NOTE F. CONTINGENCIES
Currently, the Fund is a nominal defendant in a shareholder derivative
and purported class action which alleges violations of the Federal
securities laws and breach of fiduciary duty by the Fund's directors
and investment adviser in connection with the Fund's July 1996 rights
offering. By Opinion and Order dated April 6, 1998, the District Court
granted a motion to dismiss the complaint in its entirety as to the class
action claims and denied the motion to dismiss as to all other claims.
On May 22, 1998, the directors created a special litigation committee of
the Board composed of two newly-appointed disinterested directors who are
not named parties in the Strougo Litigation for the purpose of considering
the allegations raised in the Strougo Litigation. In December, 1998, the
special litigation committee issued a report concluding that the claims
had no merits and filed a motion to dismiss or, in the alternative, for
summary judgement. In April 1999, the District Court adjourned the motion
by the special litigation committee, pending further limited discovery by
Mr. Strougo's attorneys. That discovery has been completed and new briefs
regarding the motion for summary judgement have recently been filed.
The costs of defending the directors in this matter are being advanced
by the Fund pursuant to rights of indemnity set forth in the Fund's charter
documents and are reflected in the Fund's operating expenses.
The investment adviser may be entitled to similar advancement of expenses
and rights of indemnity.
The Fund has also recently been added as a nominal defendant in a
derivative action entitled Strougo v. BEA Associates, originally filed in
the Southern District of New York solely against defendant BEA Associates
(now CSAM) in May of 1998. The complaint was amended in February of 2000
to add the Fund as a nominal defendant. The complaint asserts claims
under Sections 36(a) and 36(b) of the Investment Act of 1940, both of
which stem from the charge that CSAM has violated its statutory duties
by negotiating over the Fund's advisory agreement with independent
directors who are allegedly not independent. Motions to dismiss made by
CSAM were denied prior to the Fund being added to the case as a nominal
defendant and discovery is just now beginning.
Management believes that neither the outcome of the above litigation nor
the Fund's related indemnification obligations will have a material
adverse effect on the financial position or future operating results of
the Fund, although there can be no assurance to that effect.
