTS)
CLASS B FRONT-END LOAD FACTOR (1 - LOAD)
MAXIMUM OFFERING PRICE (CLASS B)
NET ASSETS FOR CLASS B PER NAV WORKSHEET
NET ASSETS FOR CLASS B PER R403
DIFFERENCE
<PAGE> 4
EXHIBIT III
AMERICAN CAPITAL
REPORT # R707
NAV-P MULTIPLE SHARES NAV WORKSHEET - PERIODIC DIVIDEND FUND
FOR THE PERIOD 10/12/93 THROUGH 10/13/93
NAV WORKSHEET FOR CLASS C SHARES
- --------------------------------
NET ASSETS - PRIOR DAY
CAPITAL STOCK ACTIVITY AS OF PRIOR DAY
ADJUSTED NET ASSETS
CLASS ALLOCATION ON ADJUSTED NET ASSETS
NET INVESTMENT INCOME:
GROSS INVESTMENT INCOME
EXPENSES:
DISTRIBUTION FEES
SERVICE FEES
OTHER EXPENSES
NET EXPENSES
NET INVESTMENT INCOME
UNDISTRIBUTED INCOME - PRIOR DAY
INCOME AVAILABLE FOR DISTRIBUTION
INCOME AVAILABLE PER SHARE
DIVIDENDS DECLARED
GAINS DISTRIBUTIONS DECLARED
GAINS/LOSSES - ALLOCATED ON ADJUSTED NET ASSETS:
NET REALIZED GAINS/LOSSES
NET UNREALIZED GAINS/LOSSES
INCREASE/DECREASE IN NET ASSETS
NET ASSETS - CURRENT DAY
CAPITAL SHARES OUTSTANDING CURRENT DAY
NAV PER SHARE:
UNROUNDED
ROUNDED
PRIOR DAY NAV - ROUNDED
CHANGE IN NAV (CENTS)
CLASS C FRONT-END LOAD FACTOR (1 - LOAD)
MAXIMUM OFFERING PRICE (CLASS C)
NET ASSETS FOR CLASS C PER NAV WORKSHEET
NET ASSETS FOR CLASS C PER R403
DIFFERENCE
[DESCRIPTION] N-SAR Item 77C
<PAGE> 1
N-SAR ITEM 77C
a) A Special Meeting of Shareholders was held on December 16, 1994.
b) Inapplicable
c) The following was voted on at the meeting:
1) Approval of a new investment advisory agreement between the Registrant
and American Capital Asset Management, Inc. to take effect upon the
closing of the proposed acquisition of American Capital Management &
Research, Inc. by The Van Kampen Merritt Companies, Inc.
For 33,089,298.534 Against 966,088.437
d) Inapplicable
[DESCRIPTION] Investment Advisory Agreement
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this 20th day of December, 1994, by and
between AMERICAN CAPITAL COMSTOCK FUND, INC., a Maryland corporation
(hereinafter referred to as the "FUND"), and AMERICAN CAPITAL ASSET MANAGEMENT,
INC., a Delaware corporation (hereinafter referred to as the "ADVISER").
The FUND and the ADVISER agree as follows:
(1) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Directors and in conformity with applicable laws, the FUND's Articles of
Incorporation ("Articles of Incorporation") By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected
by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing
of routine legal services except for services provided by outside counsel to
the FUND selected by the Directors, and the supervision of the FUND's Treasurer
and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND director and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Directors of appropriate policies and procedures, the ADVISER may, to the
extent authorized
<PAGE> 2
by law, cause the FUND to pay a broker or dealer that provides brokerage and
research services to the ADVISER an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. In the
event of such authorization and to the extent authorized by law, the ADVISER
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its directors and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the FUND which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such financial statements and other FUND documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the FUND's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the FUND selected by the Directors; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the FUND and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the FUND; (xi) all other expenses incidental to holding meetings of the FUND's
shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the FUND's membership in
trade associations approved by the Directors; and (xv) such nonrecurring
expenses as may arise, including those associated with actions, suits or
proceedings to which the FUND is a party and the legal obligation which the
FUND may have to indemnify its officers and directors with respect thereto. To
the extent that any of the foregoing expenses are allocated between the FUND
and any other party, such allocations shall be pursuant to methods approved by
the Directors.
2
<PAGE> 3
(2) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, directors, officers and employees of the FUND
may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or
to any shareholder of the FUND, for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
(3) Compensation Payable to ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed
at the following annual rates:
.50% on the first $1 billion of the FUND's average daily net assets; .45% on
the next $1 billion of the FUND's average daily net assets; .40% of the next $1
billion of the FUND's average daily net assets; and .35% of any excess over $3
billion.
Average daily net assets shall be determined by taking the average of the net
assets for each business day during a given calendar month calculated in the
manner provided in the FUND's Articles of Incorporation. Such fee shall be
payable for each calendar month as soon as practicable after the end of that
month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall be
reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of American Capital Management & Research, Inc., or
its successor, in connection with the purchase and sale of portfolio
investments of the FUND, less any direct expenses incurred by such person, in
connection with obtaining such commissions, fees, brokerage or similar
payments. The ADVISER shall use its best efforts to recapture all available
tender offer solicitation fees and exchange offer fees in connection with the
FUND's portfolio transactions and shall advise the Directors of any other
commissions, fees,
3
<PAGE> 4
brokerage or similar payments which may be possible for the ADVISER or any
other direct or indirect majority owned subsidiary of American Capital
Management & Research, Inc., or its successor, to receive in connection with
the FUND's portfolio transactions or other arrangements which may benefit the
FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed 1.5% of the first $30 million of the FUND's average daily
net assets plus 1% of any excess over $30 million, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
ADVISER's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and directors and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to American Capital Marketing, Inc., the distributor of the FUND's
shares, in connection with a distribution plan adopted by the FUND's Directors
pursuant to Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) Books and Records
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the Act.
(5) Duration of Agreement
This Agreement shall have an initial term of 2 years from the date hereof, and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved at least annually by the vote of a majority of the
FUND's Directors who are not
4
<PAGE> 5
parties to this Agreement or interested persons of any such parties, cast in
person at a meeting called for the purpose of voting on such approval, and by a
vote of a majority of the FUND's Directors or a majority of the FUND's
outstanding voting securities.
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Directors, by vote of
a majority of the FUND's outstanding voting securities, or by the ADVISER, on
60 days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
AMERICAN CAPITAL COMSTOCK FUND, INC.
/s/ CURTIS W. MORELL
By:________________________________________
Curtis W. Morell
Name:______________________________________
Vice President
Its:_______________________________________
AMERICAN CAPITAL ASSET MANAGEMENT, INC.
/s/ NORI L. GABERT
By:________________________________________
Nori L. Gabert
Name:______________________________________
Vice President
Its:_______________________________________
5
