SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec.
240.14a-12
COMSTOCK PARTNERS FUNDS, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
1,000,000,000
-------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(set forth the amount on which
the filing fee is calculated and state how it was determined):
N/A
-------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
-------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
-------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------
COMSTOCK PARTNERS FUNDS, INC.
COMSTOCK PARTNERS STRATEGY FUND
COMSTOCK PARTNERS CAPITAL VALUE FUND
993 LENOX DRIVE, SUITE 106
LAWRENCEVILLE, NEW JERSEY 08648
March __, 2000
Dear Fellow Shareholder:
We are pleased to announce that your Board of Directors, after careful
deliberation, has unanimously approved proposals to engage affiliates of
Gabelli Asset Management, Inc. ("Gabelli") of Rye, New York as investment
adviser and distributor for the Comstock Partners Capital Value Fund and
the Comstock Partners Strategy Fund ("the Funds"). These proposals are
structured to increase each Fund's potential to generate shareholder value
over the long term and strengthen their competitive position within the
mutual fund industry. Gabelli is a New York Stock Exchange listed, widely
recognized and respected provider of investment advisory services. Gabelli
manages approximately $22 billion in assets of mutual funds, closed-end
funds, private advisory accounts and partnerships.
Charles L. Minter and Martin Weiner will be employed by Gabelli Funds, LLC,
a wholly-owned subsidiary of Gabelli and investment adviser to the Gabelli
Family of Funds, and will continue to be co-portfolio managers of the
Funds. We expect to maintain the Funds' bearish strategies based on our
continuing view that, by historical standards, the current market is by far
the most overvalued and speculative of the past century and that any return
to the historical norm would result in a major market downturn.
In the current environment it has become increasingly difficult for a small
mutual fund organization to remain independent. We believe that Gabelli's
financial strength and stability will enhance the Funds' long term
prospects in the consolidating highly competitive mutual fund industry
where marketing and distribution capabilities are critical. We also
anticipate that being part of a family of funds will offer improved
economies of scale, negotiating power, and shareholder benefits such as
exchange privileges within the fund family.
The Funds are proposed to be renamed the Gabelli Comstock Capital Value
Fund and the Gabelli Comstock Strategy Fund and to join the Gabelli Family
of Funds as non-market-correlated specialty funds. The Funds should benefit
from access to Gabelli's proprietary "Private Market Value" equity and
arbitrage research, and the historically successful Gabelli value oriented
investment philosophy.
Gabelli has agreed to waive a portion of its management fee for the first
two years in which it serves as investment adviser and distributor for the
Funds to the extent necessary to maintain the Funds' expense ratios
(excluding extraordinary expenses) at 1999 levels with respect to the
amount of assets held by each Fund at the time Gabelli becomes the Funds'
investment adviser and distributor.
Again, your Board unanimously recommends the approval of the proposals
presented in this proxy statement. Please sign, date and return the
enclosed proxy card and, should you have any questions, please give us a
call.
Sincerely,
Charles L. Minter Martin Weiner
Chairman President
COMSTOCK PARTNERS FUNDS, INC.
COMSTOCK PARTNERS STRATEGY FUND
COMSTOCK PARTNERS CAPITAL VALUE FUND
993 LENOX DRIVE
SUITE 106
LAWRENCEVILLE, NJ 08648
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
March __, 2000
TO THE SHAREHOLDERS OF COMSTOCK PARTNERS FUNDS, INC.:
A special meeting of the shareholders of Comstock Partners Funds,
Inc., (the "Company"), will be held at 993 Lenox Drive, Suite106,
Lawrenceville, NJ 08648 on April 27, 2000 at 10:00 a.m., Eastern time, for
the following purposes:
(1) To consider and vote on a new investment advisory agreement
between the Company, on behalf of Comstock Partners Strategy Fund,
and Gabelli Funds, LLC. Proposal 1 will be voted on only by
shareholders of the Strategy Fund.
(2) To consider and vote on a new investment advisory agreement
between the Company, on behalf of Comstock Partners Capital Value
Fund, and Gabelli Funds, LLC. Proposal 2 will be voted on only by
shareholders of the Capital Value Fund.
(3) To elect a board of directors consisting of eight directors.
Proposal 3 will be voted on by all of the Company's shareholders.
(4) To consider and vote on ratification of the appointment of Ernst &
Young LLP as auditors of the Company for the fiscal year ending
April 30, 2000. Proposal 4 will be voted on by all of the
Company's shareholders.
(5) To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
Each proposal is discussed more fully in the accompanying proxy
statement.
The close of business on March 10, 2000 has been fixed as the
record date for determination of the shareholders entitled to notice of and
to vote at the special meeting and any adjournments thereof.
Please complete, date, sign and return the enclosed proxy in the
reply envelope whether or not you plan to attend the meeting. Your vote is
important no matter how many shares you own. Prompt return of your proxy
will eliminate the need for, and expense of, additional mailings. If you
are a shareholder of record and attend the meeting, you may, if you wish,
withdraw your proxy and vote in person.
CAROLYN MATLIN
SECRETARY
PROXY STATEMENT
Your proxy is solicited on behalf of the Board of Directors of
Comstock Partners Funds, Inc., a Maryland corporation (the "Company"), for
use at its special meeting of shareholders, to be held at 993 Lenox Drive,
Suite 106, Lawrenceville, NJ 08648 on April 27, 2000 at 10:00 a.m., Eastern
time, and at any postponement or adjournment thereof. The Company is an
open-end, management investment company offering shares in two separate
portfolios: Comstock Partners Strategy Fund (the "Strategy Fund") and
Comstock Partners Capital Value Fund (the "Capital Value Fund" and,
together with the Strategy Fund, the "Funds"). The Strategy Fund and the
Capital Value Fund are each referred to herein as a "Fund". The Company
expects to mail this proxy statement and accompanying form of proxy to
shareholders on or about March __, 2000.
The Company's investment adviser is Comstock Partners, Inc. (the
"Current Adviser"), 993 Lenox Drive, Suite 106, Lawrenceville, New Jersey
08648. The Current Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, and has served as investment
adviser to the Strategy Fund since its inception in 1988 and as sub-adviser
to the Capital Value Fund from 1987 to 1996 and thereafter as its
investment adviser. The Company's distributor is Premier Mutual Fund
Services, Inc., 60 State Street, Boston Massachusetts, 02109. The Company's
administrator is Princeton Administrators, L.P., 800 Scudders Mill Road,
Plainsboro, New Jersey, 08536.
A proxy may be revoked at any time before its exercise by the
submission of a subsequently dated proxy or by oral or written notice of
revocation given to the Secretary of the Company. To be effective, such
revocation must be received by the Company prior to the meeting and must
indicate the shareholder's name and account number. In addition, if you
attend the meeting in person, you may, if you wish, vote by ballot at the
meeting, thereby canceling any proxy previously given. All valid proxies
received by the Company will be voted unless revoked. Proxies will be voted
in accordance with the specifications thereon and, in the absence of
specification, for the proposed new investment advisory agreements between
each of the Funds and Gabelli Funds, LLC, for the election of the nominees
listed below as directors or nominees for director of the Company and for
the ratification of the appointment of Ernst & Young LLP as auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL.
Shareholders of record at the close of business on [Date] will be
entitled to vote in person or by proxy at the meeting. As of the close of
business on such date, there were [Number] shares of the Strategy Fund and
[Number] shares of the Capital Value Fund outstanding, each entitled to one
vote. Certain information as to all persons known to the Company who, as of
[Date], owned of record or beneficially more than 5% of the shares or either
Fund is set forth under "Principal Shareholders" below.
One-third of the Company's shares outstanding and entitled to vote
on the record date, represented in person or by proxy, constitutes a quorum
at all meetings of shareholders for matters on which all shareholders are
entitled to vote, and one-third of each Fund's shares outstanding and
entitled to vote on the record date, represented in person or by proxy,
constitutes a quorum at all meetings of shareholders for matters on which
only that Fund's shareholders are entitled to vote. If a quorum is not
present at the meeting, or if a quorum is present at the meeting but
sufficient votes to approve any of the proposals described in this proxy
statement have not been received, the persons named as proxies may propose
one or more adjournments of the meeting to permit further solicitation of
proxies. Any adjournment will require the affirmative vote of the holders
of a majority of shares represented in person or by proxy at the meeting at
that time. The persons named as proxies will vote all proxies that they are
entitled to vote FOR approval of any such proposal in favor of adjournment
and will vote all proxies required to be voted AGAINST any such proposal
against adjournment.
Abstentions and broker non-votes will be counted as shares present
for purposes of determining whether a quorum is present. Broker non-votes
will not be considered votes cast for purposes of the election of directors
or appointment of auditors and any adjournment but will have the same
effect as a vote against approval of any advisory agreement. Accordingly,
abstentions and broker non-votes will have no effect on the election of
directors or ratification of the appointment of auditors, for which the
required vote is a plurality and a majority, respectively, of the votes
cast, but will have the effect of a vote against approval of the new
investment advisory agreements, for which the required vote is a percentage
of the shares present or outstanding. Broker non-votes are shares held in
the name of a broker or nominee for which instructions have not been
received from the beneficial owners or other persons entitled to vote and
the broker or nominee does not have discretionary voting authority.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT
ANNUAL REPORT AND SEMI-ANNUAL REPORT SUCCEEDING SUCH ANNUAL REPORT, IF ANY, TO
HOLDERS UPON REQUEST. A SHAREHOLDER WHO WISHES TO RECEIVE A COPY OF THE
COMPANY'S ANNUAL REPORT OR SEMI-ANNUAL REPORT MAY WRITE TO THE COMPANY AT 993
LENOX DRIVE, SUITE 106, LAWRENCEVILLE, NEW JERSEY 08648, OR CALL 800-332-8910.
------------------------------------
PROPOSALS 1 AND 2:
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
FOR THE STRATEGY FUND WITH GABELLI FUNDS, LLC (PROPOSAL 1)
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
FOR THE CAPITAL VALUE FUND WITH GABELLI FUNDS, LLC (PROPOSAL 2)
Introduction
Comstock Partners, Inc. (the "Current Adviser"), 993 Lenox Drive,
Suite 106, Lawrenceville, New Jersey 08648, has served as investment
adviser to the Strategy Fund since its inception in 1988 and as sub-
adviser to the Capital Value Fund from 1987 to 1996 and thereafter as its
investment adviser. The Current Adviser recently entered into a purchase
agreement (the "Purchase Agreement") with Gabelli Funds, LLC (the "Proposed
Adviser"), One Corporate Center, Rye, New York, 10580, providing for the
sale of substantially all of the assets of the Current Adviser to the
Proposed Adviser and the employment of Charles Minter and Martin Weiner by
the Proposed Adviser. The proposed transactions would involve, among other
things, (i) the Proposed Adviser entering into new investment advisory
agreements (the "New Advisory Agreements") with the Funds, with Mr. Minter
and Mr. Weiner continuing to serve as co-portfolio managers of each Fund's
portfolio in the employ of the Proposed Adviser, and (ii) the Current
Adviser selling to the Proposed Adviser certain assets of the Current
Adviser.
Because the current advisory agreements between the Funds and the
Current Adviser terminate automatically upon their "assignment", which
would occur upon the sale of the Current Adviser's assets to the Proposed
Advisor, the Current Adviser and the Proposed Adviser requested the Board
of Directors of the Company to consider approval of the New Advisory
Agreements with the Proposed Adviser and to approve submission of the New
Advisory Agreements for approval by the shareholders of the Funds at a
special meeting of shareholders.
For the reasons explained more fully below, the Board of Directors
of the Company has unanimously approved, and recommends that each Fund's
shareholders approve, the New Advisory Agreements for the Funds at the
meeting.
Information about Gabelli and the Proposed Adviser
Gabelli. Gabelli, including its subsidiaries, is a widely
recognized provider of investment advisory and brokerage services to
open-end and closed-end mutual funds, institutional and high net worth
investors and partnerships, primarily in the United States. As of December
31, 1999, Gabelli had total assets under management of approximately $22
billion , including $11.6 billion in mutual funds and $10.4 billion in
other managed accounts.
Gabelli was founded in 1976 and entered the mutual fund business
in 1986. Originally, Gabelli's investment philosophy was exclusively
value-oriented, although in recent years it has expanded upon its core of
value-oriented equity products by adding growth-oriented equity and
contrarian, convertible security, fixed income, industry specific,
international, global and real estate-oriented products.
As of December 31, 1999, the Proposed Adviser had approximately
$11.6 billion of assets under management in 26 open-end mutual funds and 4
closed-end mutual funds, representing approximately 53% of Gabelli's total
assets under management. The Proposed Adviser and its affiliates currently
provide advisory services to (i) the Gabelli family of funds, which
consists of 17 open end mutual funds and four closed-end mutual funds, (ii)
the Treasurer's Fund, consisting of three open-end money market funds (the
"Treasurer's Funds"), and (iii) the Gabelli Westwood family of funds,
consisting of six open-end mutual funds, five of which are managed on a
day-to-day basis by an unaffiliated sub-adviser (collectively, the "Gabelli
Funds"). As a group, the Gabelli Funds have a long-term record of achieving
high returns, relative to similar investment products. At December 31,
1999, approximately 99% of the assets under management in the open-end
Gabelli Funds having a rating from Morningstar, Inc. ("Morningstar") were
in open-end Gabelli Funds ranked "three stars" or better, with 50% of such
assets in open-end Gabelli Funds ranked "five stars" and 44% of such assets
in open-end Gabelli Mutual Funds ranked "four stars" on an overall basis
(i.e., based on three-, five- and ten-year risk adjusted average returns).
The Gabelli family of funds was named the top performing mutual fund family
by Mutual Funds Magazine for 1997, and Mario J. Gabelli was named the
domestic-equity fund manager of the year by Morningstar for 1997.
Gabelli may be deemed to be indirectly controlled by Mario J.
Gabelli. Its Class A Common Stock is publicly traded on the New York Stock
Exchange under the symbol GBL.
Proposed Adviser. The Proposed Adviser is a New York limited
liability company which is wholly owned by Gabelli. The Proposed Adviser is
registered as an investment adviser under the Investment Advisers Act of
1940. It was organized in 1999 as successor to the investment advisory
division of Gabelli Group Capital Partners, Inc., a New York corporation
organized in 1980.
The names and principal occupations of the principal executive officers of the
Proposed Adviser are as follows:
NAME PRINCIPAL OCCUPATION
---- --------------------
Mario J. Gabelli, CFA Chairman, Chief Executive Officer and Chief
Investment Officer
Bruce N. Alpert, CPA Executive Vice President and Chief Operating
Officer
James E. McKee Secretary
Gus Coutsouros, CPA Vice President and Chief Financial Officer
The address of each such person is One Corporate Center, Rye, New York
10580-1434.
Current Adviser
The Current Adviser was organized as a Delaware corporation in
October 1986. The Current Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940. As of December 31, 1999, the
assets under management of the Current Adviser totaled approximately $110
million.
Charles L. Minter, Director, Chairman of the Board and Chief
Executive Officer of the Company, is Director, Chairman of the Board and
Chief Executive Officer of the Current Adviser. Martin Weiner, President
and Chief Financial Officer of the Company, is Director of Research of the
Current Adviser. Robert C. Ringstad, Vice President and Treasurer of the
Company, is Vice President, Treasurer, Chief Financial Officer and
Assistant Secretary of the Current Adviser. Carolyn Matlin, Secretary of
the Company, is Head Trader of the Current Adviser. The Current Adviser is
owned by Charles L. Minter.
Background of the Proposed Transaction
Each of the Funds has a disappointing long-term record. Since its
inception in May, 1988, the Strategy Fund (Class O) has cumulatively
returned for shareholders 1.35% on an annualized basis through December 31,
1999, as compared to 19.11% for the Standard & Poor's 500 Index, 8.27% for
the Lehman Brothers Govt./Corp. Bond Index and 13.38% for a blended index
composed 65% of the Lehman Brothers Govt./Corp. Bond Index and 35% of the
Standard & Poor's 500 Index. Since the Current Adviser became the
sub-adviser to the Capital Value Fund's predecessor in 1987, the Capital
Value Fund (Class A) has cumulatively returned for shareholders -26.73% on
an annualized basis through December 31, 1999, as compared to 27.35% for
the Standard & Poor's 500 Index. In recent years, the Current Adviser has
taken a definitively more bearish approach to investing the Funds'
portfolios than most other investment advisers to mutual funds. This
bearish bias has reflected the Current Adviser's observation that, in
recent years, virtually all traditional benchmarks of stock market
valuation have exceeded the previously established upper limits of their
long-term historical ranges, in unprecedented degree and duration. Based on
historical valuation analysis, the Current Adviser views this phenomenon as
presenting an extraordinary risk of potential loss of capital. Each of the
Funds has accordingly been positioned during this period as a specialty
mutual fund whose investment performance has had little correlation to the
equity indices. Although the Funds' performance has lagged during this
period, the Funds have nevertheless provided shareholders and prospective
investors with a means of limiting downside risk and potential
outperformance in a down market.
The Board of Directors has monitored on an ongoing basis the
Current Adviser's underlying rationale for its bearish investment strategy.
The Board believes that the Current Adviser has a well thought-out and
coherent view and that there is a place in the mutual fund industry for
bearish, non-market correlated investment vehicles during periods of high
stock market valuations.
The Board of Directors also believes that there are benefits to a
consistent investment approach and that the Funds' shareholders have been
well informed of the Current Adviser's bearish outlook and the resulting
posture of the Funds. Indeed, the Board believes that many current
shareholders would find it disconcerting if the Funds were to change course
abruptly for reasons inconsistent with the Current Adviser's outlook.
Over the last several years, each of the Funds has experienced net
redemptions as shareholders who presumably no longer agreed with the Funds'
respective portfolio strategies, or for other reasons, have redeemed their
shares. Although these shareholders may return to either one or both of the
Funds when they perceive the market environment to be changing, both the
Board of Directors and the Current Adviser have from time to time discussed
the Funds' long-term ability to retain and build their respective asset
bases as stand-alone entities in today's consolidating and highly
competitive mutual fund industry. Accordingly, the Board of Directors and
the Current Adviser have been receptive to the possibility of aligning the
Company with a larger fund organization with substantial investment
management and marketing capabilities, higher visibility and a commitment
to positioning the Funds as non-market correlated specialty funds among a
wide selection of mutual fund alternatives.
The Current Adviser has from time to time over the years explored
possible arrangements with various fund organizations, including
discussions with Gabelli which began on an informal basis several months
ago. These discussions culminated in the Current Adviser and the Proposed
Adviser entering into the Purchase Agreement providing for the transactions
described below.
On December 14, 1999, the Current Adviser and the Proposed Adviser
entered into the Purchase Agreement, which contemplates that, subject to
approval of the New Advisory Agreements by the Company's Board of Directors
and shareholders, the Current Adviser will sell substantially all of its
assets to the Proposed Adviser, who will employ Charles Minter and Martin
Weiner to continue to serve as co-portfolio managers of the Funds. The
proposed transactions would be subject to, among other things, (i) the
Proposed Adviser entering into the New Advisory Agreements with the Funds,
with Mr. Minter and Mr. Weiner continuing to serve as co-portfolio managers
of each Fund's portfolio in the employ of the Proposed Adviser, and (ii)
the Current Adviser selling to the Proposed Adviser certain assets of the
Current Adviser. Each of the proposed New Advisory Agreements would provide
for a single fee covering investment advisory and administrative services,
which would be .85% of average daily net assets for the Strategy Fund and
1.00% of average daily net assets for the Capital Value Fund. These fee
rates are lower (in the case of the Strategy Fund) and higher (in the case
of the Capital Value Fund) than the percentage of assets currently paid by
the Funds for the same services. However, the Proposed Adviser expects to
achieve cost savings for the Funds in other areas so that the overall
expense ratios for the Strategy Fund will remain lower on current assets
than at present and will not be substantially higher in the case of the
Capital Value Fund. In addition, the Proposed Adviser would waive a portion
of its management fee for the first two years to the extent necessary to
maintain expense ratios for the Funds at 1999 levels (other than
extraordinary expenses) with respect to the amount of assets held by each
Fund at the time each new advisory agreement goes into effect. A Gabelli
broker-dealer affiliate, Gabelli & Company, Inc., will also become
distributor for each of the Funds, and the Proposed Adviser will assume
responsibility for the administrative functions for the Funds, including
oversight of the transfer agent, custodian and other third-party
relationships.
The Company is proposed to be renamed Gabelli Comstock Funds,
Inc., the Strategy Fund is proposed to be renamed the Gabelli Comstock
Strategy Fund and the Capital Value Fund is proposed to be renamed the
Gabelli Comstock Capital Value Fund.
The Purchase Agreement contemplates that, subject to approval of
the New Advisory Agreements by the Company's Board of Directors and
shareholders, Mr. Minter and Mr. Weiner will become co-portfolio managers
for the Funds in the employ of the Proposed Adviser. Mr. Minter has entered
into a written employment agreement with the Proposed Adviser for a term of
nine years commencing at the time the New Advisory Agreements become
effective and will receive base compensation for two years and, subject to
certain conditions, incentive-based compensation over a period of nine
years. Mr. Weiner will receive a base salary and, potentially, bonus
compensation.
The Purchase Agreement provides that it may be terminated in the
event that the shareholders of the Company do not approve the various
matters outlined for their approval in this proxy statement.
Board Consideration
The Board of Directors of the Company, including a majority of the
directors who are not "interested persons" of the Company, the Current
Adviser or Gabelli, as defined in the 1940 Act, considered and unanimously
approved the New Advisory Agreements at a meeting held on December 14,
1999. The Board of Directors had the assistance of legal counsel, who
advised the Directors as to their legal obligations.
In considering whether to recommend that the New Advisory
Agreements be approved by shareholders of the Company, the Board of
Directors met with representatives of Gabelli, received materials relating
to the proposed New Advisory Agreements and the transaction with the
Proposed Adviser, and thereafter had the opportunity to ask questions and
request further information in connection with such consideration.
The materials received by the Board included: a synopsis of the
proposed transaction; actual and pro forma cost and expense ratio analyses;
a copy of the Purchase Agreement; materials about Gabelli, the Proposed
Adviser, its key personnel and the Gabelli family of funds; financial
information on Gabelli and the Proposed Adviser; the proposed New Advisory
Agreements and information about trends in the mutual fund industry. The
Board of Directors and the directors who are not "interested persons" also
receive on a periodic basis extensive additional information relating to
the Company, including (i) information on the Funds' portfolio holdings and
their respective securities transactions, (ii) performance information on
the Funds' portfolios and their portfolio segments and the Current
Adviser's outlook at least quarterly at their regular Board meetings, and
(iii) interim communications on a variety of topical matters.
The Board of Directors, together with the Company's legal counsel,
interviewed representatives of Gabelli to discuss the management philosophy
of Gabelli, the manner in which the proposed transaction can be expected to
affect the Funds, and certain other matters.
In considering the New Advisory Agreements, the Board of Directors
and the directors who are not "interested persons" considered a variety of
factors that they deemed relevant. The following summary does not detail
all the matters considered. Factors considered in connection with the
approval of the New Advisory Agreements included, in addition to those
addressed in "Background of the Transaction" above, the following:
(i) The Board's belief that Gabelli is a widely recognized
and respected provider of investment advisory services to
mutual fund and other investors;
(ii) The Board's belief that Gabelli's financial strength and
stability may enhance the Funds' long- term prospects in
the consolidating, highly competitive mutual fund
industry, where marketing and distribution capabilities
are increasingly critical factors;
(iii) Gabelli's proposal to retain the Funds' identities and
investment approach as non-market correlated specialty
funds and to have Mr. Minter and Mr. Weiner continue to
co-manage the Funds' portfolios in the employ of Gabelli;
(iv) The Board's belief that the Funds' investment performance
may benefit from access to Gabelli's proprietary "Private
Market Value" equity and arbitrage research, Gabelli's
daily research calls, and the historically highly
successful Gabelli value-oriented investment philosophy
and investment strategies;
(v) The fact that during the first two years of the New
Advisory Agreements, the Proposed Adviser will waive a
portion of its management fee to the extent necessary to
maintain expense ratios for the Funds at 1999 levels
(other than extraordinary expenses) with respect to the
amount of assets held by each Fund at the time each new
advisory agreement goes into effect; and
(vi) The projection of operating cost reductions on certain
expenses, including estimated reductions in transfer
agent, insurance, legal and audit expenses, due to the
Proposed Adviser's administrative economies of scale and
negotiating power.
The Board further considered whether the arrangements between the
Proposed Adviser and the Current Adviser comply with the conditions of
Section 15(f) of the 1940 Act. Section 15(f) provides a non- exclusive safe
harbor for an investment adviser to an investment company or any of its
affiliated persons to receive any amount or benefit in connection with a
sale of an interest in the investment adviser so long as two conditions are
met. First, for a period of three years after closing, at least 75% of the
board members of the investment company must not be "interested persons" of
such investment adviser or of the predecessor investment adviser. The
composition of the Board of Directors of the Company, as proposed to be
reconstituted, would be in compliance with this provision of Section 15(f).
(See Proposal 3 - "Election of Directors"). Second, an "unfair burden" must
not be imposed upon the investment company as a result of such transaction
or any express or implied terms, conditions or understandings applicable
thereto. The term "unfair burden" is defined in Section 15(f) to include
any arrangement during the two-year period after the transaction whereby
the investment adviser, or any interested person of any such adviser or of
the predecessor investment adviser, receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or its
shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment
company (other than bona fide ordinary compensation as principal
underwriter for such investment company). The Proposed Adviser has informed
the Board that it is not aware of any express or implied term, condition,
arrangement or understanding that would impose an "unfair burden" on either
Fund as a result of the transactions contemplated by the Purchase
Agreement. The Proposed Adviser has also agreed that it, and its
affiliates, will not take any action that to its or their knowledge would
have the effect of imposing an "unfair burden" on either Fund as a result
of such transactions. Finally, the Board considered whether the Current
Adviser or Mr. Minter would directly or indirectly receive any compensation
from the Fund that would constitute an "unfair burden," and the Board
determined that they would not.
Description of New Advisory Agreements
The following description of the New Advisory Agreements is
qualified by the provisions of the New Advisory Agreements, a copy of the
form of which is attached hereto as Exhibit A.
The New Advisory Agreements provide that the Proposed Adviser will
act as investment adviser to each Fund, supervise and manage each Fund's
investment activities on a discretionary basis and oversee the
administration of each Fund's business and affairs. In this connection, the
Proposed Adviser will be responsible for maintaining certain of each Fund's
books and records and performing other administrative aspects of each
Fund's operations to the extent not performed by such Fund's custodian,
transfer agent and dividend disbursing agent. The Proposed Adviser will be
permitted to subcontract at its own expense these administrative
responsibilities to persons it believes are qualified to perform such
services and expects to subcontract certain of these administrative
responsibilities to PFPC Inc. (the "Sub-Administrator") pursuant to a
Sub-Administration Agreement (the "Sub-Administration Agreement").
As compensation for the Proposed Adviser's services and related
expenses, the Strategy Fund will pay the Proposed Adviser a fee computed
daily and payable monthly in an amount equal on an annualized basis to .85%
of such Fund's daily average net assets and the Capital Value Fund will pay
the Proposed Adviser a fee computed daily and payable monthly in an amount
equal on an annualized basis to 1.0% of such Fund's daily average net
assets. However, the Proposed Adviser will agree in the New Advisory
Agreements to waive a portion of each such fee for the first two years to
the extent necessary to maintain expense ratios for each Fund at 1999
levels (other than extraordinary expenses) with respect to the amount of
assets held by each Fund at the time each new advisory agreement goes into
effect. This waiver will not apply with respect to incremental assets.
The Proposed Adviser (not the Company or either Fund) will pay the
Sub-Administrator an administration fee based on the aggregate net assets
of each Fund and all other administered funds subject to the
Sub-Administration Agreement of .0275% per annum of net assets up to $10
billion, 0.0125% per annum of the next $5 billion of net assets, and .01%
per annum of net assets above $15 billion.
The Proposed Adviser will bear all costs and expenses incurred in
connection with its duties under the New Advisory Agreements, including the
fees or salaries of directors or officers of the Company who are affiliated
persons of the Proposed Adviser. The Current Adviser and the Proposed
Adviser will bear all costs and expenses relating to the transactions
described in this proxy statement. Subject to the foregoing, each Fund will
be responsible for the payment of all of its other expenses including (i)
payment of the fees payable to the Proposed Adviser under the New Advisory
Agreements; (ii) organizational expenses; (iii) brokerage fees and
commissions; (iv) taxes; (v) interest charges on borrowings; (vi) the cost
of liability insurance or fidelity bond coverage for the Company's officers
and employees, and directors' and officers' errors and omissions insurance
coverage; (vii) legal, auditing and accounting fees and expenses; (viii)
charges of the Fund's custodian, transfer agent and dividend disbursing
agent; (ix) the Fund's pro rata portion of dues, fees and charges of any
trade association of which the Company is a member; (x) the expenses of
printing, preparing and mailing proxies, stock certificates and reports,
including the prospectus and statement of additional information, and
notices to shareholders; (xi) filing fees for the registration or
qualification of the Fund as a separate portfolio of an open-end investment
company and its shares under federal or state securities laws; (xii) the
fees and expenses involved in registering and maintaining the registration
of the Fund's shares with the Securities and Exchange Commission; (xiii)
the expenses of holding shareholder meetings; (xiv) the compensation,
including fees, of any of the Company's directors, officers or employees
who are not affiliated persons of the Proposed Adviser; (xv) all expenses
of computing the Fund's net asset value per share, including any equipment
or services obtained solely for the purpose of pricing shares or valuing
the Fund's investment portfolio; (xvi) expenses of personnel performing
shareholder servicing functions and all other distribution expenses payable
by the Fund pursuant to any 12b-1 plan or otherwise legally payable by the
Fund; and (xvii) litigation and other extraordinary or non-recurring
expenses and other expenses properly payable by the Fund.
The New Advisory Agreements provide that in the course of the
Proposed Adviser's execution of portfolio transactions for the Funds, the
Proposed Adviser may, subject to conditions as may be specified by the
Company's Board of Directors, (i) place orders for the purchase or sale of
the Funds' portfolio securities with the Proposed Adviser's affiliate,
Gabelli & Company, Inc.; (ii) pay commissions to brokers other than its
affiliate which are higher than might be charged by another qualified
broker to obtain brokerage and/or research services considered by the
Proposed Adviser to be useful or desirable in the performance of its duties
thereunder and for the investment management of other advisory accounts
over which it or its affiliates exercise investment discretion; and (iii)
consider sales by brokers (other than its affiliate distributor) of shares
of the Company and any other mutual fund for which it or its affiliates act
as investment adviser, as a factor in its selection of brokers and dealers
for Fund portfolio transactions.
The New Advisory Agreements provide that absent wilful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties under such agreements, the Proposed Adviser and its
employees, officers, directors, agents or controlling persons will not be
liable for any act or omission or for any loss sustained by the Company
with respect to either Fund. However, the New Advisory Agreements provide
that the Company is not waiving any rights that it may not waive under
applicable law. The New Advisory Agreements also provide that the Company,
on behalf of each Fund, will indemnify the Proposed Adviser and each of
such persons against any liabilities and expenses incurred in the defense
or disposition of any action or proceeding arising out of the New Advisory
Agreements unless a court finds that the person seeking indemnification did
not act in good faith in the reasonable belief that his or her action was
in the best interest of the applicable Fund (and, in a criminal case, that
the person had no reasonable cause to believe that his or her conduct was
unlawful). The New Advisory Agreements provide specific procedures and
standards for making advance payments relating to indemnification and
permit the Board to disallow indemnification in certain situations.
The New Advisory Agreements expressly permit the Proposed Adviser
to act as investment adviser to others and provides that the word "Gabelli"
in the Company's and each Fund's name is derived from the name of Mario J.
Gabelli and that such name may freely be used by the Proposed Adviser for
other investment companies, entities or products. The New Advisory
Agreements also provide that in the event that the Proposed Adviser ceases
to be the Company's investment adviser with respect to the Funds, the
Company and each Fund will, unless the Proposed Adviser otherwise consents
in writing, promptly take all steps necessary to change its name to a new
name which does not include "Gabelli."
The New Advisory Agreements are terminable without penalty by the
Company on not more than 60 days' written notice when authorized by the
Directors or by the holders of the same proportion of shares required to
authorize the New Advisory Agreements, or by the Proposed Adviser on not
more than 60 days' written notice. The New Advisory Agreements will
automatically terminate in the event of their assignment, as defined in the
1940 Act and the rules thereunder. The New Advisory Agreements provide that
unless terminated they will remain in effect for a period of two years, and
from year to year thereafter, so long as continuation of the New Advisory
Agreements is approved annually by the Directors of the Company or the
shareholders of the Company and, in either case, by a majority of the
Directors who are not parties to the New Advisory Agreements or "interested
persons" as defined in the 1940 Act of any such person. The New Advisory
Agreements also provide that, without the consent of shareholders,
nonmaterial terms of the New Advisory Agreements may be modified with the
approval of a majority of the directors who are not interested persons of
the Company or the Proposed Adviser.
Description of Current Advisory Agreements
The Current Adviser acts as investment adviser for the Strategy
Fund under an investment advisory agreement dated as of August 30, 1996 and
for the Capital Value Fund under an investment advisory agreement dated as
of August 30, 1996 (the "Current Advisory Agreements"). The Current
Advisory Agreement with the Strategy Fund was last approved by shareholders
of the Strategy Fund, and the Current Advisory Agreement with the Capital
Value Fund was last approved by shareholders of the Capital Value Fund, at
a meeting held on December 20, 1996. The continuation of the Current
Advisory Agreements was most recently approved by the Company's Board of
Directors, including approval by a majority of directors who are not
interested persons of the Company or the Current Adviser, on June 17, 1999.
Under the Current Advisory Agreements, the Current Adviser
furnishes continuous investment advisory services and management to each
Fund. With respect to the Strategy Fund, the Current Adviser receives a
monthly fee at an annual rate of 0.60% of the Strategy Fund's average daily
net assets. With respect to the Capital Value Fund, the Current Adviser
receives a monthly fee at the following annual rate: 0.40% of the first
$300 million of the Fund's average daily net assets; 0.45% of the Fund's
average daily net assets between $300 million and $750 million; 0.50% of
the Fund's average daily net assets between $750 million and $1 billion;
and 0.55% of the Fund's average daily net assets in excess of $1 billion.
The fees paid by the Funds to the Current Adviser for the fiscal year ended
April 30, 1999 were $460,751 for the Strategy Fund and $392,277 for the
Capital Value Fund. In addition, for the fiscal year ended April 30, 1999,
the Current Adviser paid $115,188 to The Dreyfus Corporation ("Dreyfus")
for serving as subadviser to the Strategy Fund, and the Company, on behalf
of the Capital Value Fund, paid $343,244 to Dreyfus for serving as
subadviser and administrator to the Capital Value Fund. These arrangements
with Dreyfus were terminated as of August 31, 1999.
Under the Current Advisory Agreements, the Current Adviser, at its
own expense and without reimbursement from the Funds, furnishes office
space, office facilities, equipment, personnel (including executive
officers but excluding the services of directors who are not affiliated
persons of the Current Adviser) and clerical and bookkeeping services for
managing the assets of the Funds, and bears all sales and promotional
expenses of the Funds, other than expenses incurred in complying with laws
regulating the issuance or sale of securities and those costs assumed by
the Funds' distributor. The Funds bear all other expenses of their
operations (principally transfer agent, legal, auditing, custodian, taxes,
shareholder communication expenses, registration and printing, proxy
materials, shareholder reports, and prospectuses sent to existing
shareholders and filed with regulatory authorities).
The Current Advisory Agreements are not assignable and may be
terminated by either the Company or the Current Adviser, without penalty,
on 60 days' written notice. The Current Advisory Agreements provide that
they will continue in effect from year to year so long as they are approved
at least annually by (i) a majority of the directors of the Company who are
not parties to the agreement or "interested persons" of the Company or of
the Current Adviser cast in person at a meeting called for the purpose of
voting on such approval, and (ii) either by the Board of Directors of the
Company or by the relevant Fund's shareholders by a vote of the lesser of
(A) 67% of the shares present at a meeting, if more than 50% of the
outstanding shares are present or represented, or (B) more than 50% of the
outstanding shares.
The Current Advisory Agreement provides that the services of the
Current Adviser to the Funds are not to be deemed exclusive and that the
Current Adviser may furnish similar services to others so long as the
services to the Funds are not impaired thereby.
Material Differences Between the Current Advisory Agreements and the
Proposed New Advisory Agreements
The terms and conditions of the proposed New Advisory Agreement
differ in certain material respects from those of the Current Advisory
Agreement. The more significant substantive differences between the New
Advisory Agreement and the Current Advisory Agreement are summarized below.
The investment advisory fee rate of 0.85% of the Strategy Fund's
average daily net assets on an annualized basis, and 1% of the Capital
Value Fund's average daily net assets on an annualized basis, provided for
in the New Advisory Agreements is higher than the actual rate (0.60% of the
Strategy Fund's average daily net assets on an annualized basis and 0.40%
of the Capital Value Fund's average daily net assets on an annualized
basis, the lowest rate possible under the Capital Value Fund's Current
Advisory Agreement) to which the Funds are currently subject and higher
than the highest possible rate (0.60% of the Strategy Fund's average daily
net assets on an annualized basis and 0.55% of the Capital Value Fund's
average daily net assets on an annualized basis) to which the Funds may
currently be subject. However, each of the Funds pays monthly
administrative fees at an annual rate equal to the greater of $125,000 per
annum (for each Fund) or an annual rate equal to 0.25% of each Fund's
average daily net assets up to $100 million, 0.225% of each Fund's average
daily net assets between $100 million and $200 million, 0.20% of each
Fund's average daily net assets between $200 million and $600 million and
0.175% of each Fund's average daily net assets in excess of $600 million.
Inasmuch as the Proposed Adviser is absorbing administrative costs under
the New Advisory Agreements without a separate charge, the comparable cost
to the Capital Value Fund currently is 0.65%, and to the Strategy Fund
currently is 0.85%, of average daily net assets on an annualized basis. In
addition, during the first two years of the New Advisory Agreements, the
Proposed Adviser will agree in the New Advisory Agreements to waive a
portion of its advisory fee for the first two years to the extent necessary
to maintain expense ratios for the Funds at 1999 levels (other than
extraordinary expenses) with respect to the amount of assets held by each
Fund at the time each new advisory agreement goes into effect. The Strategy
Fund's net assets as of December 31, 1999 were approximately $40 million
and the Capital Value Fund's net assets as of December 31, 1999 were
approximately $70 million, and to the extent that during all or any portion
of this two-year period either Fund's net assets exceed the level at the
time the New Advisory Agreements take effect, the advisory fee rate on the
excess under the New Advisory Agreements will be essentially 0.06% per
annum lower than the combined investment advisory and administrative rate
the Strategy Fund would currently pay on these assets and 0.35% per annum
higher than the combined investment advisory and administrative rate the
Capital Value Fund would currently pay on these assets (up to $300 million
in assets).
The New Advisory Agreements contain no "break-points" providing
for a higher advisory fee rate on assets above certain levels as does the
Current Advisory Agreement with the Capital Value Fund on assets above $300
million, $750 million and $1 billion. See "Description of Current Advisory
Agreements."
The New Advisory Agreements obligate the Proposed Adviser to provide
specified administrative services and permit the Proposed Adviser to delegate
any or all of its responsibilities to one or more sub- advisors or
administrators, subject to the approval of the Company's Board, whereas the
Current Advisory Agreements contain no such provision.
The New Advisory Agreements provide that the Company, on behalf of
each Fund, will generally exculpate and indemnify the Proposed Adviser and
its personnel and controlling persons with respect to liabilities and
expenses not resulting from wilful misfeasance, bad faith, gross negligence
or reckless disregard of obligations and duties, whereas the Current
Advisory Agreements provide for exculpation of the Current Adviser under
such circumstances.
The New Advisory Agreements permit the Proposed Adviser, under
such conditions as may be specified by the Company's Board, to place orders
for the purchase or sale of the Funds' portfolio securities with an
affiliate of Gabelli and to consider sales by brokers (other than
affiliates of Gabelli) of shares of the Funds or any affiliated mutual fund
as a factor in selecting brokers or dealers, whereas the Current Advisory
Agreements contain no such provisions.
Fees and Expenses
The following information shows the fees and expenses that a
shareholder of each Fund may pay to buy and hold shares of a Fund and the
amount of such fees and expenses on a pro forma basis (both for the first
two years and for the third year and thereafter) as if the Proposed Adviser
had been the investment adviser to the Fund for such year, and the other
changes contemplated by the Purchase Agreement had been implemented:
SHAREHOLDER FEES (fees paid directly from the shareholder's investment)
STRATEGY FUND
Class A Class C Class O
------- ------- -------
Maximum sales charge (as a
percentage of offering price) 4.5% 0% 0%
Maximum deferred sales charge
(as a percentage of purchase
price) 0% 1% 0%
The pro forma amounts are the same as the amounts shown above.
CAPITAL VALUE FUND
<TABLE>
<CAPTION>
Class A Class B Class C Class R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum sales charge (as a
percentage of offering price) 4.5% 0% 0% 0%
Maximum deferred sales charge
(as a percentage of purchase
price) 1%* 4% 1% 0%
</TABLE>
- -----------
* Applicable to purchases in excess of $1 million without a sales change.
The pro forma amounts are the same as the amounts shown above.
ANNUAL FUND OPERATING EXPENSES (expenses that are deductible from Fund assets)
The costs of operating each Fund are deducted from the Fund's
assets, which means that Fund shareholders pay them indirectly. The expense
information shown below is based on amounts incurred during each Fund's
calendar year ended December 31, 1999 and the amounts on a pro forma basis
(both for the first two years and for the third year and thereafter) as if
the Proposed Adviser had been the investment adviser to the Fund for such
year and the other changes contemplated by the Purchase Agreement had been
implemented.
<TABLE>
<CAPTION>
STRATEGY FUND - Annual Fund Operating Expenses (as a percentage of average net assets)
PRO FORMA
PRO FORMA (THIRD YEAR AND
ACTUAL (FIRST TWO YEARS) THEREAFTER)
------ ----------------- -----------
<S> <C> <C> <C>
Management Fees.................................. 0.40% 0.85% 0.85%
Service and Distribution (12b-1) Fees............ 0.0,0.25, 1.00%(a) no change(a) no change(a)
Other Expenses................................... 1.50%(b) 1.00%** 1.03%**
------------------ ------------ ------------
Total Fund Operating Expenses
(before fee waiver)* 1.90, 2.15, 2.90% 1.85, 2.10, 2.85% 1.88, 2.13, 2.88%
Fee Waiver*...................................... 0 0 0
---------------------- --------------------- --------------------
Total Fund Operating Expenses
(after fee waiver)* 1.90, 2.15, 2.90% 1.85, 2.10, 2.85% 1.88, 2.13, 2.88%
(a) Class O is 0% per year, Class A is .25% per year and Class C is
1.00% per year.
(b) Excludes .18% for non-recurring litigation expense considered to
be extraordinary expense.
* Pursuant to the New Advisory Agreement, the Proposed Adviser will
agree to waive a portion of its management fee for the first two
years to the extent necessary to maintain expense ratios for the
Strategy Fund at 1999 levels (other than extraordinary expenses)
with respect to the amount of assets held by the Strategy Fund at
the time the Proposed Advisory Agreement goes into effect. This
waiver will not apply with respect to incremental assets.
** Other Expenses (pro forma) are based on amounts incurred during
1999, restated to reflect estimated reductions in transfer agent,
audit, legal and insurance expenses upon the Proposed Adviser
becoming the investment adviser to the Strategy Fund.
</TABLE>
Example:
This example is intended to assist shareholders in comparing the
cost of investing in the Strategy Fund, over various time periods, with the
cost of investing in other mutual funds on an actual basis and on a pro
forma basis (both for the first two years and for the third year and
thereafter) as if the Proposed Adviser had been the investment adviser to
the Strategy Fund for such year. The example assumes that a shareholder
invests an initial $10,000 in the Strategy Fund and then redeems all shares
at the end of each holding period as indicated below. The example also
assumes that the shareholder's investment has a 5% return each year and
that the Strategy Fund's operating expenses remain constant. Although a
shareholder's actual costs may be higher or lower, based on these
assumptions, these costs would be:
<TABLE>
<CAPTION>
CLASS A
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Actual $680 $1,159 $1,663 $3,044
Pro Forma (first two years) $633 $1,017 $1,425 $2,562
Pro Forma (third year and thereafter) $635 $1,023 $1,435 $2,582
CLASS C
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Actual $313 $957 $1,625 $3,411
Pro Forma (first two years) $288 $883 $1,504 $3,176
Pro Forma (third year and thereafter) $291 $892 $1,518 $3,204
CLASS O
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Actual $213 $658 $1,129 $2,431
Pro Forma (first two years) $188 $582 $1,001 $2,169
Pro Forma (third year and thereafter) $191 $591 $1,016 $2,201
</TABLE>
The following table shows, for 1999 based on the average net assets of the
Strategy Fund for such calendar year of $76,791,807, (i) the amount of the
advisory fee paid to the Current Adviser and administrative fees paid to
third parties other operating expenses and total operating expense, (ii)
the amount of the advisory fee (including administrative fees) on a pro
forma basis as if the advisory fee contained in the New Advisory Agreement
(both for the first two years and the third year and thereafter) had been
in effect for such year, and (iii) the percentage increases (both for the
first two years and for the third year and thereafter) in the pro forma
over the actual amounts for such year.
<TABLE>
<CAPTION>
Actual Pro Forma % Increase (Decrease) % Increase (Decrease)
---------- ------------------------- ---------------------------- ----------------------------
first two third year and
years thereafter (first two years) (third year and thereafter)
---------- ---------- ------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Advisory and
Administration Fee $365,000 $340,000 $340,000 (6.8%) (6.8%)
Other Operating
Expenses $474,467 $400,398 $410,398 (15.6%) (13.5%)
Total Expenses
before Distribution
Expense $839,467 $740,398 $750,398 (11.8%) (10.6%)
</TABLE>
<TABLE>
<CAPTION>
CAPITAL VALUE FUND - ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
PRO FORMA
PRO FORMA (THIRD YEAR AND
ACTUAL (FIRST TWO YEARS) THEREAFTER)
------ ----------------- -----------
<S> <C> <C> <C>
Management Fees.................................. 0.40% 1.00% 1.00%
Service and Distribution (12b-1) Fees............ 0.0,0.25, 1.00%(a) no change(a) no change(a)
Other Expenses................................... .90%(b) .53%** .55%**
--------------------- ---------------------- ----------------------
Total Fund Operating Expenses
(before fee waiver)* 1.30, 1.55, 2.30% 1.53, 1.88, 2.53% 1.55, 1.80, 2.55%
Fee Waiver*...................................... 0 (.23%) 0
--------------------- ---------------------- ----------------------
Total Fund Operating Expenses
(after fee waiver)* 1.30, 1.55, 2.30% 1.30, 1.55, 2.30% 1.55, 1.80, 2.55%
(a) Class R is 0% per year, Class A is .25% per year and Class B and
Class C are 1.00% per year.
(b) Excludes 0.11% for non-recurring litigation expenses considered to
be extraordinary expense.
* Pursuant to the New Advisory Agreement, the Proposed Adviser will
agree to waive a portion of its management fee for the first two
years to the extent necessary to maintain expense ratios for the
Capital Value Fund at 1999 levels (other than extraordinary
expenses) with respect to the amount of assets held by the Capital
Value Fund at the time the Proposed Advisory Agreement goes into
effect. This waiver will not apply with respect to incremental
assets.
** Other Expenses (pro forma) are based on amounts incurred during
1999, restated to reflect estimated reductions in transfer agent,
audit, legal and insurance expenses and administrative costs
relating to state securities law filings upon the Proposed Adviser
becoming the investment adviser to the Capital Value Fund.
</TABLE>
Example:
This example is intended to assist shareholders in comparing the
cost of investing in the Capital Value Fund, over various time periods,
with the cost of investing in other mutual funds on an actual basis and on
a pro forma basis (both for the first two years and for the third year and
thereafter) as if the Proposed Adviser had been the investment adviser to
the Capital Value Fund for such year. The example assumes that a
shareholder invests an initial $10,000 in the Capital Value Fund and then
redeems all shares at the end of each holding period as indicated below.
The example also assumes that the shareholder's investment has a 5% return
each year and that the Capital Value Fund's operating expenses remain
constant. Although a shareholder's actual costs may be higher or lower,
based on these assumptions, these costs would be:
<TABLE>
<CAPTION>
CLASS A
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Actual $626 $994 $1,386 $2,481
Pro Forma (first two years) $626 $994 $1,386 $2,481
Pro Forma (third year and thereafter) $636 $1,026 $1,440 $2,592
CLASS B
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Actual $233 $718 $1,230 $2,636
Pro Forma (first two years) $233 $718 $1,230 $2,636
Pro Forma (third year and thereafter) $258 $793 $1,355 $2,885
CLASS C
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Actual $233 $718 $1,230 $2,636
Pro Forma (first two years) $233 $718 $1,230 $2,636
Pro Forma (third year and thereafter) $258 $793 $1,355 $2,885
CLASS R
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Actual $132 $412 $713 $1,568
Pro Forma (first two years) $132 $412 $713 $1,568
Pro Forma (third year and thereafter) $158 $490 $845 $1,845
</TABLE>
The following table shows, for 1999 based on the average net assets of the
Capital Value Fund for such calendar year of $98,069,680, (i) the amount of
the advisory fee paid to the Current Adviser and the amount of the sub-
advisory fee paid to Dreyfus as sub-adviser other operating expenses and
total operating expenses (ii) the amount of the advisory fee on a pro forma
basis as if the advisory fee contained in the New Advisory Agreement (both
for the first two years and the third year and thereafter) and other
operating expenses had been in effect for such year, and (iii) the
percentage increases (both for the first two years and for the third year
and thereafter) in the pro forma over the actual advisory fees for such
year.
<TABLE>
<CAPTION>
Percentage Increase Percentage Increase
Actual Pro Forma (Decrease) (Decrease)
-------------- ----------------------------- -------------------- -------------------
first two third year and (third year
years thereafter (first two years) and thereafter)
-------------- ------------ --------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
Advisory and
Administration Fee $455,000 $535,000(a) $700,000 17.6% 53.8%
Other Operating Expenses $452,713 $372,707 $382,707 (17.6%) (15.5%)
Total Expenses
before Distribution Expenses $907,713 $907,707 $1,082,707 0.0% 19.3%
- -------------------
(a) net of $165,000 fee waiver
</TABLE>
The Proposed Adviser and its affiliates provide investment advice
and management to an aggregate of 25 other registered investment companies
and portfolios (excluding money market funds). Under the terms of their
investment advisory agreements, the foregoing funds pay monthly
compensation at the following annual rates, based on the average daily net
assets of the respective investment companies.
Non-Money Market Mutual Funds Managed by Gabelli Funds, LLC and its Affiliates
NET ASSETS ($ MILS)
AS OF DECEMBER 31, ADVISORY
NAME OF FUND 1999 FEE RATE
------------ ------------------- --------
Gabelli Asset Fund 1,994 1.00%
Gabelli Growth Fund 3,155 1.00%
Gabelli Value Fund 1,204 1.00%
Gabelli Small Cap Growth Fund 338 1.00%
Gabelli Equity Income Fund 89 1.00%
Gabelli ABC Fund 43 1.00%
Gabelli Global Telecommunications Fund 459 1.00%
Gabelli Global Growth Fund 446 1.00%
Gabelli Global Convertible Securities Fund 18 1.00%
Gabelli Global Opportunity Fund 27 1.00%
Gabelli Gold Fund 14 1.00%
Gabelli International Growth Fund 49 1.00%
Gabelli Capital Asset Fund (a) 176 1.00%
Gabelli Equity Trust (b) 1,500 1.00%
Gabelli Global Multimedia Trust (b) 246 1.00%
Gabelli Convertible Securities Fund (b) 120 1.00%
Gabelli Utility Trust (b) 83 1.00%
Gabelli Westwood Equity Fund (c) 172 1.00%
Gabelli Westwood Mighty Mites Fund (c) 13 1.00%
Gabelli Westwood Realty Fund (c) 2 1.00%
Gabelli Westwood SmallCap Equity Fund (c) 28 1.00%
Gabelli Westwood Intermediate Bond Fund 6 0.60%
Gabelli Westwood Balanced Fund (c) 169 0.75%
Gabelli Utilities Fund 4 1.00%
Gabelli Blue Chip Value Fund 7 1.00%
Gabelli Mathers Fund 105 1.00%
(a) Sub-advisory relationship with Guardian Insurance Annuity Company.
Gabelli Funds, LLC receives 0.75% as subadviser.
(b) Closed-end fund
(c) Fund is managed by Gabelli Advisers, Inc., an affiliate of Gabelli
Funds, LLC. Except with respect to the Gabelli Westwood Mighty
Mites Fund, Gabelli Advisers, Inc. pays from its advisory fee to
Westwood Management Corp. a sub-advisory fee equal to $150,000 per
year on an aggregate basis for these funds or a fee of 35% of net
revenues to Gabelli Advisers, Inc. from these funds, whichever is
greater.
The Proposed Adviser and its affiliates are permitted to, and on
occasion will, waive a portion of the advisory fee under some circumstances
in order to maintain expenses at certain levels. Currently, the Proposed
Advisers is waiving a portion of its fees with respect to:
Gabelli Utilities Fund
Gabelli Blue Chip Value Fund
Gabelli Westwood SmallCap Equity Fund
Gabelli Global Opportunity Fund
Gabelli Westwood Intermediate Bond Fund
Gabelli Westwood Realty Fund
Gabelli Westwood Mighty Mites Fund
Other than the payments received by the Current Adviser pursuant
to the Current Advisory Agreements, neither Fund made any payments to the
Current Adviser, affiliates of the Current Adviser, or affiliates of such
affiliates during the year ended April 30, 1999 (other than under
distribution plans or for brokerage commissions). Assuming that the
Proposed Adviser becomes the investment adviser to the Funds, it is
anticipated that no fees will be payable by either Fund to Gabelli,
affiliates of Gabelli, or affiliates of such affiliates (other than under
the New Advisory Agreements, the Fund's distribution plans or for brokerage
commissions).
Required Vote
Approval of proposals 1 and 2 for the Strategy Fund and the
Capital Value Fund, respectively, requires the affirmative vote of "a
majority of the outstanding voting securities" of that Fund as defined in
the 1940 Act. Under the 1940 Act, this means the affirmative vote of the
lesser of (i) 67% or more of that Fund's shares present at the meeting in
person or by proxy, if the holders of more than 50% of the outstanding
shares of that Fund are present at the meeting or represented by proxy, or
(ii) more than 50% of that Fund's outstanding shares. If proposals 1 and 2
are not approved for the Strategy Fund and the Capital Value Fund,
respectively, each Fund will continue to operate under its Current Advisory
Agreement with the Current Adviser and proposal 3 will not be implemented.
Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF EACH FUND VOTE "FOR"
APPROVAL OF THE NEW ADVISORY AGREEMENT RELATING TO THAT FUND
PROPOSAL 3. ELECTION OF DIRECTORS
Proposal 3 relates to the election of directors of the Company.
Subject to approval by shareholders of proposals 1 and 2 and the entry into
the New Advisory Agreements with the Proposed Adviser, the Board of
Directors has nominated for election the eight persons named in the table
below. Each nominee, including those who are not "interested persons" of
the Company ("Non-Interested Directors") as that term is defined in the
1940 Act, has indicated his willingness to serve if elected. If elected,
each nominee will hold office until the next meeting of shareholders held
for the purpose of electing directors and until the election and
qualification of his successor.
Unless you give contrary instructions on the enclosed proxy card,
the persons named on such proxy card will (subject to approval of proposals
1 and 2) nominate and vote the shares represented by proxy in favor of the
election of the eight nominees, Should any of the nominees withdraw or
otherwise become unavailable for election, which the Company does not
anticipate, shares represented by proxy will be voted in favor of such
other nominee or nominees as management may recommend.
Three nominees for director of the Company - Charles L. Minter, M.
Bruce Adelberg and Robert E. Smith - currently serve as directors of the
Company, each having been elected a director by shareholders at a special
meeting of shareholders held on December 20, 1996. Under the By-laws of the
Company, the Board of Directors, by a vote of a majority of the entire
Board, may increase or decrease the number of directors of the Company. The
number of directors which currently constitutes the entire Board of
Directors is three, although the Board of Directors has authorized an
increase in the number of directors to eight effective as of the election
of directors. If elected, the eight nominees will constitute all of the
directors of the Fund.
Election of directors requires a plurality vote of the shares of
the Company voting in person or by proxy at the meeting, provided a quorum
is present. This means that the eight nominees receiving the largest number
of votes will be elected.
The following table shows the nominees who are standing for
election as a director of the Company and their principal occupations
which, unless specific dates are shown, are of more than five years'
duration, although the titles may not have been the same throughout:
<TABLE>
<CAPTION>
YEAR STRATEGY CAPITAL VALUE
POSITION BUSINESS EXPERIENCE; BECAME FUND SHARES FUND SHARES
NAME WITH THE COMPANY OTHER DIRECTORSHIPS DIRECTOR OWNED (1) OWNED (2)
---- ---------------- -------------------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Henry G. Van der Eb* Proposed Chairman President and Chief Executive ---- 0 0
Age: 54 and Director Officer of The Gabelli Mathers
Nominee Fund; prior to October 1999,
Chairman and Chief Executive
Officer of Mathers Fund, Inc.
and President of Mathers &
Company, Inc. (3)
Charles L. Minter* Director Director, Chairman of the Board 1988 25,337 99,962
Age: 58 and Chief Executive Officer of
Comstock Partners, Inc. since
November, 1996, and, prior
thereto, Vice Chairman,
President and Secretary of
Comstock Partners, Inc.
M. Bruce Adelberg Director Consultant, MBA Research Group 1995 0 1,126
Age: 62 since November 1995; Director,
Oakwood Counselors Inc.
(investments); and Director,
Southern Sun Propagation
Systems Inc.
Robert M. Smith Director President and Director, Smith 1988 1,000 0
Age: 69 Advisors, Ltd. (investments)
since November 1995; President
and Director of Ansbacher
(Dublin) Asset Management Ltd.
from January 1983 to November
1995.
Anthony J. Colavita Director Nominee President and Attorney at Law --- 0 0
Age: 64 in the law firm of Anthony J.
Colavita, P.C. since 1961. (3)
(4) (5) (6) (7) (8) (9) (10)
(11) (12) (13) (14) (15) (16)
(18) (19) (20) (21)
Vincent D. Enright Director Nominee Former Senior Vice President --- 0 0
Age: 55 and Chief Financial Officer of
KeySpan Energy Corp. (8) (9)
(10) (19) (20) (21)
Anthony R. Pustorino Director Nominee Certified Public Accountant; --- 0 0
Age: 74 Professor of Accounting, Pace
University. (3)(4) (5) (6) (7)
(8) (13) (15) (17) (18) (19)
Werner J. Roeder, M.D. Director Nominee Medical Director, Lawrence --- 0 0
Age: 59 Hospital and practicing private
physician. (8) (9) (10) (11)
(12) (13) (14) (15) (16) (20)
(21)
* These nominees are interested persons of the Adviser and of the
Company, as defined in the 1940 Act.
(1) Full shares of the Strategy Fund owned beneficially or of record as of
[Record Date or 12/31/99], based on information furnished by each
director or nominee. On that date, the directors, director nominees and
officers of the Company, as a group, beneficially owned [Number of
Shares], constituting [____]%, of the Strategy Fund's outstanding
shares.
(2) Full shares of the Capital Value Fund owned beneficially or of record
as of [Record Date or 12/31/99], based on information furnished by each
director or nominee. On that date, the directors, director nominees and
officers of the Company, as a group, beneficially owned [Number of
Shares], constituting [____]%, of the Capital Value Fund's outstanding
shares.
(3) Trustee of The Gabelli Mathers Fund
(4) Trustee of The Gabelli Asset Fund.
(5) Trustee of The Gabelli Growth Fund.
(6) Director of The Gabelli Value Fund Inc.
(7) Director of The Gabelli Convertible Securities Fund, Inc.
(8) Director of Gabelli Equity Series Funds, Inc.
(9) Trustee of The Gabelli Money Market Funds.
(10) Director of Gabelli Investor Funds, Inc.
(11) Director of Gabelli Global Series Funds, Inc.
(12) Director of Gabelli Gold Fund, Inc.
(13) Director of Gabelli Capital Series Funds, Inc.
(14) Director of Gabelli International Growth Fund, Inc.
(15) Director of the Treasurer's Fund, Inc.
(16) Trustee of the Gabelli Westwood Funds.
(17) Director of The Gabelli Multimedia Trust Inc.
(18) Director of The Gabelli Equity Trust Inc.
(19) Trustee of The Gabelli Utility Trust.
(20) Trustee of The Gabelli Blue Chip Value Fund.
(21) Trustee of The Gabelli Utilities Fund.
</TABLE>
During the Company's last fiscal year ended April 30, 1999, the
Board of Directors met four times. Each of the directors attended 75% or
more of the meetings of the Board of Directors held during such year.
The Board of Directors of the Company has an audit committee
consisting of Messrs. Adelberg and Smith. These Directors are not
"interested persons" of the Company as defined in the 1940 Act. The audit
committee is responsible for recommending the selection of the Company's
independent accountants and reviewing all audit as well as non-audit
accounting services performed for the Company. The Company has a nominating
committee consisting of Messrs. Adelberg and Smith. These persons are not
"interested persons" of the Company as defined in the 1940 Act. The
nominating committee is responsible for recommending qualified candidates
to the Board of Directors in the event that a position is vacated or
created.
The Board of Directors of the Company directs the overall
management of the Company, including, with respect to each Fund, general
oversight and review of its respective investment policies and activities.
The Board of Directors of the Company elects the officers of the Company.
The officers are responsible for supervising and administering the
Company's day-to-day operations.
The Company pays each Non-Interested Director an annual retainer
of $20,000 (consisting of $10,000 for each Fund). Directors are reimbursed
for any expenses incurred in attending meetings. Directors of the Company
who are "interested persons" as defined in the 1940 Act receive no direct
remuneration from the Company. The Current Adviser serves as investment
adviser to the Company. The Company pays a fee to the Current Adviser as
investment adviser to the Company, and certain of the directors and
officers of the Company are directors, officers and shareholders of the
Current Adviser.
The aggregate compensation paid by the Company to each of its
Non-Interested Directors during its fiscal year ended April 30, 1999 is set
forth below. The Company does not maintain any deferred compensation,
pension or retirement plans, and no pension or retirement benefits are
accrued as part of Company expenses.
NAME OF NON-INTERESTED AGGREGATE COMPENSATION
DIRECTOR OF THE COMPANY FROM THE COMPANY
- ------------------------- -----------------------------
M. Bruce Adelberg $20,000
Robert M. Smith $20,000
If proposals 1 and 2 are implemented, the Company will pay each
Director of the Company who is not an "affiliated person" of the Company
(as defined in the 1940 Act) an annual retainer of $5,000, plus $1,000 for
each Board of Directors meeting actually attended, in each case together
with the Director's actual out-of-pocket expenses relating to attendance at
meetings. All committee members are expected to receive $500 per meeting
for meetings that take place on days when the Board of Directors does not
meet. Directors of the Company who are "affiliated persons" of the Company
will receive no direct remuneration from the Company. Additionally, each of
the Director nominees who is not an "affiliated person" of the Company (as
defined in the 1940 Act) and who has not previously served on the Company's
Board of Directors has agreed to waive his annual retainer for the first
two years of his term. Subject to shareholder approval of proposals 1 and
2, the Proposed Adviser will thereafter serve as investment adviser to each
of the Strategy Fund and the Capital Value Fund. The Company, on behalf of
each Fund, will pay fees to Gabelli for such services. Certain of the
persons who are expected to be Directors and officers of the Company are
affiliates of the Proposed Adviser.
The following table sets forth certain information regarding the
aggregate compensation of those of the Director nominees who received
compensation from mutual funds in the Gabelli fund complex for the fiscal
year ended April 30, 1999:
AGGREGATE COMPENSATION
NAME OF PERSON FROM GABELLI FUND COMPLEX*
- -------------- -------------------------
Anthony J. Colavita $94,875 (18)
Vincent D. Enright $25,500 (6)
Anthony R. Pustorino $107,250 (18)
Werner J. Roeder $32,859 (11)
* Represents the total compensation paid to each such person during
the calendar year ended December 31, 1999 by investment companies
from which such person receives compensation that are expected to
be considered part of the same fund complex as the Company because
they have common or affiliated investment advisers. The number in
parenthesis represents the number of such investment companies or
portfolios thereof.
Required Vote
Approval of proposal 3 requires the affirmative vote of a
plurality of the shares of the Company voting in person or by proxy, if the
holders of more than one-third of the outstanding shares of the Company are
present at the meeting or represented by proxy. If proposals 1 and 2 are
not approved for the Strategy Fund and the Capital Value Fund,
respectively, proposal 3 will not be implemented.
Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF HENRY VAN DER EB,
CHARLES MINTER, BRUCE ADELBERG, ROBERT SMITH, ANTHONY COLA-VITA,
VINCENT ENRIGHT, ANTHONY PUSTORINO AND WERNER ROEDER
PROPOSAL 4. RATIFICATION OF SELECTION OF AUDITORS
On June 17, 1999, the Board of Directors of the Company, by a vote
of all directors, including all Non-Interested Directors, appointed Ernst &
Young LLP as auditors of the Company for its fiscal year ending April 30,
2000. During the two most recent fiscal years of the Company, the audit
reports of Ernst & Young LLP contained no adverse opinion or disclaimer of
opinion, nor were their reports qualified or modified as to uncertainty,
audit scope, or accounting principles. Further, there were no disagreements
between the Company and Ernst & Young LLP on accounting principles,
financial statement disclosure or audit scope, which if not resolved to the
satisfaction of Ernst & Young LLP would have caused it to make reference to
the disagreements in connection with its report.
The Board understands that Ernst & Young LLP holds no direct or
indirect financial interest in the Company. The ratification of the
appointment of Ernst & Young LLP as independent auditors for the fiscal
year ending April 30, 2000 is to be voted upon at the meeting, and it is
intended that the persons named in the accompanying proxy will vote for
such ratification unless contrary instructions are given.
Representatives of Ernst & Young LLP are not expected to be
present at the meeting but have been given the opportunity to make a
statement if they so desire and will be available should any matter arise
requiring their presence.
Required Vote
Ratification of appointment of auditors requires a majority vote
of the shares of the Company voting in person or by proxy at the meeting.
Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" RATIFICATION OF THE SELECTION OF ERNST
& YOUNG LLP AS INDEPENDENT AUDITORS FOR THE FUND FOR
THE FISCAL YEAR ENDING APRIL 30, 2000
EXECUTIVE OFFICERS OF THE COMPANY
Officers of the Company are appointed by the directors and serve
at the discretion of the Board. None of the Company's officers receives any
compensation from the Company. The following table sets forth certain
information furnished by each of the executive officers of the Company in
addition to Mr. Minter (about whom information is given above). Each such
executive officer has engaged in the principal occupation indicated (or
other executive positions with the Company or the Current Adviser) for five
or more years. The business address of each individual listed below is 993
Lenox Drive, Suite 106, Lawrenceville, New Jersey 08648.
NAME; AGE POSITION WITH THE COMPANY; BUSINESS EXPERIENCE
- --------- ----------------------------------------------
Charles L. Minter Director, Chairman of the Board; Director,
Age: 58 Chairman of the Board and Chief Executive
Officer of Comstock Partners, Inc. since
September 1996, and, prior thereto, Vice
Chairman, President and Secretary of
Comstock Partners, Inc.
Martin Weiner President and Chief Financial Officer;
Age: 65 Director of Research of Comstock Partners,
Inc. since 1995, and, prior thereto, Senior
Equity Portfolio Manager for the Grumman
Corporation employee benefit plan from 1978
to 1994.
Robert C. Ringstad Vice President and Treasurer; Vice President,
Age: 69 Treasurer, Chief Financial Officer and
Assistant Secretary of Comstock Partners,
Inc. since September 1995, and, prior
thereto, Vice President (Operations) of
Regent Investor Services from January 1990
to November 1994.
Carolyn Matlin Secretary; Head Trader, Comstock Partners,
Age: 43 Inc. since 1988.
Principal Shareholders
[To be added.]
General
Other Business. The Company is not aware of any matters which may
properly come before the meeting other than as set forth above. If other
matters do properly come before the meeting, the persons named in the
accompanying form of proxy or their substitutes will vote the proxies in
accordance with their discretion.
Solicitation of Proxies. Solicitation will be primarily by mail,
but officers of the Company or regular employees of the Company's
investment adviser may also solicit without compensation by telephone,
telecopy or personal contact. The Company has also retained Georgeson
Shareholder Communications Inc. to assist in certain aspects of the process
of solicitation of proxies from its shareholders. The fees of such firm are
estimated to be $10,000 plus reimbursement of out-of-pocket expenses. The
cost of solicitation will not be paid by the Company or by shareholders.
Future Meetings. The Company is not required to hold annual
meetings of shareholders and the Company generally does not hold a meeting
of shareholders in any year unless certain specified shareholder actions
such as election of directors or approval of a new advisory agreement are
required to be taken or are believed to be desirable under the 1940 Act. By
observing this policy, the Company seeks to avoid the expenses customarily
incurred in the preparation of proxy material and the holding of
shareholder meetings, as well as the related expenditure of corporate staff
time. If a subsequent meeting of shareholders is scheduled to be held, any
shareholder wishing to submit a written proposal for inclusion in the proxy
statement and form of proxy (i) should send its written proposal or
proposals to: Comstock Partners Funds, Inc., [Address], which proposal or
proposals must be received by Comstock Partners Funds in reasonable time
prior to the meeting, as determined by the Board of Directors and (ii) must
satisfy all other legal requirements.
By order of the Board of Directors,
Carolyn Matlin
Secretary
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of __, 2000, between
Gabelli Comstock Funds, Inc., a Maryland corporation (the "Company"), on
behalf of the [Gabelli Comstock Capital Value Fund] [Gabelli Comstock
Strategy Fund] (the "Fund") and Gabelli Funds, LLC (the "Adviser"), a New
York limited liability company.
In consideration of the mutual promises and agreements herein
contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is agreed by and between the parties hereto as
follows:
1. In General
(a) The Company is an open-end investment company which, as of
the date hereof, consists of two series: the Gabelli Comstock Strategy Fund
and the Fund.
(b) The Adviser agrees, all as more fully set forth herein, to
act as investment adviser to the Fund with respect to the investment of the
assets of the Fund and to supervise and arrange the purchase and sale of
assets held in the investment portfolio of the Fund. The Adviser may
delegate any or all of its responsibilities to one or more sub-advisers or
administrators, subject to the approval of the Board of Directors of the
Company. Such delegation shall not relieve the Adviser of its duties and
responsibilities hereunder.
2. Duties and obligations of the Adviser with respect to
investment of assets of the Fund
(a) Subject to the succeeding provisions of this paragraph
and subject to the direction and control of the Company's Board of
Directors, the Adviser shall (i) act as investment adviser for and
supervise and manage the investment and reinvestment of the Fund's assets
and in connection therewith have complete discretion in purchasing and
selling securities and other assets for the Fund and in voting, exercising
consents and exercising all other rights appertaining to such securities
and other assets on behalf of the Fund; (ii) arrange for the purchase and
sale of securities and other assets held in the investment portfolio of the
Fund and (iii) oversee the administration of all aspects of the Fund's
business and affairs and provide, or arrange for others whom it believes to
be competent to provide, certain services as specified in subparagraph (b)
below. Nothing contained herein shall be construed to restrict the Fund's
right to hire its own employees or to contract for administrative services
to be performed by third parties, including but not limited to, the
calculation of the net asset value of the Fund's shares.
(b) The specific services to be provided or arranged for by the
Adviser for the Fund are (i) maintaining the Fund's books and records, such
as journals, ledger accounts and other records in accordance with
applicable laws and regulations to the extent not maintained by the Fund's
custodian, transfer agent and dividend disbursing agent; (ii) transmitting
purchase and redemption orders for the Fund's shares to the extent not
transmitted by the Fund's distributor or others who purchase and redeem
shares; (iii) initiating all money transfers to the Fund's custodian and
from the Fund's custodian for the payment of the Fund's expenses,
investments, dividends and share redemptions; (iv) reconciling account
information and balances among the Fund's custodian, transfer agent,
distributor, dividend disbursing agent and the Adviser; (v) providing the
Fund with such office space and facilities, utilities, office equipment and
personnel as are adequate for the Fund's needs; (vi) preparing, but not
paying for, all reports by the Fund to its shareholders and all reports and
filings required to maintain the registration and qualification of the
Fund's shares under federal and state law including periodic updating of
the Company's registration statement and the Fund's prospectus (including
its statement of additional information); (vii) arrange for the calculation
of the net asset value of the Fund's shares; and (viii) preparing notices
and agendas for meetings of the Fund's shareholders and the Company's Board
of Directors and any committees thereof as well as minutes of such meetings
in all matters required by applicable law to be acted upon by the Board of
Directors.
(c) In the performance of its duties under this Agreement, the
Adviser shall at all times use all reasonable efforts to conform to, and
act in accordance with, any requirements imposed by (i) the provisions of
the Investment Company Act of 1940, as amended (the "Act") and the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and of
any rules or regulations in force thereunder; (ii) any other applicable
provision of law; (iii) the provisions of the Charter, as amended, and By-
Laws, as amended, of the Company, as such documents are amended from time
to time; (iv) the investment objectives, policies and restrictions
applicable to the Fund as set forth in the Company's Registration Statement
on Form N-1A (the "Registration Statement") and the provisions of the
Internal Revenue Code of 1986, as amended, relating to regulated investment
companies and (v) any policies and determinations of the Board of Directors
of the Company relating to the Fund.
(d) The Adviser will provide qualified personnel to fulfill its
duties hereunder and will bear all costs and expenses (including any
overhead and personnel costs) incurred in connection with its duties
hereunder and shall bear the costs of any salaries or directors fees of any
officers or directors of the Company who are affiliated persons (as defined
in the Act) of the Adviser. Subject to the foregoing, the Company, on
behalf of the Fund, shall be responsible for the payment of all the Fund's
other expenses, including (i) payment of the fees payable to the Adviser
under paragraph 4 hereof; (ii) organizational expenses; (iii) brokerage
fees and commissions; (iv) taxes; (v) interest charges on borrowings; (vi)
the cost of liability insurance or fidelity bond coverage for the Company's
officers and employees, and directors' and officers' errors and omissions
insurance coverage; (vii) legal, auditing and accounting fees and expenses;
(viii) charges of the Fund's custodian, transfer agent and dividend
disbursing agent; (ix) the Fund's pro rata portion of dues, fees and
charges of any trade association of which the Company is a member; (x) the
expenses of printing, preparing and mailing proxies, stock certificates and
reports, including the prospectus and statement of additional information,
and notices to shareholders; (xi) filing fees for the registration or
qualification of the Fund as a separate portfolio of an open-end investment
company and its shares under federal or state securities laws; (xii) the
fees and expenses involved in registering and maintaining registration of
the Fund's shares with the Securities and Exchange Commission; (xiii) the
expenses of holding shareholder meetings; (xiv) the compensation, including
fees, of any of the Company's directors, officers or employees who are not
affiliated persons of the Adviser; (xv) all expenses of computing the
Fund's net asset value per share, including any equipment or services
obtained solely for the purpose of pricing shares or valuing the Fund's
investment portfolio; (xvi) expenses of personnel performing shareholder
servicing functions and all other distribution expenses payable by the Fund
pursuant to any 12b-1 plan or otherwise legally payable by the Fund; and
(xvii) litigation and other extraordinary or non-recurring expenses and
other expenses properly payable by the Fund.
(e) The Adviser shall give the Fund the benefit of its best
judgment and effort in rendering services hereunder, but neither the
Adviser nor any of its officers, directors, employees, agents or
controlling persons shall be liable for any act or omission or for any loss
sustained by the Company with respect to the Fund in connection with the
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of
its duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement; provided, however, that the foregoing shall
not constitute a waiver of any rights which the Company may have which may
not be waived under applicable law.
(f) Nothing in this Agreement shall prevent the Adviser or any
director, officer, employee or other affiliate thereof from acting as
investment adviser for any other person, firm or corporation, or from
engaging in any other lawful activity so long as its services to the Fund
are not impaired thereby, and shall not in any way limit or restrict the
Adviser or any of its directors, officers, employees or agents from buying,
selling or trading any securities for its or their own accounts or for the
accounts of others for whom it or they may be acting, provided that the
Adviser shall seek to provide fair and equitable treatment to the Fund in
the selection of portfolio investments and the allocation of investment
opportunities as between the Fund and other advisory clients of the
Adviser.
3. Portfolio Transactions
In the course of the Adviser's execution of portfolio
transactions for the Fund, it is agreed that the Adviser shall employ
securities brokers and dealers which, in its judgment, will be able to
satisfy the policy of the Fund to seek the best execution of its portfolio
transactions at reasonable expenses. For purposes of this agreement, "best
execution" shall mean prompt, efficient and reliable execution at the most
favorable price obtainable. Under such conditions as may be specified by
the Company's Board of Directors in the interest of its shareholders and in
compliance with applicable law and regulations, the Adviser may (a) place
orders for the purchase or sale of the Fund's portfolio securities with its
affiliate, Gabelli & Company, Inc.; (b) pay commissions to brokers other
than its affiliate which are higher than might be charged by another
qualified broker to obtain brokerage and/or research services considered by
the Adviser to be useful or desirable in the performance of its duties
hereunder and for the investment management of other advisory accounts over
which it or its affiliates exercise investment discretion; and (c) consider
sales by brokers (other than its affiliate distributor) of shares of the
Fund and any other mutual fund for which it or its affiliates act as
investment adviser, as a factor in its selection of brokers and dealers for
the Fund's portfolio transactions.
4. Compensation of the Adviser
(a) Subject to paragraph 2(b), the Company, on behalf of
the Fund, agrees to pay to the Adviser out of the Fund's assets and the
Adviser agrees to accept as full compensation for all services rendered by
or through the Adviser (other than any amounts payable to the Adviser
pursuant to paragraph 4(b)) a fee computed daily and payable monthly in an
amount equal on an annualized basis to [1.00%] [0.85%] of the Fund's daily
average net assets; provided, however, that the Adviser agrees that it will
waive such fees during the period prior to the second anniversary of the
date of this Agreement on aggregate net assets of the Fund at time this
Agreement becomes effective to the extent necessary to ensure the total
expense ratio of the Fund (other than extraordinary expenses) during such
period, is not greater than the total expense ratio of the Fund (other than
extraordinary expenses) for calendar year 1999. For any period less than a
month during which this Agreement is in effect, the fee shall be prorated
according to the proportion which such period bears to a full month of 28,
29, 30 or 31 days, as the case may be.
(b) The Fund will pay the Adviser separately for any costs
and expenses incurred by the Adviser in connection with distribution of the
Fund's shares in accordance with the terms (including proration or
nonpayment as a result of allocations of payments) of Plans of Distribution
(collectively, the "Plan") adopted by the Fund pursuant to Rule 12b-1 under
the Act as such Plan may be in effect from time to time; provided, however,
that no payments shall be due or paid to the Adviser hereunder unless and
until this Agreement shall have been approved in the manner required by
such Plan. The Fund reserves the right to modify or terminate such Plan at
any time as specified in the Plan and Rule 12b-1, and this subparagraph
shall thereupon be modified or terminated to the same extent without
further action of the parties. The persons authorized to direct the
payment of the funds pursuant to this Agreement and the Plan shall provide
to the Fund's Board of Directors, and the Directors shall review, at least
quarterly a written report of the amount so paid and the purposes for which
such expenditures were made.
(c) For purposes of this Agreement, the value of the net
assets of the Fund shall be calculated pursuant to the procedures adopted
by resolutions of the Directors of the Fund for calculating the net asset
value of the Fund's shares.
5. Indemnity.
(a) The Company, on behalf of the Fund, hereby agrees to
indemnify the Adviser and each of the Adviser's directors, officers,
employees, and agents (including any individual who serves at the Adviser's
request as director, officer, partner, trustee or the like of another
corporation) and controlling persons (each such person being an
"indemnitee) against any liabilities and expenses, including amounts paid
in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees (all as provided in accordance with applicable corporate law)
reasonably incurred by such indemnitee in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which
he may be or may have been involved as a party or otherwise or with which
he may be or may have been threatened, while acting in any capacity set
forth above in this paragraph with respect to this Agreement or thereafter
by reason of his having acted in any such capacity, except with respect to
any matter as to which he shall have been adjudicated not to have acted in
good faith in the reasonable belief that his action was in the best
interest of the Fund and furthermore, in the case of any criminal
proceeding, so long as he had no reasonable cause to believe that the
conduct was unlawful, provided, however, that (i) no indemnitee shall be
indemnified hereunder against any liability to the Company (including the
Fund) or its shareholders or any expense of such indemnitee arising by
reason of (A) willful misfeasance, (B) bad faith, (C) gross negligence or
(D) reckless disregard of the duties involved in the conduct of his
position (the conduct referred to in such clauses (A) through (D) being
sometimes referred to herein as "disabling conduct"), (ii) as to any matter
disposed of by settlement or a compromise payment by such indemnitee,
pursuant to a consent decree or otherwise, no indemnification either for
said payment or for any other expenses shall be provided unless there has
been a determination that such settlement or compromise is in the best
interests of the Fund and that such indemnitee appears to have acted in
good faith in the reasonable belief that his action was in the best
interest of the Fund and did not involve disabling conduct by such
indemnitee and (iii) with respect to any action, suit or other proceeding
voluntarily prosecuted by any indemnitee as plaintiff, indemnification
shall be mandatory only if the prosecution of such action, suit or other
proceeding by such indemnitee was authorized by a majority of the full
Board of Directors of the Company. Notwithstanding the foregoing the
Company shall not be obligated to provide any such indemnification to the
extent such provision would waive any right which the Company cannot
lawfully waive.
(b) The Company, on behalf of the Fund, shall make advance
payments in connection with the expenses of defending any action with
respect to which indemnification might be sought hereunder if the Company
receives a written affirmation of the indemnitee's good faith belief that
the standard of conduct necessary for indemnification has been met, a
written undertaking to reimburse the Company if it is subsequently
determined that the standard of conduct has not been met and the directors
of the Company determine that the facts then known to them would not
preclude indemnification. In addition, at least one of the following
conditions must be met: (i) the indemnitee shall provide a security in
form and amount acceptable to the Company for his undertaking, (ii) the
Company shall be insured against losses arising by reason of the advances
or (iii) a majority of a quorum of directors of the Company who are neither
"interested persons" of the Company (as defined in Section 2(a)(19) of the
Act) nor parties to the proceeding ("Disinterested Non-Party Directors") or
an independent legal counsel in a written opinion, shall determine, based
on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the indemnitee ultimately
will be found entitled to indemnification.
(c) All determinations with respect to indemnification
hereunder shall be made only following (i) a final decision on the merits
by a court or other body before whom the proceeding was brought that such
indemnitee is not liable by reason of disabling conduct or, (ii) in the
absence of such a decision, a reasonable determination based upon a review
of the facts, that such indemnitee was not liable by reason of disabling
conduct, by (A) a majority vote of a quorum of the Disinterested Non-Party
Directors of the Company, or (B) an independent legal counsel in a written
opinion.
The rights accruing to any indemnitee under these provisions
shall not exclude any other right to which he may be lawfully entitled.
6. Provision of Information to the Company
The Adviser shall keep the Company informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Company from time to time with whatever information the Adviser believes is
appropriate for this purpose.
7. Effective Date; Duration; Modification; and Termination
(a) This Agreement shall become effective upon on the date
hereof and shall continue in effect for a period of two years and
thereafter from year to year, but only so long as such continuation is
specifically approved at least annually in accordance with the requirements
of the Act.
(b) The modification of any of the nonmaterial terms of this
Agreement may be approved by a vote of the majority of those Directors of
the Company who are not interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such
approval.
(c) This Agreement may be terminated by the Adviser at any time
without penalty upon giving the Company sixty days written notice (which
notice may be waived by the Company) and may be terminated by the Company,
on behalf of the Fund, at any time without penalty upon giving the Adviser
sixty days written notice (which notice may be waived by the Adviser),
provided that such termination by the Company shall be directed or approved
by the vote of the Board of Directors of the Company or by the vote of the
holders of a "majority of the voting securities" (as defined in the Act) of
the Fund at the time outstanding and entitled to vote or, with respect to
paragraph 4(b), by a majority of the Directors of the Fund who are not
"interested persons" of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related
to the Plan. This Agreement shall terminate automatically in the event of
its assignment (as "assignment" is defined in the Act and the rules
thereunder.)
8. Name
It is understood and hereby agreed that the word "Gabelli" is the
property of the Adviser for copyright and other purposes. The Company
further agrees that the word "Gabelli" in its name is derived from the name
of Mario J. Gabelli and such name may freely be used by the Adviser for
other investment companies, entities or products. The Company further
agrees that, in the event that the Adviser shall cease to act as investment
adviser to the Fund, the Company (including the Fund) shall as soon as
practicable thereafter take all necessary and appropriate action to change
its name to names which do not include the word "Gabelli"; provided,
however, that the Company (including the Fund) may continue to use the word
"Gabelli" if the Adviser consents in writing to such use.
9. Notices
Any notice under this Agreement shall be in writing to the other
party at such address as the other party may designate from time to time
for the receipt of such notice and shall be deemed to be received on the
earlier of the date actually received or on the fourth day after the
postmark if such notice is mailed first class postage prepaid.
10. Governing Law
This Agreement shall be construed in accordance with the laws of
the State of New York for contracts to be performed entirely therein and in
accordance with the applicable provisions of the Act and the Advisers Act.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers, all as of the
day and the year first above written.
GABELLI COMSTOCK FUNDS, INC.,
on behalf of
GABELLI COMSTOCK CAPITAL VALUE
FUND, INC.
By________________________________
Name: Charles L. Minter
Title:
GABELLI FUNDS, LLC
By________________________________
Name: Stephen G. Bondi
Title: Vice President of Finance
(X) PLEASE MARK VOTES AS IN THIS EXAMPLE
1) Comstock Partners Strategic Fund --
COMSTOCK PARTNERS To approve the proposed Investment
FUNDS, INC. Advisory Agreement with
Gabelli Funds, LLC.
For Against Abstain
( ) ( ) ( )
2) Comstock Partners Capital Value
Fund -- To approve the proposed
Investment Advisory Agreement with
Gabelli Funds, LLC
For Against Abstain
( ) ( ) ( )
3) To elect eight (8) Directors of the
Fund: Henry van der Eb, Charles L.
Minter, M. Bruce Adelberg, Robert
M. Smith, Anthony J. Colavita,
Vincent D. Enright. Anthony R.
Pustorino and Werner J. Roeder.
NOTE: IF YOU DO NOT WISH YOUR
SHARES VOTED "FOR" A PARTICULAR
NOMINEE(S), MARK THE "FOR ALL
EXCEPT" BOX AND STRIKE A LINE
THROUGH THE NAME(S) OF THE
NOMINEE(S). YOUR SHARES WILL BE
VOTED FOR THE REMAINING
NOMINEE(S). ITEM 3 WILL NOT BE
BROUGHT BEFORE THE MEETING IF
ITEMS 1 AND 2 ARE NOT APPROVED.
Withhold For All
For Authority Except
( ) ( ) ( )
4) To ratify the selection of Ernst &
Young LLP as the independent
accountants of the Fund for the
year ending December 31, 1999.
For Against Abstain
( ) ( ) ( )
5) To transact such other business as
may properly come before the
Meeting or any adjournment
thereof.
Please be sure to sign and
date this Proxy. Date
------------------------------------------------------
Shareholder sign here Co-owner sign here
------------------------------------------------------
Mark box at right if comments ( )
or address changes have been noted
on the reverse side of this card.
DETACH CARD
COMSTOCK PARTNERS FUNDS, INC.
Dear Shareholder:
Please take note of the important information enclosed with this Proxy
Ballot. The enclosed proxy materials discuss the proposals in detail.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall
be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Special Meeting of Shareholders,
April 27, 2000.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Comstock Partners Funds, Inc.
COMSTOCK PARTNERS FUNDS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS
The undersigned hereby appoints Charles J. Minter, Martin Weiner and
Carolyn Matlin, and each of them, attorneys and proxies of the undersigned,
with full powers of substitution and revocation, to represent the
undersigned and to vote on behalf of the undersigned all shares of Comstock
Partners Funds, Inc. (the "Fund") which the undersigned is entitled to
vote at a Special Meeting of Shareholders of the Fund to be held at 993
Lenox Drive, Suite 106, Lawrenceville, NJ 08648 on April 27, 2000 at 10:00
a.m. (eastern standard time), and at any adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement and hereby instructs said attorneys and
proxies to vote said shares as indicated herein. In their discretion, the
proxies are authorized to vote upon such other business as may properly
come before the Meeting.
A majority of the proxies present, and acting at the Meeting in person or
by substitute (or, if only one shall be so present, then that one) shall
have and may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously given.
This proxy, if properly executed, will be voted in the manner directed by
the undersigned shareholder. If no direction is made as to any Proposal,
this proxy will be voted FOR the Proposals. Please refer to the Proxy
Statement for a discussion of each of the Proposals.
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE
Please sign this proxy exactly as your name(s) appear(s) on the books of
the Fund. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more
than one name appears, a majority must sign. If a corporation, the
signature should be that of an authorized officer who should state his or
here title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
------------------------------- --------------------------------
------------------------------- --------------------------------
------------------------------- --------------------------------
------------------------------- --------------------------------
