<PAGE>
COMSTOCK PARTNERS
STRATEGY FUND, INC.
10 EXCHANGE PLACE
SUITE 2010
JERSEY CITY, NJ 07302-3913
[LOGO]
COMSTOCK PARTNERS
STRATEGY FUND, INC.
503/502 SA 9510
SEMI-ANNUAL REPORT
OCTOBER 31, 1995
<PAGE>
DEAR FELLOW SHAREHOLDER:
For some time we have regarded the investment climate as risky and have
considered the general stock market to be overvalued. Until equities retreat to
a more attractive level, we have focused on raising the income component of the
portfolio. As a result, we have raised the level of the monthly income dividend
25% over the last six months to $.05 per class O share by reducing the exposure
to gold securities and de-emphasizing other bear market strategies.
The income-bearing group of securities has provided positive returns during the
six-month period ended October 31, 1995, except for a loss in the currency
portion of the Deutsch Mark related securities during the short period of time
when the position was not hedged. The hedge has since been reinstated. In
addition, losses were incurred as the Fund attempted to profit from a declining
stock market by purchasing put options. This strategy proved to be unprofitable.
The combination of these losses and a cautious stance toward the stock and bond
markets in the US explains the relative performance of the Fund versus the
Lehman Brothers Government/Corporate Bond Index and the Standard & Poor's 500
Composite Index.
For the six months ended October 31, 1995, the Fund has continued to hold a
diversified group of securities that we believe will provide good overall
returns through both income and capital appreciation. That list presently
includes US government notes, gold-related securities, foreign fixed-income
securities, dividend yielding equities, and Interest Only mortgage-related
securities ("IOs"). Additionally, the Fund has attempted to achieve capital
appreciation by purchasing puts on the US stock market and the Japanese Yen, and
shorting the Hong Kong dollar.
The Fund's gold-related securities now represent less than 15% of the total
portfolio. The gold shares have not added to the Fund's performance over the
last six months. The environment for gold bullion has not changed much during
the past few years. At first glance, the demand for gold bullion appears to
exceed the new supply of the metal, leading one to believe that the price should
rise. But, in fact, we believe that the selling of existing stockpiles by
Central Banks and the forward sales by producers have prevented the gold price
from rising. We believe that these sales would be constrained sharply if the
gold price were to rise above $400 per ounce. A small shift in investors'
attitudes away from financial assets and into "safe havens" such as gold is all
that we believe would be needed to alter the existing balance between supply and
demand.
The Fund has maintained approximately a 32% position in securities denominated
in Deutsch Marks, Swiss Francs, and Dutch Guilders, and the foreign currency
exposure has been hedged over the last six months. While we still believe in the
secular case for a weaker dollar, it currently appears that a cyclical rebound
in the dollar is underway. In the short run, this investment class has added to
income for the Fund. But, over the long run we believe that currency gains may
add to the Fund as a result of diversifying into harder currencies.
The Fund has purchased New Zealand government bonds, presently equaling about 4%
of its assets. In our view, New Zealand appears to have achieved both fiscal and
monetary discipline which should lead to low inflation, a strong bond market,
and a stable currency. The New Zealand dollar has remained virtually unchanged
versus the dollar since the Fund purchased them.
While Canada appears to be in flux over its status as a united country, its
currency appears to offer value. Using traditional valuation measures, we
believe the Canadian dollar is undervalued versus the US dollar and the strong
impetus to balance the Canadian government's budget should provide the catalyst
to drive the currency higher. While the Fund's Canadian bonds have rallied since
their purchase, the currency has weakened somewhat. Canadian notes now represent
7% of the Fund.
South Africa appears to be on the road to rejoining the world economy. The
positive side effects of this change have been seen in a stronger economy, lower
inflation, and increased inflows of foreign capital. These characteristics have
driven interest rates lower, adding positively to the Fund's returns over the
last six months. About 10% of the Fund is currently invested in South Africa.
The emerging market fixed-income securities in the Fund's portfolio have been
broadened to include Brady bonds of Venezuela, Argentina, and Nigeria. These now
represent about 4% of the Fund's assets, and have increased in value in tandem
with the US fixed-income market as US interest rates have declined.
The income-producing equities that the Fund holds are composed of a number of
special situations. Oddly enough, while the US equity market is, in our opinion,
generally overvalued, the Fund owns some real estate related securities (REITs)
that appear to offer great value with yields in some cases above 10%. These
investments as a whole now equal about 6% of the Fund.
The Fund owns a number of closed-end funds in the Czech Republic which trade at
significant discounts to their net asset value, offer an acceptable yield and
provide prospects for growth. In addition, the Fund has purchased closed-end
funds that invest in Russia and Vietnam. We believe that these investments,
which together represent 1% of the Fund, offer good potential rewards over the
long run and justify the risks of investing in emerging markets.
<PAGE>
The mortgage IO securities market has suffered a decline as prepayment rates
have risen due to the drop in interest rates over the last six months. The IOs
are presently about 2% of the Funds assets.
The Fund owns S&P 500 put options that would benefit from a decline in the stock
market. The stock market continues to enter uncharted valuation levels, reaching
a historic all-time low dividend yield of 2.25%. While this valuation parameter
has been greatly debated, we still feel that the rationale that "it is different
this time" will prove to be wishful thinking as was witnessed during previous
speculative market peaks. We also understand that a low dividend yield alone
usually does not lead to lower stock prices, but in many cases is a necessary
ingredient. The driving forces behind higher stock prices remain lower interest
rates, low inflation, and strong earnings. We continue to monitor many other
indicators which we believe can help to accurately predict the future financial
environment. These are still giving us negative readings, but in an attempt to
de-emphasize some of our riskier positions, we have not been as aggressive with
our put purchases as in the past. Many of the puts have declined greatly in
value and have caused most of the relative underperformance.
The Fund has maintained its short position in the Hong Kong (HK) dollar versus
the US dollar in anticipation of a possible devaluation of the currency. The HK
dollar is presently pegged to the US dollar. We still favor this investment
because we believe it presents an excellent risk/reward ratio. In our view, it
appears that there is little chance of the HK dollar becoming valued upward
because, since 1991, the HK inflation rate has been more than triple the US
inflation rate. This overvaluation has been masked, we believe, by the euphoria
surrounding the Far East and, in particular, China.
The Fund owns put options on the Japanese Yen and bond market that have
appreciated since their acquisition. These options represent about 1% of the
Fund's assets. While the Japanese Yen has appeared overvalued for some time, the
key change of late has been the deterioration of the massive trade surplus that
Japan has enjoyed versus the US. The value of these puts has added to the Fund's
returns.
In summary, the Fund is positioned to receive a greater portion of its total
return in the form of income through a diversified group of securities comprised
of international and domestic governmental fixed-income instruments,
gold-related securities, higher-yielding equities, and mortgage products such as
the IOs. In addition, we will continue to seek attractive risk/reward
opportunities such as the Japanese Yen, the Hong Kong dollar and special
situations in the US stock market to enhance the total return provided by the
income-producing securities.
The objective of the Fund is to maximize total return. We feel that this can be
best achieved through a value investing approach emphasizing current income
while continuing to seek opportunities for capital appreciation.
Sincerely,
Comstock Partners, Inc.
Investment Policy Committee
Jersey City, New Jersey
December 22, 1995
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Strategy Fund, Inc. Schedule of Investments (Unaudited) As
of October 31, 1995
<TABLE>
<CAPTION>
S&P MOODY'S FACE AMOUNT/ VALUE
RATING* RATING* SHARES HELD ISSUE (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
BONDS
Brady Bonds -- 3.2% UNR UNR $ 5,000,000 Central Bank of Nigeria Par Bonds 6.250% due
11/15/2020 $ 2,343,750
UNR B2 2,000,000 Republic of Argentina Par Bonds FRN 5.000% due
3/31/2023 952,500
UNR Ba3 13,750,000 Republic of Venezuela Par Bonds Series A 6.750%
due 3/31/2020 7,098,438
------------
10,394,688
------------
Corporate -- 4.8% UNR UNR 2,000,000 Bema Gold Corp. 7.500% due 2/28/2000 2,140,000
BBB- Ba2 11,110,000 Homestake Mining Co. 5.500% due 6/23/2000 (a) 11,221,100
UNR UNR 2,000,000 Pegasus Gold, Inc. 6.250% due 4/30/2002 (a) 1,980,000
------------
15,341,100
------------
U.S. Government Agency Federal National Mortgage Association
Interest-Only Stripped Securities:
Obligations -- 2.4% AAA Aaa 32,681,385 Trust 267 - 2 8.50% due 10/25/2024 7,843,532
------------
U.S. Government United States Treasury Notes:
Obligations -- 19.0% UNR Aaa 140,000 7.875% due 2/15/1996 140,897
UNR Aaa 60,380,000 8.875% due 2/15/1996 60,927,194
------------
61,068,091
------------
Foreign Government Canadian Government:
Obligations -- 48.5% UNR Aa1 CAD 11,275,000 10.500% due 10/01/2004 9,976,463
UNR Aa1 CAD 12,125,000 10.750% due 3/15/1998 9,831,960
AAA Aaa CHF 15,000,000 Republic of Austria 4.500% due 2/12/2000 13,880,360
Republic of Deutschland:
UNR Aaa DEM 46,000,000 8.875% due 12/20/2000 37,293,138
UNR Aaa DEM 46,170,000 9.000% due 10/20/2000 37,542,704
UNR UNR NLG 11,000,000 Netherlands Government 7.250% due 7/15/1999 7,448,324
New Zealand Government:
UNR Aaa NZD 7,500,000 10.000% due 7/15/1997 5,160,088
UNR Aaa NZD 7,500,000 10.000% due 3/15/2002 5,663,922
UNR UNR SAR 65,960,850 Republic of South Africa 13.000% due 8/31/2010 16,093,469
South African Escom Bond:
UNR UNR SAR 29,679,400 11.000% due 6/01/2008 6,412,246
UNR UNR SAR 6,000,000 13.500% due 8/01/2020 1,505,911
UNR UNR SAR 19,020,000 15.000% due 10/01/1998 5,325,757
------------
156,134,342
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN BONDS (COST $236,480,980) -- 77.9% 250,781,753
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS
Chemical -- 0.3% 65,000 PT Tri Polyta Indonesia, ADR- 1,007,500
------------
Country Fund -- 0.9% 5,000 Bankovni Investment Fund (b) 233,957
127,000 Fleming Russia Securities Fund (b) 889,000
20,000 Harvardsky Dividend Investment Fund (b) 523,300
77,600 Lazard Vietnam Fund, Ltd. (b) 814,800
9,665 Privatization Investment Fund (b) 195,294
5,000 Rentiersky Investment Fund (b) 201,490
------------
2,857,841
------------
Mining -- 3.2% 108,100 Beatrix Mines, Ltd., ADR- 932,363
145,000 Driefontein Consolidated Ltd., ADR- 1,595,000
315,000 East Rand Gold & Uranium Company, Ltd., ADR- 913,500
210,000 Elandsrand Gold Mining, Ltd., ADR- 1,155,000
113,000 Free State Consolidated Gold Mines Ltd., ADR- 1,066,437
300,000 Hartebeestfontein Gold, ADR- 750,000
125,000 Randfontein Estates Gold Mining Company
Witwatersrand Ltd., ADR- 687,500
295,000 Vaal Reefs Exploration & Mining Company, Ltd.,
ADR- 1,677,813
250,000 Vengold Inc. (b) 265,625
146,000 Vengold Inc. (a) (b) 164,338
150,000 Winkelhaak Mines, Ltd., ADR- 1,190,625
------------
10,398,201
------------
Natural Gas -- 0.5% 70,000 UGI Corp. 1,470,000
------------
Oil -- 1.2% 17,000 Amoco Corp. 1,085,875
50,000 Pennzoil Co. 1,887,500
50,000 YPF (S.A.), ADR- 856,250
------------
3,829,625
------------
Real Estate Investment 20,000 Alexander Haagen Properties, Inc. 220,000
Trusts -- 2.8% 40,000 Equity Inns, Inc. 470,000
56,200 Essex Property Trust, Inc. 1,025,650
62,000 Factory Stores of America, Inc. 1,193,500
105,000 G & L Realty Corp. 1,063,125
45,936 HGI Realty, Inc. 1,016,334
67,800 Kranzco Realty Trust 1,033,950
92,000 Mark Centers Trust 989,000
69,000 RFS Hotel Investors, Inc. 1,043,625
90,000 South West Property Trust 1,091,250
------------
9,146,434
------------
Retail -- 0.5% 45,000 Melville Corp. 1,440,000
------------
Telecommunications -- 0.8% 45,000 BCE, Inc. 1,513,125
25,000 US West, Inc. 1,190,625
------------
2,703,750
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS (COST $34,787,974) -- 10.2% 32,853,351
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Strategy Fund, Inc. Schedule of Investments (Unaudited)
(concluded) As of October 31, 1995
<TABLE>
<CAPTION>
S&P MOODY'S FACE AMOUNT/ VALUE
RATING* RATING* SHARES HELD ISSUE (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCKS
Mining -- 10.1% 55,000 Amax Gold, Inc. $3.75 convertible pfd. $ 2,598,750
15,000 Battle Mountain Gold Co. $3.25 convertible pfd. 716,250
79,200 Freeport McMoran Copper & Gold, Inc. $1.00
convertible pfd. A 1,890,900
100,000 Freeport McMoran Copper & Gold, Inc. $1.122
convertible pfd. B 3,350,000
113,800 Freeport McMoran Copper & Gold, Inc. $1.122
convertible pfd. C 3,584,700
381,000 Newmont Mining Corp. $2.75 convertible pfd. (a) 20,478,750
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PREFERRED STOCKS (COST $34,977,050) -- 10.1% 32,619,350
- -----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM SECURITIES** United States Treasury Bills:
U.S. Government UNR Aaa $ 150,000 5.190% due 12/14/95 149,070
Obligations -- 0.2% UNR Aaa 110,000 5.250% due 12/14/95 109,315
UNR Aaa 515,000 5.360% due 2/15/96 506,918
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES (COST $765,374) -- 0.2% 765,303
- -----------------------------------------------------------------------------------------------------------------------------
Total investments (cost $307,011,378) -- 98.4% 317,019,757
Put options purchased (cost $20,587,732) -- 2.2%+ 7,151,529
Unrealized depreciation on foreign exchange contracts --
(1.4%)++ (4,731,170)
Other assets less liabilities -- 0.8% 2,536,361
------------
Net Assets -- 100.0% $321,976,477
------------
------------
+ Put options purchased as of October 31, 1995 are as
follows:
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE/SHARES EXPIRATION DATE/ VALUE
SUBJECT TO PUT ISSUE EXERCISE PRICE (NOTE 1A)
<S> <C> <C> <C> <C>
YEN 2,730,000,000 Japanese Government Bond #174 May 96/$1.26128 $ 3,876,600
4.600% due 9/20/2004
$ 29,800,000 U.S. Treasury Bonds Apr. 96/$103.0781 35,760
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS
<S> <C> <C> <C> <C>
455 S&P 500 Index Put Dec. 95/375 2,844
455 S&P 500 Index Put Dec. 95/400 2,844
640 S&P 500 Index Put Dec. 95/485 40,000
794 S&P 500 Index Put Mar. 96/484.220 73,076
950 S&P 500 Index Put Mar. 96/500 225,625
225 S&P 500 Index Put Jun. 96/450 40,781
665 S&P 500 Index Put Jun. 96/475 182,875
670 S&P 500 Index Put Jun. 96/500 309,875
715 S&P 500 Index Put Jun. 96/550 804,375
240 S&P 500 Index Put Sep. 96/550 321,000
135 S&P 500 Index Put Dec. 96/525 154,406
500 S&P 500 Index Put Dec. 96/550 809,375
265 S&P 500 European Index Put Dec. 96/450 3,312
2,520 S&P Flex Index Option Dec. 96/450 63,000
135 S&P Flex Index Option Dec. 96/525 171,281
8 Philadelphia Semiconductor Index Jun. 96/280 34,500
------------
Total Put Options Purchased $ 7,151,529
------------
------------
</TABLE>
++Foreign exchange contracts as of October 31, 1995 are as follows:
<TABLE>
<CAPTION>
EXPIRATION CURRENCY CURRENCY VALUE
DATE PURCHASED COST SOLD (NOTE 1A)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
November 1995 U.S. Dollar $ 7,308,037 Dutch Guilder $ 6,990,881
November 1995 U.S. Dollar 72,307,353 German Deutschmark 69,095,798
November 1995 U.S. Dollar 12,815,187 Swiss Franc 11,855,607
March 1996 U.S. Dollar 40,042,113 Hong Kong Dollar 40,000,000
- ---------------------------------------------------------------------------------------------------
Total Foreign Currency
Contracts $ 132,673,456 $ 127,942,286
------------- -------------
------------- -------------
</TABLE>
- - American Depositary Receipt (ADR).
* UNR -- Unrated by Standard & Poor's or Moody's.
** These securities are traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
(a) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration normally to qualified institutional buyers. At
October 31, 1995, the market value of the securities was $33,844,188, or
10.5% of net assets.
(b) Non-income producing.
Glossary:
FRN -- Floating Rate Note.
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Strategy Fund, Inc. Statement of Assets and Liabilities
(Unaudited) As of October 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments at value (amortized cost, $307,011,378) (Note
1a)........................................................ $317,019,757
Put options purchased (cost, $20,587,732) (Note 1a)......... 7,151,529
Receivables:
Interest............................................ $6,212,119
Capital stock sold.................................. 985,429
Dividends........................................... 230,004 7,427,552
----------
Other assets................................................ 153,104
------------
Total assets........................................ 331,751,942
------------
LIABILITIES:
Payables:
Capital stock redeemed.............................. 1,882,260
Dividends to Shareholders (Note 1f)................. 1,638,489
Unrealized depreciation on foreign exchange
contracts.......................................... 4,731,170
Payable for forward contract -- closed (Note 1)..... 923,256
Investment advisory fees (Note 2)................... 166,459
Distributor fees (Note 2)........................... 83,081
Administrative fees (Note 2)........................ 61,839 9,486,554
----------
Accrued expenses and other liabilities...................... 288,911
------------
Total liabilities................................... 9,775,465
------------
Net Assets.................................................. $321,976,477
------------
------------
NET ASSETS CONSIST OF:
Class O Common Stock, $0.001 par value, 150,000,000
shares authorized.................................. $273,986,605
Class A Common Stock, $0.001 par value, 150,000,000
shares authorized.................................. 63,025,453
Class C Common Stock, $0.001 par value, 200,000,000
shares authorized.................................. 96,453
Undistributed investment income -- net.............. 14,490,152
Accumulated realized foreign currency transaction
losses -- net...................................... (5,523,243)
Accumulated realized loss on investments -- net..... (16,012,418)
Unrealized depreciation on investments -- net....... (3,427,824)
Unrealized depreciation on foreign currency
transactions -- net................................ (4,658,701)
------------
Net Assets.................................................. $321,976,477
------------
------------
NET ASSET VALUE:
Class O Shares -- Based on net assets of $264,636,040 and
29,993,986 shares outstanding.............................. $8.82
------------
------------
Class A Shares -- Based on net assets of $57,244,930 and
6,491,050 shares outstanding............................... $8.82
------------
------------
Class C Shares -- Based on net assets of $95,507 and 10,833
shares outstanding......................................... $8.82
------------
------------
</TABLE>
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Strategy Fund, Inc. Statement of Operations for the Six
Months Ended October 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
TOTAL FUND
-----------
<S> <C>
INVESTMENT INCOME (NOTE 1E):
Interest and discount earned..................................... $11,927,403
Dividends (net of withholding tax of $75,273).................... 1,428,571
-----------
Total investment income.................................. 13,355,974
-----------
EXPENSES:
Investment advisory fees (Note 2)................................ 1,075,531
Administrative fees (Note 2)..................................... 396,215
Shareholder servicing fees....................................... 323,494
Legal fees....................................................... 109,781
Custodian fees................................................... 104,526
Distributor fees (Note 2)........................................ 77,237
Printing and shareholder reports................................. 61,300
Registration fees................................................ 49,951
Insurance........................................................ 44,410
Directors' fees and expenses..................................... 21,088
Audit fees....................................................... 12,305
Service and distribution plan (Note 2)........................... 899
Other operating expenses......................................... 1,409
-----------
Total expenses........................................... 2,278,146
-----------
INVESTMENT INCOME -- NET......................................... 11,077,828
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS (NOTES 1B, 1C, 1E & 3):
Realized gain on investments -- net.............................. 15,463,043
Realized loss on options expired -- net.......................... (12,507,375)
Realized loss on futures transactions -- net..................... (1,451,456)
Realized foreign currency transactions gain -- net............... 2,095,343
Change in unrealized appreciation/depreciation on investments --
net............................................................. (16,590,604)
Change in unrealized appreciation/depreciation on put options
purchased -- net................................................ 6,075,481
Change in unrealized appreciation/depreciation on foreign
currency transactions -- net.................................... (4,843,444)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $ (681,184)
-----------
-----------
</TABLE>
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Strategy Fund, Inc. Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
OCTOBER 31, FOR THE YEAR
1995 ENDED
(UNAUDITED) APRIL 30, 1995
-------------- --------------
<S> <C> <C> <C>
OPERATIONS: Investment income -- net................ $ 11,077,828 $ 29,207,784
Realized gain on investments -- net..... 1,504,212 37,031,839
Realized foreign currency transaction
gain (loss) -- net..................... 2,095,343 (1,573,852)
Change in unrealized appreciation
(depreciation) on investments -- net... (16,590,604) (34,460,316)
Change in unrealized appreciation
(depreciation) on put options purchased
-- net................................. 6,075,481 (21,228,136)
Change in unrealized appreciation
(depreciation) on foreign currency
transactions -- net.................... (4,843,444) 224,710
-------------- --------------
Net increase/decrease in net assets
resulting from operations.............. (681,184) 9,202,029
-------------- --------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS: Investment income -- net:
Class O............................... (8,474,531) (22,343,442)
Class A............................... (1,687,176) (4,289,556)
Class C*.............................. (634) --
-------------- --------------
Net decrease in net assets resulting
from dividends and disrtibutions....... (10,162,341) (26,632,998)
-------------- --------------
CAPITAL STOCK
TRANSACTIONS
(NOTE 4): Net decrease in net assets derived from (62,678,038) (143,462,260)
capital stock transactions.............
-------------- --------------
Decrease in net assets, net of dividends
and distributions...................... (73,521,563) (160,893,229)
NET ASSETS: Beginning of period..................... 395,498,040 556,391,269
-------------- --------------
End of period........................... $ 321,976,477 $ 395,498,040
-------------- --------------
-------------- --------------
Undistributed net investment income..... $ 14,490,152 $ 13,574,665
-------------- --------------
-------------- --------------
</TABLE>
* Class C shares were introduced on August 1, 1995.
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Strategy Fund, Inc. Financial Highlights+
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR FOR THE YEAR
OCTOBER 31, 1995 ENDED ENDED
(UNAUDITED) APRIL 30, 1995 APRIL 30, 1994
---------------------------------- ------------------ -----------------
CLASS O CLASS A CLASS C+++ CLASS A CLASS O CLASS A CLASS O
---------- ---------- ---------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 9.10 $ 9.10 $ 9.00 $ 9.41 $ 9.40 $ 9.27 $ 9.27
---------- ---------- ----- -------- -------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income -- net................ 0.36 0.27 0.11 0.52 0.66 0.68 0.77
Realized and unrealized gain (loss) on
investments, put options purchased and
foreign currency transactions -- net... (0.38) (0.30) (0.17) (0.34) (0.44) 0.22 0.15
---------- ---------- ----- -------- -------- ------- --------
Total from investment
operations....................... (0.02) (0.03) (0.06) 0.18 0.22 0.90 0.92
---------- ---------- ----- -------- -------- ------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from investment income --
net.................................... (0.26) (0.25) (0.12) (0.49) (0.52) (0.74 ) (0.77)
Dividends from realized transaction
gains.................................. -- -- -- -- -- (0.02 ) (0.02)
Distributions from realized capital
gains -- net........................... -- -- -- -- -- -- --
---------- ---------- ----- -------- -------- ------- --------
Total dividends and
distributions.................... (0.26) (0.25) (0.12) (0.49) (0.52) (0.76 ) (0.79)
---------- ---------- ----- -------- -------- ------- --------
NET ASSET VALUE, END OF PERIOD.......... $ 8.82 $ 8.82 $ 8.82 $ 9.10 $ 9.10 $ 9.41 $ 9.40
---------- ---------- ----- -------- -------- ------- --------
---------- ---------- ----- -------- -------- ------- --------
Total investment return (1)............. (0.21%) (0.35%) (0.43%)(3) 1.94% 2.39% 9.91 % 10.13%
---------- ---------- ----- -------- -------- ------- --------
---------- ---------- ----- -------- -------- ------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000)......... $264,636 $57,245 $ 96 $65,874 $329,624 $91,454 $464,937
---------- ---------- ----- -------- -------- ------- --------
---------- ---------- ----- -------- -------- ------- --------
Ratio of expenses to average net
assets................................. 1.22%(4) 1.48%(4) 2.30%(4) 1.46% 1.14% 1.40 % 1.07%
---------- ---------- ----- -------- -------- ------- --------
---------- ---------- ----- -------- -------- ------- --------
Ratio of expenses, excluding
distribution fees, to average net
assets................................. 1.22%(4) 1.23%(4) 1.30%(4) 1.21% 1.14% 1.08 % 1.07%
---------- ---------- ----- -------- -------- ------- --------
---------- ---------- ----- -------- -------- ------- --------
Ratio of investment income -- net to
average net assets..................... 6.21%(4) 5.96%(4) 5.14%(4) 5.83% 6.19% 6.85 % 7.57%
---------- ---------- ----- -------- -------- ------- --------
---------- ---------- ----- -------- -------- ------- --------
Portfolio turnover rate................. 27% 27% 27% 100% 100% 31 % 31%
---------- ---------- ----- -------- -------- ------- --------
---------- ---------- ----- -------- -------- ------- --------
<CAPTION>
FOR THE YEAR
ENDED FOR THE FOR THE
APRIL 30, 1993 YEAR YEAR
------------------ ENDED ENDED
CLASS APRIL APRIL 30,
A++ CLASS O 30, 1992 1991
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 9.55 $ 9.56 $ 9.48 $ 10.07
-------- -------- -------- ----------
INCOME FROM INVESTMENT OPERATIONS
Investment income -- net................ 0.64 0.90 0.80 0.84
Realized and unrealized gain (loss) on
investments, put options purchased and
foreign currency transactions -- net... (0.28) (0.39) 0.08 (0.09)
-------- -------- -------- ----------
Total from investment
operations....................... 0.36 0.51 0.88 0.75
-------- -------- -------- ----------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from investment income --
net.................................... (0.64) (0.75) (0.76) (0.84)
Dividends from realized transaction
gains.................................. -- (0.05) (0.04) --
Distributions from realized capital
gains -- net........................... -- -- -- (0.50)
-------- -------- -------- ----------
Total dividends and
distributions.................... (0.64) (0.80) (0.80) (1.34)
-------- -------- -------- ----------
NET ASSET VALUE, END OF PERIOD.......... $ 9.27 $ 9.27 $ 9.56 $ 9.48
-------- -------- -------- ----------
-------- -------- -------- ----------
Total investment return (1)............. 5.42%(2) 5.70% 9.59% 8.66%
-------- -------- -------- ----------
-------- -------- -------- ----------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000)......... $23,492 $548,514 $810,700 $1,200,644
-------- -------- -------- ----------
-------- -------- -------- ----------
Ratio of expenses to average net
assets................................. 1.41%(4) 1.06% 1.11% 0.93%
-------- -------- -------- ----------
-------- -------- -------- ----------
Ratio of expenses, excluding
distribution fees, to average net
assets................................. 1.07%(4) 1.06% 1.11% 0.93%
-------- -------- -------- ----------
-------- -------- -------- ----------
Ratio of investment income -- net to
average net assets..................... 8.74%(4) 8.95% 8.03% 8.78%
-------- -------- -------- ----------
-------- -------- -------- ----------
Portfolio turnover rate................. 56% 56% 89% 16%
-------- -------- -------- ----------
-------- -------- -------- ----------
</TABLE>
+ Fund converted to open-end status on August 1, 1991.
++ Class A shares were introduced on July 15, 1992. Except as indicated below,
information is presented for the period from July 15, 1992 to April 30,
1993.
+++ Class C shares were introduced on August 1, 1995. Except as indicated below,
information is presented for the period from August 1, 1995 to October 31,
1995.
(1) Total investment returns exclude the effects of sales loads and assume
reinvestment of dividends and distributions. Total investment returns prior
to August 1, 1991 reflect performance of the Fund as a closed-end fund
(assuming dividend reinvestment pursuant to the Fund's Dividend Reinvestment
Plan as then in effect); as an open-end fund the Fund incurs certain
additional expenses as a result of the continuous offering and redemption of
its shares.
(2) Total investment return is presented for the year ended April 30, 1993. For
the period prior to July 15, 1992, total investment return does not reflect
service and distribution fees because such fees were not paid during that
period.
(3) Total investment return is presented for the six-month period ended October
31, 1995. For the period prior to August 1, 1995, total investment return is
based upon the total investment return for Class A shares, and does not
reflect the greater service and distribution fees and certain other expenses
borne by Class C shares.
(4) Annualized.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED):
1. SIGNIFICANT ACCOUNTING POLICIES:
Comstock Partners Strategy Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, open-end, management
investment company. The Fund originally commenced operations in May of 1988 as a
closed-end investment company. At a special meeting of shareholders on June 14,
1991, holders of a majority of the Fund's outstanding shares voted to approve
the conversion of the Fund to an open-end investment company. The Fund converted
to open-end status on August 1, 1991. On July 15, 1992, a second class of
shares, Class A, was created and on August 1, 1995, a third class of shares,
Class C, was created. Class C shares are subject to a contingent deferred sales
charge. Class O, A, and C have identical voting, dividend, liquidation and other
rights and the same terms and conditions except that Class A shares and Class C
shares bear fees and expenses on an ongoing basis pursuant to the Class A
Service and Distribution Plan and Class C Service and Distribution Plan,
respectively. Class C shares bear additional incremental shareholder
administrative expenses resulting from the deferred sales charge arrangements,
and only the holders of Class A and Class C shares have voting rights with
respect to matters pertaining to the Class A Service and Distribution Plan and
Class C Service and Distribution Plan, respectively. Class O shares are no
longer issued by the Fund except in connection with the reinvestment of
dividends on outstanding Class O shares. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments - Securities listed on national securities
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued, or lacking any sales, at the mean between
the closing bid and asked prices.
Securities traded in the over-the-counter market are valued on the basis of the
mean between the bid and asked prices at the close of trading on such day by
dealers that make markets in such securities. Portfolio securities which are
traded both in the over-the-counter market and on a stock exchange are valued
based on prices or quotes obtained from the broadest and most representative
market.
Options purchased by the Fund are valued at the last bid price in the case of
exchange-traded options, or in the case of options traded in the
over-the-counter market, the average of the last bid price as obtained by two or
more dealers.
Futures contracts are stated at market value or otherwise at the fair value at
which it is expected they may be resold, as determined in good faith by the
Board of Directors.
Short-term debt securities having a maturity of 60 days or less from the
valuation date are valued at amortized cost which approximates market value.
(b) Derivative financial instruments - The Fund may engage in various portfolio
strategies to seek to generate income or gains or as a hedge against its
portfolio against adverse movements in the equity, debt and currency markets.
Losses may arise due to changes in the value of the contract or if the
counterpart does not perform under the contract.
Forward foreign exchange contracts - The Fund is authorized to enter into
forward foreign exchange contracts to seek to generate income or gains or as a
hedge against either specific transactions or portfolio positions. Such
contracts are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such contracts.
Premium or discount is amortized over the life of the contracts.
Financial futures contracts - The Fund may purchase or sell financial futures
contracts to seek to generate income or gains or as a hedge against adverse
changes in interest rates. A futures contract is an agreement between two
parties to buy or sell a security for a set price on a future date. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
(c) Foreign Currency Transactions - Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income Taxes - It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no Federal income tax provision is required. Under the applicable foreign tax
law, a withholding tax may be imposed on interest and capital gains at various
rates.
(e) Security transactions and investment income - Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend date. Interest income (including
amortization of discount) is recorded as earned. Realized gains and losses are
determined on the identified cost basis.
(f) Dividends and Distributions - Dividends and distributions payable by the
Fund are accrued on the ex-dividend date.
2. INVESTMENT ADVISORY, SUB-INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Comstock
Partners, Inc. ("Comstock"). Comstock is responsible for the management of the
Fund's portfolio and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.60% of the Fund's
average daily net assets.
Comstock has entered into a Sub-Investment Advisory Agreement with The Dreyfus
Corporation ("Dreyfus"). Under the terms of the Agreement, Dreyfus manages the
short-term cash and cash equivalents of the Fund and provides investment
research and other advice regarding the Fund's portfolio. Dreyfus also provides
general advice regarding economic factors and trends, including statistical and
other factual information. For such services, Comstock will pay out of its
advisory fee a monthly fee at an annual rate of 0.15% of the Fund's average
daily net assets.
The Fund has entered into an Administration Agreement with Princeton
Administrators, L.P. (the "Administrator"), an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated. The Administrator performs administrative
services necessary for the operation of the Fund, including maintaining the
books and records of the Fund and preparing reports and other documents required
by Federal, state and other applicable laws and regulations, and provides the
Fund with administrative office facilities. For those services, the Fund pays a
monthly fee at an annual rate equal to the greater of (i) $300,000 per annum
($25,000 per month), or (ii) 0.25% of the Fund's average daily net assets up to
$100 million, 0.225% of the Fund's average daily net assets on the next $100
million, 0.20% of the Fund's average daily net assets on the next $400 million
and 0.175% of the Fund's average daily net assets in excess of $600 million.
Premier Mutual Fund Services, Inc. serves as the Fund's distributor
("Distributor") pursuant to an agreement. Under the Fund's Class A Service and
Distribution Plan (formerly the Account Maintenance Plan) (the "Class A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, the Class A shares bear the
cost of (a) payment by the Fund to the Distributor for advertising, marketing
and distributing Class A shares and for servicing Class A shareholders at an
annual rate of 0.25%, payable monthly, of the value of the Fund's average daily
net assets attributable to Class A shares and (b) additional 12b-1 expenses
incurred in connection with the preparation, printing and distribution of the
Fund's prospectus and statement of additional information used for other than
regulatory purposes and distribution to existing shareholders and expenses of
implementing the Class A Plan, the aggregate of such amounts under clause (b)
not to exceed in any fiscal year the greater of $100,000 or .005% of the value
of the Fund's average daily net assets attributable to the Class A shares. Under
the Fund's Class C Service
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED):
2. INVESTMENT ADVISORY, SUB-INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
AND TRANSACTIONS WITH AFFILIATES (CONTINUED):
and Distribution Plan, adopted pursuant to Rule 12b-1 under the 1940 Act, the
Class C shares bear the cost of (a) payment by the Fund to the Distributor for
distributing the Fund's Class C shares at an annual rate of 0.75%, payable
monthly, of the value of the Fund's average daily net assets attributable to
Class C shares and (b) payments by the Fund to Dreyfus Service Corporation or
the Distributor for the provision of certain services to the holders of Class C
shares at an annual rate of 0.25% of the value of the average daily net assets
of Class C shares.
Certain officers and/or directors of the Fund are officers and/or directors of
Comstock.
3. PURCHASES AND SALES OF INVESTMENTS:
Purchases and sales of investments, excluding short-term and U.S. Government
securities, for the six months ended October 31, 1995 were $71,002,924 and
$82,908,136, respectively.
Realized and unrealized gains (losses) as of October 31, 1995 were as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
GAINS GAINS
(LOSSES) (LOSSES)
------------- -------------
<S> <C> <C>
Long-term investments............................. $ 15,466,435 $ 10,008,450
Short-term investments............................ (3,392) (71)
Put options purchased............................. (12,507,375) (13,436,203)
Financial futures contracts....................... (1,451,456) --
Foreign currency transactions..................... 2,095,343 (4,658,701)
------------- -------------
$ 3,599,555 $ (8,086,525)
------------- -------------
------------- -------------
</TABLE>
As of October 31, 1995, unrealized depreciation for Federal income tax purposes
aggregated $3,477,762 of which $19,894,500 related to appreciated securities and
$23,372,262 related to depreciated securities.
The aggregate cost of investments at October 31, 1995 for Federal income tax
purposes was $327,649,048. In addition, at April 30, 1995 the Fund had a capital
loss carryforward of $12,184,077 ($3,407,130 expiring April 30, 2000, $8,776,947
expiring April 30, 2001) available as a reduction of any future net capital
gains realized.
4. CAPITAL STOCK TRANSACTIONS:
Transactions in shares of Class O capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS DOLLAR
ENDED OCTOBER 31, 1995 SHARES AMOUNT
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Shares sold....................................... -- --
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 271,974 $ 2,423,597
------------ --------------
Total issued...................................... 271,974 2,423,597
Shares redeemed................................... (6,519,572) (58,425,575)
------------ --------------
Net decrease...................................... (6,247,598) $ (56,001,978)
------------ --------------
------------ --------------
<CAPTION>
FOR THE YEAR DOLLAR
ENDED APRIL 30, 1995 SHARES AMOUNT
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Shares sold....................................... -- --
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 973,756 $ 8,959,869
------------ --------------
Total issued...................................... 973,756 8,959,869
Shares redeemed................................... (14,184,069) (129,706,226)
------------ --------------
Net decrease...................................... (13,210,313) $ (120,746,357)
------------ --------------
------------ --------------
</TABLE>
Transactions in shares of Class A capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS DOLLAR
ENDED OCTOBER 31, 1995 SHARES AMOUNT
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Shares sold....................................... 422,952 $ 3,742,375
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 89,148 794,263
------------ --------------
Total issued...................................... 512,100 4,536,638
Shares redeemed................................... (1,263,099) (11,309,151)
------------ --------------
Net decrease...................................... (750,999) $ (6,772,513)
------------ --------------
------------ --------------
<CAPTION>
FOR THE YEAR DOLLAR
ENDED APRIL 30, 1995 SHARES AMOUNT
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Shares sold....................................... 1,812,384 $ 16,493,949
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 239,773 2,221,042
------------ --------------
Total issued...................................... 2,052,157 18,714,991
Shares redeemed................................... (4,530,821) (41,430,894)
------------ --------------
Net decrease...................................... (2,478,664) $ (22,715,903)
------------ --------------
------------ --------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED):
4. CAPITAL STOCK TRANSACTIONS (CONTINUED):
Transactions in shares of Class C capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS DOLLAR
ENDED OCTOBER 31, 1995 SHARES AMOUNT
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Shares sold....................................... 13,154 $ 117,093
Shares issued to shareholders in reinvestment of
dividends and distributions...................... 52 466
------------ --------------
Total issued...................................... 13,206 117,559
Shares redeemed................................... (2,373) (21,106)
------------ --------------
Net increase...................................... 10,833 $ 96,453
------------ --------------
------------ --------------
</TABLE>
5. DIVIDENDS:
In November and December 1995 the Fund's Board of Directors declared ordinary
income dividends for Class A, Class O and Class C shares as follows:
<TABLE>
<CAPTION>
AMOUNT PER SHARE
--------------------------------
CLASS O CLASS A CLASS C PAYABLE DATE RECORD DATE
-------- -------- -------- ------------------ ------------------
<S> <C> <C> <C> <C>
$0.04500 $0.04111 $0.04310 November 30, 1995 November 21, 1995
$0.05000 $0.04813 $0.04192 December 29, 1995 December 20, 1995
</TABLE>
<PAGE>
[LOGO]
COMSTOCK PARTNERS STRATEGY FUND, INC.
10 Exchange Place
Suite 2010
Jersey City, NJ 07302-3913
INVESTMENT ADVISER
COMSTOCK PARTNERS, INC.
10 Exchange Place
Jersey City, NJ 07302-3913
SUB-INVESTMENT ADVISER
THE DREYFUS CORPORATION
200 Park Avenue
New York, NY 10166
CUSTODIAN--DOMESTIC
THE BANK OF NEW YORK
110 Washington Street
New York, NY 10286
CUSTODIAN--INTERNATIONAL
BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02109
ADMINISTRATOR
PRINCETON ADMINISTRATORS, L.P.
P.O. Box 9011
Princeton, NJ 08543-9011
DISTRIBUTOR
PREMIER MUTUAL FUND SERVICES, INC.
One Exchange Place
Boston, MA 02109
Tel. 1-800-221-7930
1-617-248-6497 (Boston)
1-617-248-3789 (Boston)
TRANSFER AGENT, DIVIDEND
DISBURSING AGENT, AND
SHAREHOLDER SERVICING AGENT
DREYFUS TRANSFER, INC.
1 American Express Plaza
Providence, RI 02940-9671
Tel. 1-800-645-6561
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
University Square
117 Campus Dr.
Princeton, NJ 08540
LEGAL COUNSEL
SIMPSON THACHER & BARTLETT
(a partnership which includes
professional corporations)
425 Lexington Avenue
New York, NY 10017-3909
OFFICERS & DIRECTORS
Stanley D. Salvigsen, Chief Executive
Officer and Chairman of the Board
Charles L. Minter, President
and Director
M. Bruce Adelberg, Director
E. W. Kelley, Director
Robert M. Smith, Director
Edward A. Leskowicz, Jr., Vice
President, Treasurer and
Chief Financial Officer
W. Troy Hottenstein, Secretary
Robert C. Ringstad, Assistant Secretary
------------------------------------------------------------------------
General information regarding the Fund's portfolio, updated
semi-monthly, is available by calling the Fund's Distributor (see
above).
This report is not authorized for use in connection with an offer of
sale or a solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
