As filed with the Securities and Exchange Commission on August 28, 1996.
Registration Nos. 33-40771
811-5502
========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /__ /
Pre-Effective Amendment No. ___ /__ /
Post-Effective Amendment No. 10 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 /__ /
Amendment No. 16 / X /
COMSTOCK PARTNERS FUNDS, INC.
_____________________________
(Exact Name of Registrant as Specified in Charter)
10 Exchange Place
Suite 2010
Jersey City, NJ 07302-3913
___________________________
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (201) 332-4436
ROBERT C. RINGSTAD
COMSTOCK PARTNERS FUNDS, INC.
10 Exchange Place
Suite 2010
Jersey City, NJ 07302-3913
____________________________
(Name and Address of Agent for Service)
Copies to:
Robert M. Kaner, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable
after this Post-Effective Amendment becomes effective.
It is proposed that this filing will become effective:
X immediately upon filing pursuant to Rule 485(b)
___ on ____________________ pursuant to Rule 485(b)
___ 60 days after filing pursuant to Rule 485(a)(i)
___ on ____________________ pursuant to Rule 485(a)(i)
___ 75 days after filing pursuant to Rule 485(a)(ii)
___ on _________________ pursuant to Rule 485(a)(ii)
If appropriate, check the following box: /__/ This post-
effective amendment designates a new effective date for a previously filed
post-effective amendment.
The Registrant has previously registered under the Securities
Act of 1933 an indefinite number of its shares of Capital Stock, $.001 par
value per share, of all series then existing or thereafter created
pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for its fiscal year ending April 30, 1996
was filed on June 27, 1996.
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933<F1>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Additional Amount Offering Price Per Aggregate Offering Amount of
Being Registered Being Registered<F2> Unit<F3> Price<F4> Registration Fee
<S> <C> <C> <C> <C>
Capital Stock (par
value $.001 per 13,134,868 shares $ 8.97 $289,992 $100
share)
<FN>
<F1> The shares being registered as set forth in this table are in
addition to the indefinite number of shares of Capital Stock of
Comstock Partners Funds, Inc. (The "Registrant"), which Registrant
has registered under the Securities Act of 1933, as amended
(the "1933 Act"), pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Registrant's
Rule 24f-2 Notice for its fiscal year ended April 30, 1996 was
filed on June 27, 1996.
<F2> 45,309,822 shares of Capital Stock previously registered by the
Registrant pursuant to Rule 24e-2 under the 1940 Act remained
unsold at the beginning of the Registrant's current fiscal year.
<F3> Based on the net asset value of the Comstock Partners Strategy Fund's
Class A shares of $8.56 on August 26, 1996 pursuant to Rule 457 under
the 1933 Act and Rule 24e-2(a) under the 1940 Act.
<F4> In response to Rule 24e-2(b) under the 1940 Act: (1) the calculation
of the maximum aggregate offering price is made pursuant to Rule 24e-2;
(2) 13,495,721 shares of Capital Stock were redeemed by the Comstock
Partners Strategy Fund during the fiscal year ended April 30, 1996;
(3) 393,183 shares are being used for reductions pursuant to Rule 24f-2
during the current fiscal year; and (4) 13,102,538 shares are being used
for reduction in this amendment pursuant to Rule 24e-2(a).
</TABLE>
<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
N-1A Item No. Location Prospectus Caption
- ------------- -------- ------------------
Part A
Item 1. Cover Page Cover Page
Item 2. Synopsis The Funds' Expenses
Item 3. Condensed Financial
Information Financial Highlights; Certain
Information Regarding
Performance
Item 4. General Description of
Registrant Summary; The Company;
Investment Objective and
Policies; Investment
Restrictions; Risk Factors;
Management Arrangements;
Organization and Capital
Stock
Item 5. Management of the Fund Summary; Management
Arrangements
Item 5A. Management's Discussion
of Performance Not Applicable
Item 6. Capital Stock and Other
Securities Summary; Dividends,
Distributions and Taxes;
Organization and Capital
Stock; Additional Shareholder
Services
Item 7. Purchase of Securities
Being Offered Summary; Purchase of Fund
Shares; Additional
Shareholder Services; Service
and Distribution Plans;
Dividends, Distributions and
Taxes
Item 8. Redemption or
Repurchase Summary; Dividends,
Distributions and Taxes;
<PAGE>
Purchase and Redemption of
Shares;
Item 9. Pending Legal Proceedings Not Applicable
Statement of Additional
Part B Location Information Caption
------ -------- -----------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and
History Not applicable.
Item 13. Investment Objectives and
Policies Additional Information
Concerning Portfolio
Activities; Investment
Restrictions
Item 14. Management of the Fund Management Arrangements
Item 15. Control Persons and
Principal Holders
of Securities Management Arrangements
Item 16. Investment Advisory and
Other Services Management Arrangements;
Shareholder Services; Service
and Distribution Plans;
Custodian; Transfer Agent and
Dividend Disbursing Agent;
Experts
Item 17. Brokerage Allocation and
Other Practices Portfolio Transactions
Item 18. Capital Stock and Other
Securities Capital Stock; Service and
Distribution Plans
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Purchase of Fund Shares;
Redemption of Fund Shares;
Shareholder Services; Net
Asset Value
Item 20. Tax Status Additional Information
Concerning Taxes
Item 21. Underwriters Purchase of Fund Shares;
Shareholder Services; Service
and Distribution Plans
<PAGE>
Item 22. Calculation of Performance
Data Performance Information
Item 23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of this Registration
Statement.
<PAGE>
Part A
<PAGE>
[LOGO] COMSTOCK PARTNERS FUNDS, INC.
Comstock Partners Strategy Fund
Comstock Partners Capital Value Fund
Prospectus August 28, 1996
Comstock Partners Funds, Inc. (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"). This prospectus describes
these portfolios (each, a "Fund" and collectively, the "Funds"), each
having its own investment objective and policies.
Comstock Partners Strategy Fund's investment objective is to maximize
total return, consisting of capital appreciation and current income, over
the long-term investment horizon by investing primarily in a portfolio of
debt securities. The Strategy Fund is classified as a non-diversified
portfolio.
Comstock Partners Capital Value Fund's investment objective is to
maximize total return, consisting of capital appreciation and current
income. The Fund invests in a wide range of equity and debt securities and
money market instruments. The Capital Value Fund is classified as a
diversified portfolio.
There can be no assurance that the Funds will achieve their investment
objectives. See "Investment Objectives and Policies."
Comstock Partners, Inc. serves as the investment adviser (the
"Investment Adviser") to each Fund.
By this Prospectus, the Company is offering two classes of shares of
the Strategy Fund (Class A and Class C), and four classes of shares of the
Capital Value Fund (Class A, Class B, Class C and Class R). Class O shares
of the Strategy Fund are no longer issued by the Company except in
connection with the reinvestment of dividends on outstanding Class O shares
of the Strategy Fund. See "Alternative Purchase Methods."
You can purchase or redeem all classes of shares by telephone using
the TeleTransfer Privilege. See "Purchase of Fund Shares" and "Redemption
of Shares."
____________________
This Prospectus sets forth concisely the information a prospective
investor should know before investing in the Funds. A Statement of
Additional Information dated August 28, 1996 (which may be revised from
time to time), containing additional information about the Funds (the
"Statement of Additional Information"), has been filed with the Securities
and Exchange Commission and is hereby incorporated by reference into this
Prospectus. It is available without charge and can be obtained by sending
your request in writing to 144 Glenn Curtiss Boulevard, Uniondale, New York
11556-0144, or by calling 1-800-645-6561. Other shareholder inquiries with
respect to the Funds can be made by calling this number.
<PAGE>
____________________
An investment in the Funds involves certain risks, as described under
"Risk Factors" in the Prospectus Summary and under "Investment Objectives
and Policies," which investors should consider carefully before investing.
Investors are advised to read this Prospectus carefully and retain it for
future reference. Mutual fund shares are not deposits or obligations of, or
guaranteed or endorsed by, any bank, and are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency. All mutual fund shares involve certain investment risks,
including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR OHIO RESIDENTS:
Investment in the Funds may involve a higher degree of risk than
investment in more traditional open-end investment companies because (i)
the Strategy Fund may purchase the securities of an issuer in which the
officers and directors of the Company, its Investment Adviser or its
Sub-Investment Adviser together could beneficially own more than 5% of such
securities, and (ii) the Funds may not purchase the securities of any one
issuer (other than United States Government securities or the securities of
other regulated investment companies) if immediately after such purchase
that Fund would own more than 10% of the outstanding voting securities of
such issuer, except that up to 50% of the value of the Strategy Fund's total
assets and 25% of the Capital Value Fund's total assets may be invested
without regard to such 10% limitation. Ohio residents should be aware that
with respect to such 10% limitation, the Strategy Fund does not meet the
guidelines set forth in paragraph (E)(8) of Rule 1301:6-3-09 of the Rules
(the "Ohio Rules") of the Ohio Division of Securities (the "Ohio Division").
Such guidelines provide that the foregoing 10% limitation should be
applicable with respect to 75% of the Strategy Fund's assets.
<PAGE>
PROSPECTUS SUMMARY
The Company
The Company is an open-end, management investment company offering
shares in two separate portfolios: Comstock Partners Strategy Fund and
Comstock Partners Capital Value Fund. See "The Company."
Comstock Partners Strategy Fund
The Strategy Fund's investment objective is to maximize total return
over the long-term investment horizon by investing primarily in a portfolio
of debt securities. Although at all times the Strategy Fund will invest at
least 65% of its total assets in debt securities, the Strategy Fund has the
ability to invest in a wide range of securities and instruments, including
equity securities and derivatives, and may move in and out of markets
quickly and decisively when the Investment Adviser believes that economic
conditions warrant. The Strategy Fund will not invest more than 25% of its
total assets in debt securities that are not rated at least A or higher by
either Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"), or, if not rated, are determined by the Investment
Adviser to be of comparable quality. The Strategy Fund will not necessarily
invest in securities with the highest current yield permitted by the
Strategy Fund's investment policies if the Investment Adviser believes that
the differences in yield and the potential for capital gain are not
sufficient to justify the greater risks involved. There can be no assurance
that the Strategy Fund will achieve its investment objective. See
"Investment Objectives and Policies -- Comstock Partners Strategy Fund."
Comstock Partners Capital Value Fund
The Capital Value Fund's investment objective is to maximize total
return, consisting of capital appreciation and current income. The Capital
Value Fund seeks to achieve its investment objective by following an asset
allocation strategy that contemplates shifts, which may be frequent, among
a wide range of investments and market sectors. The Investment Adviser will
have broad latitude in selecting the class of investments and market
sectors in which the Fund will invest. The Capital Value Fund, which is
classified as a diversified portfolio, will not be managed as a balanced
portfolio and is not required to maintain a portion of its investments in
each of the Fund's permitted investment types at all times. The Capital
Value Fund will invest in equity securities of domestic and foreign
issuers, including common stocks, preferred stocks, convertible securities
and warrants; debt securities of domestic and foreign issuers, including
bonds, debentures and notes; and domestic and foreign money market
instruments. The Capital Value Fund may invest up to 65% of its assets in
securities of foreign issuers. There can be no assurance that the Capital
Value Fund will achieve its investment objective. See "Investment Objective
and Policies--Comstock Partners Capital Value Fund."
Investment Adviser
Comstock Partners, Inc. is each Fund's Investment Adviser and is
responsible for the management of each Fund's investment portfolio. The
Investment Adviser was formed in October 1986 and has served as the
<PAGE>
investment adviser to the Strategy Fund since its commencement of
operations in May of 1988, and as sub-investment adviser to the
predecessor to the Capital Value Fund, Dreyfus Capital Value Fund, Inc.,
from April 30, 1987 until the Capital Value Fund's commencement of
operations on July 25, 1996. The Investment Adviser has also served as
sub-investment adviser to Dreyfus Variable Investment Fund--Managed Assets
Portfolio since May 21, 1990. In addition, the Investment Adviser provides
investment advisory services through discretionary accounts. It is the
publisher of the Comstock Investment Strategy Review and the Comstock
Investment Strategy Commentary, investment strategy publications furnished
to subscribers.
Under the Investment Advisory Agreement with respect to the Strategy
Fund, the Company, on behalf of the Strategy Fund, pays the Investment
Adviser an annual fee computed daily and paid monthly at the rate of .60 of
1% of the Strategy Fund's average daily net assets. Under the Investment
Advisory Agreement with respect to the Capital Value Fund, the Company, on
behalf of the Capital Value Fund, pays the Investment Adviser an annual fee
computed daily and paid monthly at the following annual rates: .40 of 1% of
the first $300 million of the Capital Value Fund's average daily net
assets, .45 of 1% of the Capital Value Fund's average daily net assets
between $300 million and $750 million, .50 of 1% of the Capital Value
Fund's average daily net assets between $750 million and $1 billion and
.55 of 1% of the Capital Value Fund's average daily net assets in excess
of $1 billion. See "Management Arrangements."
Sub-Investment Adviser
The Dreyfus Corporation (the "Sub-Investment Adviser") provides sub-
investment advisory services with respect to each Fund. Under the terms of
a Sub-Investment Advisory Agreement relating to the Strategy Fund, and a
Sub-Investment Advisory and Administration Agreement relating to the
Capital Value Fund, the Sub-Investment Adviser manages the short-term
cash and cash equivalent investments of the relevant Fund and provides
investment research and other advice regarding the relevant Fund's
portfolio. The Sub-Investment Adviser also provides general advice
regarding economic factors and trends, including statistical and other
factual information. In addition, the Sub-Investment Adviser acts as
administrator to the Capital Value Fund. For such sub-advisory services
relating to the Strategy Fund, at no cost to the Strategy Fund, the
Investment Adviser pays the Sub-Investment Adviser a monthly fee at an
annual rate of .15% of the Strategy Fund's average daily net assets.
For such sub-advisory and administration services relating to the Capital
Value Fund, the Sub-Investment Adviser is entitled to receive an
annual fee computed daily and paid monthly by the Company, on behalf of the
Fund, at the following annual rates: .35 of 1% of the first $300 million of
the Capital Value Fund's average daily net assets, .30 of 1% of the Capital
Value Fund's average daily net assets between $300 million and $750
million, .25 of 1% of the Capital Value Fund's average daily net assets
between $750 million and $1 billion and .20 of 1% of the Capital Value
Fund's average daily net assets in excess of $1 billion. See "Management
Arrangements."
Purchase of Shares
The Company offers you two methods of purchasing Strategy Fund shares
(Class A and Class C shares) and four methods of purchasing Capital Value
<PAGE>
Fund shares (Class A, Class B, Class C and Class R shares) so that you may
choose the Class of shares of each Fund or the Capital Value Fund that best
suits your needs, given the amount of your purchase, the length of time you
expect to hold your shares and any other relevant circumstances. Orders for
purchases of Capital Value Fund Class R shares, however, may be placed only
for certain eligible investors as described below.
Class A shares of each Fund are sold at net asset value per share plus
a maximum initial sales charge of 4.50% of the public offering price
imposed at the time of purchase (which may be reduced or waived for certain
purchases). See "Alternative Purchase Methods." These shares are subject to
an annual service and distribution fee at the rate of .25 of 1% of the
value of the average daily net assets of Class A of the Strategy Fund or
the Capital Value Fund, as the case may be. See "Service and Distribution
Plans."
Class B shares of the Capital Value Fund and Class C shares of each
Fund are sold at net asset value per share with no initial sales charge at
the time of purchase; as a result, the entire purchase price is immediately
invested in the Fund whose shares were purchased. Class B shares are
subject to a maximum 4% contingent deferred sales charge ("CDSC"), which
is assessed only if you redeem those shares within six years of purchase.
Class C shares are subject to a 1% CDSC, which is assessed only if you
redeem Class C shares within one year of purchase. See "Purchase of Fund
Shares" and "Redemption of Shares." Class B and Class C shares also are
subject to an annual service fee at the rate of .25 of 1% of the value of
the average daily net assets of that Class of the relevant Fund, and an
annual distribution fee at the rate of .75 of 1% of the value of the
average daily net assets of that Class of the relevant Fund. See "Service
and Distribution Plans." The distribution and service fees paid by Class B
or Class C of a Fund will cause such Classes to have a higher expense ratio
and to pay lower dividends than Class A of the same Fund.
Approximately six years after the date of purchase, Capital Value Fund
Class B shares automatically will convert to Class A shares of the Capital
Value Fund, based on the relative net asset values for shares of each such
Class, and will no longer be subject to the Class B service and
distribution fees, but will be subject to the Class A service and
distribution fee. Capital Value Fund Class B shares that have been acquired
through the reinvestment of dividends and distributions will be converted
on a pro rata basis together with other Capital Value Fund Class B shares,
in the proportion that a shareholder's Capital Value Fund Class B shares
converting to Class A shares bears to the total Class B shares of the
Capital Value Fund not acquired through the reinvestment of dividends and
distributions.
Class R shares of the Capital Value Fund may not be purchased directly
by individuals, although eligible institutions may purchase Class R shares
of the Capital Value Fund for certain accounts maintained by individuals.
Capital Value Fund Class R shares are sold at net asset value per share
only to institutional investors acting for themselves or in a fiduciary,
advisory, agency, custodial or similar capacity for qualified or non-
qualified employee benefit plans, including pension, profit-sharing, SEP-
IRAs and other deferred compensation plans, whether established by
corporations, partnerships, non-profit entities or state and local
governments, but not including IRAs or IRA "Rollover Accounts." Capital
Value Fund Class R shares are not subject to an annual service fee or
distribution fee.
<PAGE>
Redemption of Shares
Each Fund redeems each Class of its shares at its respective next
determined net asset value subject, in the case of Class B shares and Class
C shares, to any applicable CDSC. The Funds impose no charges (other than
any applicable CDSC) when shares are redeemed. Service Agents or other
institutions may charge their clients a nominal fee for effecting
redemptions of shares of the Funds. See "Redemption of Shares" and "Net
Asset Value."
Dividends and Distributions
The Strategy Fund intends to pay dividends monthly and to distribute
substantially all of its net investment income. Net realized capital gains,
if any, will be distributed at least annually. The Capital Value Fund
ordinarily pay dividends from net investment income and distributes net
realized securities gains, if any, once a year. Each Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
in all events in a manner consistent with the provisions of the 1940 Act.
The Capital Value Fund will not make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized
or have expired.
Shareholders of each Fund will receive dividends and distributions on
their shares of a Fund in additional shares of the same Class of that Fund
(without a sales charge) or may elect to receive all dividends and
distributions in cash. See "Dividends, Distributions and Taxes."
Risk Factors
There is no assurance that the Funds will achieve their investment
objectives, and investment in the Funds should not be considered a complete
investment program. Investors should note that the Funds have the ability
to invest in a wide range of securities and instruments, and the Investment
Adviser may substantially change the composition of the Fund's investment
portfolio from time to time.
The Strategy Fund will not invest more than 25% of its total assets in
debt securities that are not rated at least A or higher by either Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's Ratings Group,
a division of The McGraw Hill Companies, Inc. ("S&P"), or, if not rated,
are determined by the Investment Adviser to be of comparable quality. With
respect to such 25%, the Strategy Fund may invest in debt securities rated
as low as C by Moody's or S&P or, if not rated, determined by the
Investment Adviser to be of comparable quality. The Capital Value Fund is
not subject to any limit on the percentage of its assets that may be
invested in debt securities having a certain rating. Thus, it is possible
that a substantial portion of the Capital Value Fund's assets may be
invested in debt securities that are unrated or rated in the lowest
categories of the recognized rating agency (i.e. securities rated C by
Moody's or D by S&P). The Capital Value Fund intends to invest less than
35% of its assets in debt securities rated Ba or lower by Moody's or BB
or lower by S&P.
<PAGE>
Securities that are rated below Baa/BBB and comparable unrated
securities are commonly referred to as "junk bonds." Normally such
securities provide yields superior to those of more highly rated
securities, but involve greater risks (including the possibility of default
or bankruptcy of the issuer) and are regarded as speculative in nature. The
market price and yield of certain lower rated debt securities are more
volatile than those of higher rated securities and tend to be more
sensitive to economic conditions, including interest rate fluctuations,
than are higher rated securities.
The Strategy Fund may invest without limit, and the Capital Value Fund
may invest up to 65% of its assets, in foreign securities, including
securities of emerging market issuers. The Funds' investments in foreign
and emerging market securities involve certain other considerations and
risks not typically associated with investing in domestic securities,
including greater price volatility; uncertainties regarding future social,
political and economic developments; the possible imposition of foreign
withholding or brokerage taxes or exchange controls; risks of seizure or
expropriation; the availability of less information than is generally
available in the U.S. and a lack of uniform accounting and auditing
standards; higher transaction costs and possible delays or problems with
settlement; limited liquidity and relatively small market capitalization of
securities markets; high rates of inflation and interest; less government
supervision of exchanges; brokers and issuers; difficulty in enforcing
contractual obligations; and the possible adverse effects of changes in the
exchange rates of foreign currencies in which the Funds' investments may be
denominated.
Each of the Funds utilizes certain investment strategies commonly
referred to as derivatives, such as trading in futures, options and foreign
currencies, for speculative purposes (i.e. to seek to generate additional
income or gains) and/or to hedge against either a decline in the value of
certain securities owned by the Fund or an increase in the price of
securities which the Fund plans to purchase. Derivatives often fluctuate in
value more than the securities or other instruments on which they are
based, and relatively small changes in the value of the underlying
securities or instruments may have significantly larger effects on the
value of derivatives held by the Fund. Derivatives may entail the risk of
loss of the entire amount invested or, in certain cases, losses in excess
of the amount invested. A derivative utilized for hedging purposes may
limit the amount of potential gain on the related transaction or may
result in greater losses than if the derivative had not been used.
See "Investment Objectives and Policies--Other Investment Policies--Certain
Additional Investments and Investment Strategies."
As a "non-diversified" investment company, the Strategy Fund is not
limited by the 1940 Act in the proportion of its assets that may be
invested in the securities of a single issuer. In addition, each Fund may
invest up to 25% of its total assets, measured at the time of investment,
in a single industry, subject to certain exceptions. Accordingly, the
Funds may be more susceptible to any single economic, political or
regulatory occurrence than more widely diversified funds.
In addition to the instruments and strategies described above, the
Funds may invest in a wide range of equity securities as well as
participations, stripped mortgage-backed securities, structured
investments, and illiquid or restricted securities, and may lend
portfolio securities and enter into repurchase agreements, each of
<PAGE>
which involves certain additional risks. The Capital Value Fund may
also, among other things, invest in assignments and forward commitments
and may also sell short portfolio securities. For a more complete
discussion of the risks associated with an investment in the Funds,
see "Investment Objectives and Policies" and "Risk Factors."
THE FUNDS' EXPENSES
Comstock Partners Strategy Fund
The following expense table is provided to assist investors in
understanding the various costs and expenses that an investor will incur
either directly or indirectly as a holder of Class A or Class C shares of
the Strategy Fund. The amounts listed for Class A shares are based on the
Fund's fiscal year ended April 30, 1996. Expenses for Class C shares are
based on the period from August 1, 1995 to April 30, 1996 and have been
annualized.
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . 4.50% None
Maximum Deferred Sales Charge Imposed on
Redemptions (as a percentage of the
amount subject to charge) . . . . . . . . None<F1> 1.00%
Annual Fund Operating Expenses
(as a percentage of average daily net
assets)
Management Fees . . . . . . . . . . . . . .60% .60%
Administrative Fees . . . . . . . . . . . .22% .22%
12b-1 Fees<F2> . . . . . . . . . . . . . .25% 1.00%
Other Expenses<F3> . . . . . . . . . . . .41% .46%
Total Fund Operating Expenses . . . . 1.48% 2.28%
</TABLE>
Example
You would pay the following expenses on a $1,000 investment assuming a
5% annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
1 Year . . . . . $ 59 $ 33
3 Years . . . . . $ 90 $ 71
5 Years . . . . . $122 $122
10 Years . . . . $214 $262
</TABLE>
You would pay the following expenses on a $1,000 investment assuming a
5% annual return and no redemption:
<PAGE>
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
1 Year . . . . . $ 59 $ 23
3 Years . . . . . $ 90 $ 71
5 Years . . . . . $122 $122
10 Years . . . . $214 $262
<FN>
<F1> A contingent deferred sales charge of 1.00% may be assessed on certain
redemptions of Class A shares purchased without an initial sales
charge as part of an investment of $1 million or more.
<F2> Includes service and distribution fees payable pursuant to the
Company's Class A, Class B and Class C Service and Distribution Plans.
See "Service and Distribution Plans."
<F3> "Other Expenses" includes custodial and transfer agency fees, certain
shareholder administrative fees, insurance, legal and accounting fees,
printing and mailing costs, registration fees, interest expense and
dividends on securities sold short, and fees payable to directors who
are not affiliated with the Investment Adviser, the Sub-Investment
Adviser or the Distributor.
</TABLE>
Comstock Partners Capital Value Fund
The following expense table is provided to assist investors in
understanding the various costs and expenses that an investor will incur
either directly or indirectly as a holder of Class A, Class B, Class C and
Class R shares of the Capital Value Fund. The amounts listed are estimates
of the costs and expenses to be borne by shareholders of the Capital Value
Fund for its initial fiscal year based upon average net assets equal to
that of its predecessor, the Dreyfus Capital Value Fund, for the seven
months ended April 30, 1996.
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class R
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on
Purchases (as a percentage
of offering price) . . . . . 4.50% None None None
Maximum Deferred Sales Charge
Imposed on Redemptions (as a
percentage of the amount
subject to charge) . . . . . None<FN1> 4.00% 1.00% None
Annual Fund Operating Expenses
(as a percentage of average
daily net assets)
Management Fees . . . . . . .75% .75% .75% .75%
12b-1 Fees<FN2> . . . . . . . .25% 1.00% 1.00% None
Other Expenses<FN3> . . . . . .69% .69% .69% .69%
Total Fund Operating
Expenses . . . . . . . 1.69% 2.44% 2.44% 1.44%
Example
You would pay the following expenses on a $1,000 investment assuming a
5% annual return and redemption at the end of each time period:
Class A Class B Class C Class R
1 Year . . . . . $ 61 $ 65 $ 35 $ 15
3 Years . . . . . $ 96 $106 $ 76 $ 46
5 Years . . . . . $133 $150 $130 $ 79
10 Years . . . . $236 $242<FN4> $278 $172
You would pay the following expenses on a $1,000 investment assuming a
5% annual return and no redemption:
Class A Class B Class C Class R
1 Year . . . . . $ 61 $ 25 $ 25 $ 15
3 Years . . . . . $ 96 $ 76 $ 76 $ 46
5 Years . . . . . $133 $130 $130 $ 79
10 Years . . . . $236 $242<FN4> $278 $172
<PAGE>
<FN>
<F1> A contingent deferred sales charge of 1.00% may be assessed on certain
redemptions of Class A shares purchased without an initial sales
charge as part of an investment of $1 million or more.
<F2> Includes service and distribution fees payable pursuant to the
Company's Class A, Class B and Class C Service and Distribution Plans.
See "Service and Distribution Plans."
<F3> "Other Expenses" includes custodial and transfer agency fees, certain
shareholder administrative fees, insurance, legal and accounting fees,
printing and mailing costs, registration fees, interest expense and
dividends on securities sold short, and fees payable to directors who
are not affiliated with the Investment Adviser, the Sub-Investment
Adviser or the Distributor.
<F4> Ten-year figure assumes conversion of Class B shares to Class A shares
at end of sixth year following the date of purchase.
</TABLE>
_______________
The purpose of the foregoing tables is to assist investors in
understanding the various costs and expenses that an investor in the Funds
will bear, whether directly or indirectly, the payment of which will reduce
investors' investment return on an annual basis. The information in the
foregoing table does not reflect any fee waivers or expense reimbursement
arrangements that may be in effect. The examples should not be considered a
representation of future expenses, and actual expenses may be greater or
less than those shown. Moreover, while the examples assume a 5% annual
return, each Fund's performance will vary and may result in a return
greater or less than 5%. For a more complete discussion of the Funds'
fees and expenses, see "Management Arrangements" and "Service and
Distribution Plans."
Long-term holders of mutual fund shares which bear Rule 12b-1 fees,
such as the Company's Class A, Class B and Class C shares, may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by rules of the National Association of Securities Dealers,
Inc. Certain Service Agents (as defined below) may charge their clients
direct fees for effecting transactions in shares of the Funds; such fees
are not reflected in the foregoing tables. See "Management Arrangements,"
"Purchase of Fund Shares," "Redemption of Shares" and "Service and
Distribution Plans."
The Company understands that banks, brokers, dealers or other
financial institutions (including Mellon Bank, N.A., the parent company
of the Sub-Investment Adviser, and its affiliates) (collectively,
"Service Agents") may charge fees to their clients who are owners of
shares of the Funds for various services provided in connection with a
client's account. These fees would be in addition to any amounts received
by a Service Agent under its Selling Agreement with the Distributor.
<PAGE>
FINANCIAL HIGHLIGHTS
Comstock Partners Strategy Fund
The following per share data and ratios, which should be read in
conjunction with the financial statements of the Strategy Fund contained in
the Funds' Statement of Additional Information, set forth certain
information concerning the investment results for a Class O, Class A or
Class C share of the Strategy Fund outstanding throughout the periods
presented, as applicable. All outstanding shares of the Fund were
denominated Class O shares effective on July 15, 1992. Prior to August 1,
1991, the Company was a closed-end investment company and the Strategy Fund
was the sole portfolio. The Company converted to an open-end investment
company effective as of August 1, 1991. The data presented for periods
prior to August 1, 1991 reflect the Strategy Fund's operations as a closed-
end investment company. Past results are not predictive of future results.
The financial information in the following table for the year ended April
30, 1996 has been audited by Ernst & Young LLP whose report thereon appears
in the Statement of Additional Information. The financial information for
each of the seven years in the period ended April 30, 1995 has been audited
by Deloitte & Touche LLP, the former independent accountants of the Fund.
<PAGE>
<TABLE>
<CAPTION>
For the Year For the Year For the Year
Ended Ended Ended
April 30, 1996 April 30, 1995 April 30, 1994
--------------------------------------- -------------------------- --------------------------
Class O Class A Class C<F2> Class O Class A Class O Class A
---------- ----------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of $ 9.10 $ 9.10 $9.00 $ 9.40 $ 9.41 $ 9.27 $ 9.27
period . . . . . . . -------- ------- ----- -------- ------- -------- -------
Income from
investment
operations
Investment income -
net . . . . . . . . 0.76 .057 .037 0.66 0.52 0.77 0.68
Realized and
unrealized gain
(loss) on
investments, put
options purchased
and foreign
currency
transactions - (0.53) (0.36) (0.22) (0.44) (0.34) 0.15 0.22
net . . . . . . . . --------- -------- ------ --------- -------- -------- -------
Total from
investment 0.23 0.21 0.15 0.22 0.18 0.92 0.90
operations . . . -------- ------- ----- -------- ------- -------- -------
Less dividends
Dividends from
investment income
- net . . . . . . . (0.55) (0.53) (0.38) (0.52) (0.49) (0.77) (0.74)
Dividends from
realized -- -- -- -- -- (0.02) (0.02)
transaction gains .
Dividends from
realized capital -- -- -- -- -- -- --
gains . . . . . . . -------- ------- ----- -------- ------- -------- -------
(0.55) (0.53) (0.38) (0.52) (0.49) (0.79) (0.76)
Total dividends . . -------- ------- ----- -------- ------- -------- -------
Net asset value, end $ 8.78 $ 8.78 $8.77 $ 9.10 $ 9.10 $ 9.40 $ 9.41
of period . . . . . ======== ======= ===== ======== ======= ======== =======
2.66% 2.40% 1.96%<F6> 2.39% 1.94% 10.13% 9.91%
Total return<F4> . . . ======== ======= ===== ======== ======= ======== =======
<PAGE>
For the Year For the Year For the Year
Ended Ended Ended
April 30, 1996 April 30, 1995 April 30, 1994
--------------------------------------- -------------------------- --------------------------
Class O Class A Class C<F2> Class O Class A Class O Class A
---------- ----------- ------------ ----------- ------------ ------------ -----------
Ratios/Supplementary
Data
Net assets, end of $224,148 $53,652 $ 317 $329,624 $65,874 $464,937 $91,454
period (000) . . . . ======== ======= ===== ======== ======= ======== =======
Ratio of expenses to
average net 1.23% 1.48% 2.28%<F7> 1.14% 1.46% 1.07% 1.40%
assets . . . . . . . ======== ======= ===== ======== ======= ======== =======
Ratio of expenses,
excluding
distribution
fees, to average 1.23% 1.23% 1.28%<F7> 1.14% 1.14% 1.07% 1.08%
net assets . . . . . ======== ======= ===== ======== ======= ======== =======
Ratio of investment
income - net to
average net 6.56% 6.33% 5.79%<F7> 6.19% 5.83% 7.57% 6.85%
assets . . . . . . . ======== ======= ===== ======== ======= ======== =======
96% 96% 96% 100% 100% 31% 31%
Portfolio turnover
rate . . . . . . . . ======== ======= ===== ======== ======= ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year For the Year For the Year For the Year For the Period
Ended Ended Ended Ended May 26, 1988<F3>
April 30, 1993 April 30, 1992 April 30, 1991 April 30, 1990 to April 30, 1989
Class O Class A<F1> Class O Class O Class O Class O
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning $ 9.56 $ 9.55 $ 9.48 $ 10.07 $ 9.86 $ 9.34
of period . . . . . . . . --------- ------- -------- ---------- ---------- ----------
Income from investment
operations
Investment income - net . . . 0.90 0.64 0.80 0.84 0.75 0.74
Realized and unrealized
gain (loss) on
investments, put
options purchased and
foreign currency (0.39) (0.28) 0.08 (0.09) 0.49 0.47
transactions - net . . . . --------- ------- -------- ---------- ---------- ----------
Total from
investment 0.51 0.36 0.88 0.75 1.24 1.21
operations . . . . . . --------- ------- -------- ---------- ---------- ----------
Less dividends
Dividends from investment
income - net . . . . . . . (0.75) (0.64) (0.76) (0.84) (0.77) (0.67)
Dividends from realized (0.05) -- (0.04) -- -- --
transaction gains . . . . --------- ------- -------- ---------- ---------- ----------
Dividends from realized -- -- -- (0.50) (0.26) (0.02)
capital gains . . . . . . --------- ------- -------- ---------- ---------- ----------
(0.80) (0.64) (0.80) (1.34) (1.03) (0.69)
Total dividends . . . . . --------- ------- -------- ---------- ---------- ----------
Net asset value, end of $ 9.27 $ 9.27 $ 9.56 $ 9.48 $ 10.07 $ 9.86
period . . . . . . . . . . ========= ======= ======== ========== ========== ==========
5.70% 5.42%<F5> 9.59% 8.66% 13.10% 13.34%
Total return<F1> . . . . . . ========= ======= ======== ========== ========== ==========
Ratios/Supplementary Data
Net assets, end of period $ 548,514 $23,492 $810,700 $1,200,644 $1,273,600 $1,247,023
(000) . . . . . . . . . . ========= ======= ======== ========== ========== ==========
Ratio of expenses to 1.06% 1.41%<F7> 1.11% 0.93% 0.89% 0.89%<F7>
average net assets . . . . ========= ======= ======== ========== ========== ==========
Ratio of expenses,
excluding distribution
fees, to average net 1.06% 1.07%<F7> 1.11% 0.93% 0.89% 0.89%<F7>
assets . . . . . . . . . . ========= ======= ======== ========== ========== ==========
Ratio of investment income
- net to average net 8.95% 8.74%<F7> 8.03% 8.78% 7.16% 8.20%<F7>
assets . . . . . . . . . . ========= ======= ======== ========== ========== ==========
56% 56% 89% 16% 40% 38%
Portfolio turnover rate . . . ========= ======= ======== ========== ========== ==========
____________________
<PAGE>
<FN>
<F1> Class A shares were introduced on July 15, 1992.
<F2> Class C shares were introduced on August 1, 1995.
<F3> Commencement of operations.
<F4> Total investment returns exclude the effects of sales load 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.
<F5> 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.
<F6> Total investment return is presented for the year ended April 30, 1996.
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.
<F7> Annualized.
</TABLE>
<PAGE>
Comstock Partners Capital Value Fund
The following per share data and ratios, which should be read in
conjunction with the financial statements of the Capital Value Fund
contained in the Statement of Additional Information, set forth certain
information concerning the investment results for a Class A, Class B, Class
C or Class R share of the Dreyfus Capital Value Fund, Inc. (the "Dreyfus
Capital Value Fund"), the predecessor to the Capital Value Fund,
outstanding throughout the periods presented, as applicable. Past results
are not predictive of future results. The financial information in the
following table for the seven months ended April 30, 1996 and for each of
the five years ended September 30, 1995 have been audited by Ernst & Young
LLP., whose report thereon is included in the Funds' Statement of
Additional Information. The financial information for the period October
10, 1985 (commencement of operations) to September 30, 1990 had previously
been audited by Ernst & Young LLP whose report thereon was unqualified
<PAGE>
<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------------------------------------------------------------------------
1986<F1><F2> 1987<F1> 1988<F1> 1989<F1> 1990<F1> 1991 1992
---------------- ----------------------------- -------------- ------------------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period . $ 7.25 $ 9.54 $ 12.84 $ 12.68 $ 14.42 $ 15.08 $ 12.97
Investment Operations:
Investment income
net<F4> . . . . . . . .03 .07 .58 .90 .89 .73 .40
Net realized and
unrealized gain
(loss) on 2.26 3.59 (.18) 1.60 .61 (.89) (.39)
investments<F4> . . . ------ ------- ------- ------- ------- ------- -------
Total from
Investment 2.29 3.66 .40 2.50 1.50 (.16) .01
Operations . . . . . ------ ------- ------- ------- ------- ------- -------
Distributions:
Dividends from
investment income
net<F4> . . . . . . . -- (.03) (.15) (.76) (.84) (.99) (.57)
Dividends from net
realized gain on -- (.33) (.41) -- -- (.96) --
investments<F4> . . . ------ ------- ------- ------- ------- ------- -------
-- (.36) (.56) (.76) (.84) (1.95) (.57)
Total Distributions . . . ------ ------- ------- ------- ------- ------- -------
Net asset value, end $ 9.54 $ 12.84 $ 12.68 $ 14.42 $ 15.08 $ 12.97 $ 12.41
of period . . . . . ====== ======= ======= ======= ======= ======= =======
Total Investment
Return<F5> . . . . . 31.59%<F6> 39.72% 3.29% 20.95% 10.53% (.70%) (.02%)
Ratios/Supplemental Data:
Ratio of operating
expenses to average
net assets . . . . . . 1.47%<F6> 1.50% 1.24% 1.22% 1.20% 1.19% 1.19%
Ratio of interest
expense and
dividends on
securities sold
short to average
net assets . . . . -- .15% .13% .03% .26% .49% .39%
Ratio of net
investment income
to average net
assets . . . . . . .45%<F6> 2.25% 6.08% 6.93% 6.64% 5.58% 2.83%
<PAGE>
Class A Shares
----------------------------------------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------------------------------------------------------------------------
1986<F1><F2> 1987<F1> 1988<F1> 1989<F1> 1990<F1> 1991 1992
---------------- ----------------------------- -------------- ------------------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Decrease reflected in
above expense
ratios due to
expense reim-
bursements . . . . . .84%<F6> .29% -- -- -- -- --
Portfolio Turnover
Rate . . . . . . . . 140.99% 102.16% 56.31% 19.46% 62.84% 154.07% 344.29%
Average commission
rate paid<F7> . . . . -- -- -- -- -- -- --
Net Assets, end of
period (000's
Omitted) . . . . . . . $9,444 $139,796 $502,442 $607,192 $741,267 $755,450 $537,392
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class A Shares Class B Shares
--------------------------------------------------------- ---------------------------------------------------
Year Ended September 30, Year Ended September 30,
----------------------------------------- --------------------------------------
Seven Seven
Months Months
Ended Ended
April 30, April 30,
1993 1994 1995 1996 1993<F3> 1994 1995 1996
------------- ------------- ----------------------------- ------------- ------------ -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of
period . . . . . $ 12.41 $ 11.42 $ 11.88 $ 10.61 $10.58 $11.32 $11.69 $10.41
Investment Operations:
Investment income
net<F4> . . . . .24 .24 .36 .22 .03 .23 .31 .18
Net realized and
unrealized gain
(loss) on (.62) .46 (1.37) .17 .71 .38 (1.38) .16
investments<F4> ------- ------- ------- ------- ------ ------- ------ ------
Total from
Investment (.38) .70 (1.01) .39 .74 .61 (1.07) .34
Operations . . . . ------- ------- ------- ------- ------ ------- ------ ------
Distributions:
Dividends from
investment income
net<F4> . . . . . (.61) (.24) (.26) (.46) -- (.24) (.21) (.37)
Dividends from net
realized gain on
invest- -- -- -- -- -- -- -- --
ments<F4> . . . . ------- ------- ------- ------- ------ ------- ------ ------
Total (.61) (.24) (.26) (.46) -- (.24) (.21) --
Distributions . ------- ------- ------- ------- ------ ------- ------ ------
Net asset value, $ 11.42 $ 11.88 $ 10.61 $ 10.54 $11.32 $11.69 $10.41 $10.38
end of period . . ======= ======= ======= ======= ====== ======= ====== ======
Total Investment
Return<F5> . . . . (2.70%) 6.14% (8.58%) 3.81%<F6> 6.99%<F6> 5.35% (9.27%) 3.36%<F6>
Ratios/Supplemental
Data:
Ratio of operating
expenses to
average net
assets . . . . . 1.23% 1.21% 1.24% .75%<F6> 1.49%<F6> 1.99% 1.99% 1.18%<F6>
<PAGE>
Ratio of interest
expense and
dividends on
securities sold
short to
average net
assets . . . . .45% .39% .45% .18%<F6> .31%<F6> .40% .45% .19%<F6>
Ratio of net
investment income
to average net
assets . . . . . 1.94% 2.06% 3.61% 2.13%<F6> .83%<F6> 1.39% 2.86% 1.70%<F6>
Decrease
reflected in
above expense
ratios due to
expense reim-
bursements . . -- -- -- -- -- -- -- --
Portfolio Turnover
Rate . . . . . . . 41.78% 45.57% 54.70% 55.69<F6> 41.78% 45.57% 54.70% 55.69<F6>
Average commission
rate paid<F7> . . -- -- -- $ .0531 -- -- -- $.0531
Net Assets, end of
period
(000's Omitted) . $412,316 $402,708 $271,052 $241,472 $30,378 $108,532 $87,847 $81,786
____________________
<FN>
<F1> Per share data restated to reflect a 100% stock dividend at the close of
business on February 16, 1990.
<F2> From October 10, 1985 (commencement of operations) to September 30,
1986.
<F3> From January 15, 1993 (commencement of initial offering) to September
30, 1993.
<F4> Per share data for 1986 and 1987 has been restated for comparative
purposes.
<F5> Exclusive of sales load.
<F6> Not annualized.
<F7> For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class C Shares Class R Shares
Period Ended Seven Months Period Ended Seven Months
September 30, Ended September 30, Ended
1995<FN1> April 30, 1996 1995<FN1> April 30, 1996
<S> <C> <C> <C> <C>
Per Share Data:
Net asset value, beginning of
period . . . . . . . . . . . . . $10.64 $10.41 $10.84 $10.62
Investment Operations:
Investment income - net . . . . . .02 .44 .04 .30
Net realized and unrealized
(loss) on investments . . . . . (.25) (.12) (.26) .09
Total from Investment Operations . (.23) .32 (.22) .39
Distributions:
Dividends from investment income
- net . . . . . . . . . . . . . -- (.49) -- (.48)
Net asset value, end of period . . $10.41 $10.24 $10.62 $10.53
Total Investment Return<FN2> . . . (2.26%)<FN3> 3.30%<FN3> (2.03%)(<FN3> 3.97%<FN3>
Ratios/Supplemental Data:
Ratio of operating expenses to
average net assets . . . . . . . .26%<FN3> 1.28%<FN3> .14%<FN3> .61%<FN3>
Ratio of interest expense and
dividends on securities sold
short to average net assets . . .06%<FN3> .18%<FN3> .04%<FN3> .17%<FN3>
Ratio of net investment income to
average net assets . . . . . . . .23%<FN3> 1.71%<FN3> .38%<FN3> 2.28%<FN3>
Portfolio Turnover Rate . . . . . 54.70%<FN3> 55.69%<FN3> 54.70%<FN3> 55.69%<FN3>
Average commission rate paid<FN4>. -- $ .0531 -- $ .0531
Net Assets, end of period (000's
omitted) . . . . . . . . . . . . $ 1 $3,531 $ 1 $ 1
<FN>
<FN1> From August 22, 1995 (commencement of initial offering) to September
30, 1995.
<FN2> Exclusive of sales load.
<FN3> Not annualized.
<FN4> For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
</TABLE>
Further information with respect to the performance of the Dreyfus
Capital Value Fund, the predecessor to the Fund, is contained in the
Dreyfus Capital Value Fund's annual report which may be obtained without
charge by writing to the address or calling the number set forth on the
cover page of this prospectus.
<PAGE>
ALTERNATIVE PURCHASE METHODS
Investors are offered two different methods of purchasing shares of
the Strategy Fund (Class A and Class C shares) and four different methods
of purchasing shares of the Capital Value Fund (Class A, Class B, Class C
and Class R shares) so an investor may chose the Class of shares of a Fund
that best suits his or her needs, given the amount of purchase, the length
of time the investor expects to hold the shares, and any other relevant
circumstances. Orders for purchases of Capital Value Fund Class R shares,
however, may be placed only for certain eligible investors as described
below. Each Strategy Fund share represents an interest in the Strategy
Fund, and each Capital Value Fund share represents an interest in the
Capital Value Fund, in proportion to its net asset value.
Class A shares (Strategy Fund and Capital Value Fund). Class A shares
of each Fund are sold at net asset value per share plus a maximum initial
sales charge of 4.50% of the public offering price imposed at the time of
purchase. The initial sales charge may be reduced or waived for certain
purchases. See "Purchase of Fund Shares." Class A shares of each Fund are
subject to an annual 12b-1 fee at the rate of .25 of 1% of the value of the
average daily net assets of Class A of the respective Fund. See "Service
and Distribution Plans."
Class B shares (Capital Value Fund). Class B shares of the Capital
Value Fund are sold at net asset value per share with no initial sales
charge at the time of purchase; as a result, the entire purchase price is
immediately invested in the Capital Value Fund. Class B shares are subject
to a maximum 4% CDSC, which is assessed only if you redeem Class B shares
within six years of purchase. See "Purchase of Fund Shares" and "Redemption
of Shares." These shares are subject to an annual service fee at the rate
of .25 of 1% of the value of the average daily net assets of Class B and an
annual distribution fee at the rate of .75 of 1% of the value of the
average daily net assets of Class B. See "Service and Distribution Plans."
The distribution fee paid by Class B shares of the Capital Value Fund will
cause such Class to have a higher expense ratio and to pay lower dividends
than Class A shares of the Capital Value Fund. Approximately six years
after the date of purchase, Capital Value Fund Class B shares automatically
will convert to Capital Value Fund Class A shares, based on the relative
net asset values for shares of each such Class, and will no longer be
subject to the Class B service and distribution fees, but will be subject
to the Class A service and distribution fee. Class B shares that have been
acquired through the reinvestment of dividends and distributions will be
converted on a pro rata basis together with other Class B shares, in the
proportion that a shareholder's Class B shares converting to Class A shares
bears to the total Class B shares not acquired through the reinvestment of
dividends and distributions.
Class C shares (Strategy Fund and Capital Value Fund). Class C shares
of each Fund are sold at net asset value per share, and are subject to a 1%
CDSC, which is assessed only if Class C shares are redeemed within one year
of purchase. See "Redemption of Shares--Contingent Deferred Sales Charge --
Class C shares." Class C shares are subject to an annual distribution fee
at the rate of .75 of 1% of the value of the average daily net assets of
Class C of the respective Fund. Class C shares are also subject to an
annual service fee at the rate of .25 of 1% of the value of the average
daily net assets of Class C of the respective Fund. Class C shares also
bear additional incremental shareholder administrative expenses resulting
from
<PAGE>
the deferred sales charge arrangements. See "The Funds' Expenses" and
"Service and Distribution Plans--Class C shares." The fees and expenses
paid by Class C will cause such Class to have a higher expense ratio and
to pay lower dividends than Class A of the respective Fund.
Class R shares (Capital Value Fund). Class R shares of the Capital
Value Fund may not be purchased directly by individuals, although eligible
institutions may purchase Class R shares for certain accounts maintained by
individuals. Class R shares are sold at net asset value per share only to
institutional investors acting for themselves or in a fiduciary, advisory,
agency, custodial or similar capacity for qualified or non-qualified
employee benefit plans, including pension, profit-sharing, SEP-IRAs and
other deferred compensation plans, whether established by corporations,
partnerships, non-profit entities or state and local governments, but not
including IRAs or IRA "Rollover Accounts." Class R shares are not subject
to an annual service fee or distribution fee.
The decision as to which Class of shares of the relevant Fund is more
beneficial to you depends on the amount and the intended length of your
investment. For example (assuming in the case of the Capital Value Fund
that you are not eligible to purchase Class R shares), you should consider
whether, during the anticipated life of your investment in the applicable
Fund, the accumulated distribution fee and CDSC, if any, on Class B (in the
case of the Capital Value Fund only) or Class C shares of the Fund would be
less than the initial sales charge on Class A shares of the applicable Fund
purchased at the same time, and to what extent, if any, such differential
would be offset by the return of Class A of the Fund. Additionally,
investors qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
fees on Class B (in the case of the Capital Value Fund only) or Class C
shares may exceed the initial sales charge on Class A shares during the
life of the investment. Finally, you should consider the effect of the CDSC
period and any conversion rights of the Classes in the context of your own
investment time frame. For example, while Capital Value Fund Class C shares
have a shorter CDSC period than Capital Value Fund Class B shares, Class C
shares do not have a conversion feature, and, therefore, are subject to an
ongoing distribution fee. Thus, Class B shares of the Capital Value Fund
may be more attractive than Class C shares of the Capital Value Fund to
investors with longer term investment outlooks. Generally, Class A shares
may be more appropriate for investors who invest $100,000 or more in a
Fund's shares, but will not be appropriate for investors who invest less
than $50,000 in a Fund's shares.
THE COMPANY
The Company is an open-end, management investment company registered
under the 1940 Act and currently consists of two separate portfolios: the
Strategy Fund, a non-diversified portfolio, and Capital Value Fund, a
diversified portfolio. The Company was incorporated under the laws of the
State of Maryland on March 14, 1988 as Comstock Partners Strategy Fund,
Inc., and commenced operations in May of 1988 as a non-diversified, closed-
end investment company. The Company converted to an open-end investment
company effective as of August 1, 1991. On February 8, 1996, the Company
changed its name to Comstock Partners Funds, Inc. and adopted a series fund
structure. A series fund is an open-end investment company that has the
<PAGE>
ability to issue different series of shares representing interests in
separate mutual fund portfolios. In that connection, the Strategy Fund, the
Company's existing portfolio, became a separate portfolio of the Company
and the Capital Value Fund was organized as a new portfolio of the Company.
On July 25, 1996, the Capital Value Fund acquired all of the assets,
subject to the liabilities (whether contingent or otherwise) of the Dreyfus
Capital Value Fund, Inc. in exchange for shares in the Capital Value Fund
(the "Reorganization"). The Capital Value Fund commenced operations upon
the consummation of the Reorganization.
The Company's principal office is located at 10 Exchange Place, Suite
2010, Jersey City, New Jersey 07302-3913.
INVESTMENT OBJECTIVES AND POLICIES
Comstock Partners Strategy Fund
The Strategy Fund's investment objective is to maximize total return
over the long-term investment horizon by investing primarily in a portfolio
of debt securities. The total return on a portfolio of debt securities is a
combination of interest income or current yield and the change in the
market value of the securities or capital appreciation. There can be no
assurance that the Fund's investment objective will be achieved.
The Investment Adviser believes that there exist three distinct
components of risk pertaining to investment in debt securities and the
total return available therefrom. Credit risk involves the ability of
the issuer of a debt security to make timely payment of principal and
interest, and the impairment or perceived impairment of that ability
will ordinarily be reflected by a decline in the market value of the
debt securities of such issuer. Interest rate risk involves the change
in the market value of debt securities that normally occurs as a
consequence of changes in the prevailing level of interest rates. In the
case of rising interest rates, the market value of debt securities will
ordinarily decline; conversely, in the case of declining interest rates,
the market value of debt securities will ordinarily rise. In both cases,
the degree of decline or rise will be dependent upon the length of maturity
of such debt securities, assuming no change in creditworthiness of the
issuer. During periods in which interest rates are rising, the total return
to shareholders may be diminished by capital losses to the extent that the
Strategy Fund is invested in debt securities of longer maturity that are
more sensitive to fluctuations in interest rates. During periods in which
interest rates are falling, the Fund's total return may be subject to
reinvestment rate risk to the extent that the Fund is invested in debt
securities of shorter maturities or debt securities containing call
provisions that are less price sensitive to fluctuations in interest
rates and consequently fail to provide sufficient capital gains to offset
the lower rates of income available for the continuing investment of the
Fund's assets.
In implementing its strategy, the Investment Adviser intends to
emphasize investments which maximize total return in light of these three
risk components. As a result, the Investment Adviser will consider whether
particular debt securities contain call provisions or are otherwise subject
to prepayment of principal which might force reinvestment at lower interest
rate levels. The Investment Adviser will also consider the extent to which
changes in the perception of the issuer's creditworthiness may affect the
<PAGE>
market value of such issuer's debt securities. Additionally, the Investment
Adviser will consider the maturity of particular debt securities in light
of anticipated interest rate movements.
In attempting to achieve its total return objective, the Investment
Adviser will evaluate the current yield of debt securities as well as the
credit, interest rate and reinvestment risks. The Fund will not necessarily
invest in securities with the highest current yield permitted by the Fund's
investment policies if the Investment Adviser believes that the differences
in yield and the potential for capital gain are not sufficient to justify
the greater risks involved. The Investment Adviser believes that its
investment policies tend to minimize credit and reinvestment risks and,
therefore, that the Fund offers investors the potential for total return
which exceeds that available through continuous investment in debt
securities offering the highest available current yield. There can be no
assurance that the Fund will achieve its investment objective.
Although at all times the Fund will invest at least 65% of its total
assets in debt securities, the Fund has the ability to invest in a wide
range of securities and instruments, including equity securities and
derivatives, and may move in and out of markets quickly and decisively when
the Investment Adviser believes that economic conditions warrant. At times
deemed appropriate by the Investment Adviser, the Fund may invest up to 35%
of its total assets in equity securities of domestic and foreign issuers,
for the purposes of enhancing the total return of the Fund's shareholders
through the realization of capital gain and/or dividend income. The
investment philosophy of the Investment Adviser is based on the premise
that all asset classes move in cycles. The Investment Adviser seeks to
identify those asset classes which represent value, but have disappointed
investors in the past, and looks for signals as to when this trend may
reverse. The Investment Adviser also seeks to identify those asset classes
that have benefitted investors over the years, but are overvalued and
poised for a correction. This strategy allows the Investment Adviser to
adjust the composition of the Fund's portfolio to seek the optimal
investment allocation to achieve the Fund's investment objective. For
further information about certain portfolio securities of the Fund,
see "Other Investment Policies -- Certain Additional Investments and
Investment Strategies" below.
The Fund's debt securities may include obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities. At any time, the Fund may hold a substantial
portion of its assets in foreign debt obligations. During periods
in which the Investment Adviser perceives the possibility of
significant risk of loss of shareholders' capital, the maturity structure
of the portfolio may be altered so that up to 100% of the Fund's assets
are invested in short-term debt obligations, including, but not limited
to, United States Treasury bills, commercial paper and bank obligations.
Comstock Partners Capital Value Fund
The Capital Value Fund's investment objective is to maximize total
return, consisting of capital appreciation and current income. The Fund
seeks to achieve its investment objective by following an asset allocation
strategy that contemplates shifts, which may be frequent, among a wide
range
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of investments and market sectors. The Fund will invest in equity
securities of domestic and foreign issuers, including common stocks,
preferred stocks, convertible securities and warrants; debt securities
of domestic and foreign issuers, including bonds, debentures and notes; and
domestic and foreign money market instruments. The Fund may invest up to
65% of its assets in securities of foreign issuers. There can be no
assurance that the Fund's investment objective will be achieved.
The Investment Adviser has broad latitude in selecting the class of
investments and market sectors in which the Fund will invest. The Fund will
not be managed as a balanced portfolio and is not required to maintain a
portion of its investments in each of the Fund's permitted investment types
at all times. Thus, during the course of a business cycle, for example, the
Fund may invest solely in equity securities, debt securities or money
market instruments, or in a combination of these classes of investments.
The asset allocation mix for the Fund will be determined by the Investment
Adviser at any given time in light of its assessment of current economic
conditions and investment opportunities. The asset allocation mix selected
will be a primary determinant of the Fund's investment performance.
The Fund generally seeks to invest in securities that the Investment
Adviser has determined offer above average potential for total return. In
making this determination, the Investment Adviser takes into account
factors including price-earnings ratios, cash flow and the relationship of
asset value to market value of the securities. The Fund will be alert to
companies engaged in restructuring efforts, such as mergers, acquisitions
and divestitures of less profitable units.
The Fund generally invests in United States equity and debt
securities, including convertible securities, that are listed on
securities exchanges or traded in the over-the-counter market. The Fund
typically purchases a debt security if the Investment Adviser believes
that the yield and potential for capital appreciation of the security
are sufficiently attractive in light of the risks of ownership of the
security. Foreign securities in which the Fund may invest may be listed
on foreign securities exchanges or traded in the over-the-counter market.
The Fund may invest in companies whose principal activities are in, or
governments of, emerging markets.
The Fund also may purchase to a limited extent securities representing
the right to receive the capital appreciation above a certain amount, and
other securities representing the right to receive dividends and all other
attributes of beneficial ownership, in respect of an entity's common stock
or other similar instrument. These securities typically are sold as shares
in unit investment trusts. The percentage of the Fund's assets that may be
invested in shares of unit investment trusts is subject to the limitations
on investments in other investment companies described below under "Certain
Additional Investments and Investment Strategies--Other Investment
Companies."
The money market instruments in which the Fund may invest include:
U.S. Government securities; bank obligations, including certificates of
deposit, time deposits and bankers' acceptances and other short-term
obligations of domestic or foreign banks, domestic savings and loan
associations and other banking institutions having total assets in excess
of $1 billion; commercial paper of any rating; and repurchase agreements
involving U.S. Government securities. The Fund may invest up to 100% of
<PAGE>
its assets in money market instruments, but at no time will the Fund's
investments in bank obligations, including time deposits, exceed 25% of
its assets. See "Certain Additional Investments and Investment Strategies"
below.
OTHER INVESTMENT POLICIES
Each Fund's debt securities may include obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities (including repurchase agreements secured by such
instruments); obligations issued or guaranteed by a foreign government or
any of its political subdivisions, agencies or instrumentalities; and
obligations (including convertible securities) of domestic and foreign
corporations, banks, thrift institutions, savings and loan institutions and
finance companies and supranational organizations. Normally, securities
that are rated Baa or lower by Moody's or BBB or lower by S&P, commonly
referred to as "junk bonds", provide yields superior to those or more
highly rated securities, but involve greater risks (including the
possibility of default or bankruptcy of the issuers of such securities)
and are regarded as speculative in nature. While the market values of
securities rated below investment grade and comparable unrated securities
tend to react less to fluctuations in interest rate levels than do those of
higher-rated securities, the market values of certain of these securities
also tend to be more sensitive to individual corporate developments and
changes in economic conditions than higher rated securities. In addition,
the markets in which securities rated below investment grade and comparable
unrated securities are traded are generally more limited than those in
which higher-rated securities are traded. Because of risks associated with
an investment in securities rated below investment grade and comparable
unrated securities, an investment in a Fund should not be considered as a
complete investment program and may not be appropriate for all investors.
See "Risk Factors" for a discussion of certain risks.
In determining whether a Fund should invest in particular debt
securities, the Investment Adviser considers factors such as: the price,
coupon and yield to maturity; its assessment of the credit quality of the
issuer; the issuer's available cash flow and the related coverage ratios;
the property, if any, securing the obligation; and the terms of the debt
securities, including the subordination, default, sinking fund and early
redemption provisions. It also will review the ratings, if any, assigned to
the securities by Moody's or S&P or other recognized rating agencies. The
judgment of the Investment Adviser as to credit quality of a debt security
may differ, however, from that suggested by the ratings published by a
rating service.
Certain of the debt securities in which the Funds may invest may be
zero coupon or other original issue discount securities which pay no
current interest but are purchased at a deep discount from the amount due
at maturity. When held to maturity, the entire return, which consists of
the amortization of discount, is the difference between the purchase price
and the amount due at maturity. See "Certain Additional Investments and
Investment Strategies--Zero Coupon Securities and Discount Obligations."
The Strategy Fund will not invest more than 25% of its total assets in
debt securities that are not rated at least A or higher by either Moody's
or S&P or, if not rated, are determined by the Investment Adviser to be of
comparable quality. With respect to such 25%, the Strategy Fund may invest
<PAGE>
in debt securities rated as low as C by Moody's or S&P or, if not rated,
determined by the Investment Adviser to be of comparable quality. In the
event the Strategy Fund has invested in debt securities which are
subsequently downgraded to a rating below C by Moody's or S&P, the
Investment Adviser will consider such downgrading in determining whether or
not the Strategy Fund will dispose of such securities although the Strategy
Fund will not be required to dispose of any such securities.
The Capital Value Fund is not subject to any limit on the percentage
of its assets that may be invested in debt securities having a certain
rating. Thus, it is possible that a substantial portion of the Capital
Value Fund's assets may be invested in debt securities that are unrated or
rated in the lowest categories of the recognized rating services (i.e.,
securities rated C by Moody's or D by S&P). Low-rated and unrated
securities have special risks relating to the ability of the Fund to
receive timely, or perhaps ultimate, payment of principal and interest.
They are considered to have speculative characteristics and to be of poor
quality; some obligations in which the Capital Value Fund may invest, such
as debt securities rated D by S&P, may be in default. The Capital Value
Fund intends to invest less than 35% of its assets in debt securities rated
Ba or lower by Moody's and BB or lower by S&P.
Equity securities in which the Funds may invest include common and
preferred stock (including convertible preferred stock), depository
receipts, equity interests in trusts, partnerships, joint ventures or
similar enterprises and equity warrants and rights. Preferred stock has a
preference over common stock in liquidation and generally in dividends as
well, but is subordinated to the liabilities of the issuer in all respects.
Preferred stock may or may not be convertible into common stock. Equity
warrants and rights are securities permitting, but not obligating, their
holder to subscribe for other equity securities. Warrants and rights do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not
represent any rights in the assets of the issuer. As a result, an
investment in warrants or rights may be considered speculative.
The Funds may invest in both United States and foreign debt and equity
securities, including securities of emerging market issuers. The Strategy
Fund may invest without limitation in any country when consistent with its
investment policies, including, where applicable, its credit quality
standards. The Capital Value Fund may invest up to 65% of its assets in any
foreign country when consistent with the Fund's investment policies,
including, where applicable, its credit quality standards. Investing in
foreign and emerging market securities involves considerations and certain
risks not typically associated with investing in United States securities.
See "Risk Factors."
The Strategy Fund is classified as a "non-diversified" investment
company under the 1940 Act, which means the Strategy Fund is not limited by
the 1940 Act in the proportion of its assets that may be invested in the
securities of a single issuer. In addition, each Fund may invest up to 25%
of its total assets, measured at the time of investment, in a single
industry, subject to certain exceptions. Since a relatively high percentage
of the Strategy Fund's assets may be invested in the obligations of a
limited number of issuers and each Fund may invest in a limited number of
industries, the Funds may be more susceptible to any single economic,
political or regulatory occurrence than more widely diversified funds.
<PAGE>
However, each Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Fund of any liability
for federal income taxes to the extent its earnings are distributed to
shareholders. See "Dividends, Distributions and Taxes--Taxes-General." To
so qualify, among other requirements, each Fund will limit its investments
so that, at the close of each quarter of the taxable year, (i) not more
than 25% of the market value of the Fund's total assets will be invested in
the securities of a single issuer and (ii) with respect to 50% of the
market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer and
the Fund will not own more than 10% of the outstanding voting securities of
a single issuer. A Fund's investments in securities of the United States
Government, its agencies or instrumentalities are not subject to these
limitations.
In many instances, the Investment Adviser will rely on ratings of debt
securities and preferred stock in making its investment decisions. See the
Statement of Additional Information for a description of the rating
policies of Moody's and S&P. In analyzing unrated debt securities or
preferred stock, the Investment Adviser may consider the issuer's
experience and managerial strength, changing financial condition, borrowing
requirements or debt maturity schedules, and its responsiveness to changes
in business conditions and interest rates. The Investment Adviser may also
consider relative values based on anticipated cash flow, interest or
dividend coverage, asset coverage and earnings prospects.
Each Fund's investment objective is a fundamental policy that may not
be changed without the approval of the holders a majority of that Fund's
outstanding voting securities, as defined under "Capital Stock" in the
Statement of Additional Information.
Certain Additional Investments and Investment Strategies
Each of the Funds may also make certain additional investments and
employ certain other investment strategies and techniques as set forth
below:
Derivatives Transactions-Options, Futures and Currencies. Each of the
Funds is authorized to use certain investment strategies commonly referred
to as derivatives, such as trading in options, futures and foreign
currencies. A Fund may write covered put and call options on securities and
stock indices and purchase put and call options on securities and stock
indices for speculative purposes or for the purpose of hedging its
portfolio. In addition, through the writing of covered options and the
purchase of options and the purchase and sale of stock index futures
contracts, interest rate futures contracts and options thereon, a Fund at
times may speculate or seek to hedge against either a decline in the value
of securities owned by them or an increase in the price of securities which
it plans to purchase, provided that with respect to all futures contracts
traded by a Fund, the Fund will establish a segregated account consisting
of cash or cash equivalents in an amount equal to the total market value of
such futures contracts less the amount of initial margin on deposit for
such contracts. A Fund may also purchase put and call options and write
covered put and call options on foreign currencies and enter into
exchange-traded contracts for the purchase and sale for future delivery
of foreign currencies for speculative purposes or to hedge against
declines in the
<PAGE>
dollar value of foreign portfolio securities and against increases in the
dollar value of foreign securities to be acquired. Neither of the Funds is
a commodity pool and all futures and related options transactions engaged
in by a Fund will constitute bona fide hedging or other permissible
transactions in accordance with the Commodity Exchange Act, as amended, and
the rules and regulations promulgated by the Commodity Futures Trading
Commission; provided, however, that the a Fund may enter into futures
contracts or options thereon for purposes other than bona fide hedging if,
immediately thereafter, the sum of the amount of its initial margin and
premiums on open contracts and option would not exceed 5% of the
liquidation value of the Fund's portfolio; provided further, that in case
of an option that is in-the-money at the time of the purchase, the in-the-
money amount may be excluded in calculating the 5% limitation. Because the
5% limitation applies only at the time a Fund enters into a futures
contract or option thereon, the value of futures contracts and options
thereon may be significantly more or less than 5% of the value of the
Fund's portfolio. Each Fund may also enter into forward foreign currency
exchange contracts ("forward contracts") for speculative purposes or to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between the United States dollar and foreign currencies. In
addition, each Fund may engage in cross-hedging transactions with respect
to forward contracts whereby, for example, if the Investment Adviser
believes that a foreign currency may suffer a substantial decline against
the United States dollar, it may enter into a forward contract to sell an
amount of the foreign currency approximating the value of some or all of
the Fund's portfolio securities denominated in such foreign currency.
The Strategy Fund will not enter into a derivatives transaction
involving the instruments described in the preceding paragraph for
speculative purposes if, immediately after giving effect to such
transaction, the amount of the Strategy Fund's net exposure under all such
derivatives transactions (i.e. the aggregate amount paid by the Strategy
Fund with respect to such transactions, plus any additional payment
obligations, contingent or otherwise, of the Strategy Fund with respect to
such transactions, after giving effect to any offsetting positions) would
exceed 15% of the Strategy Fund's total assets. There is no comparable
limitation on the Strategy Fund's ability to enter into derivatives
transactions for hedging purposes. The Capital Value Fund will not invest
more than 5% of its assets, represented by the premium paid, in the
purchase of call and put options. The Capital Value Fund may not write
(i.e., sell) covered call and put option contracts in excess of 20% of the
value of its net assets at the time such option contracts are written.
The value of a derivative instrument depends largely upon price
movements in the securities or other instruments upon which it is based.
Therefore, many of the risks applicable to trading the underlying
securities or other instruments are also applicable to derivatives trading.
However, there are a number of other risks associated with derivatives
trading, including the risk that derivatives often fluctuate in value more
than the securities or other instruments upon which they are based.
Relatively small changes in the value of the underlying securities or
instruments may have significantly larger effects on the value of
derivatives held by a Fund. Derivatives may entail the risk of loss of the
entire amount invested or, in certain cases, losses in excess of the amount
invested. A derivative utilized for hedging purposes may limit the amount
of potential gain on the related transaction or may result in greater
losses than if the derivative had not been used. The Funds generally
expect that their options and futures
<PAGE>
transactions will be conducted on recognized securities and commodities
exchanges. In certain instances, however, the Funds may purchase and sell
stock options in the over-the-counter market. A Fund's ability to terminate
stock option positions established in the over-the-counter market may be
more limited than in the case of exchange-traded options and may also
involve the risk that securities dealers participating in such transactions
would fail to meet their obligations to the Fund. The staff of the
Securities and Exchange Commission generally considers over-the-counter
options to be illiquid. There can be no assurance that a Fund will be able
to effect closing transactions at any particular time or at an acceptable
price. The use of options and futures for hedging purposes involves the
risk of imperfect correlation between movements in options and futures
prices and movements in the price of securities which are the subject of
the hedge. Expenses and losses incurred as a result of derivatives
strategies will reduce a Fund's current return. The use of derivatives for
speculative purposes involves a variety of risks, including the risk of an
increased volatility that may potentially increase losses. For a further
discussion of options, futures and currency transactions, including certain
additional risks associated therewith, see "Additional Information
Concerning Portfolio Activities--Options, Futures and Currency
Transactions" in the Funds' Statement of Additional Information. Certain
provisions of the Code may limit the ability of a Fund to quickly
liquidate options, futures and currency positions in which significant
unrealized gains have developed when the Investment Adviser deems it
appropriate to realize the gains. For a discussion of certain tax
implications associated with such investment techniques, see "Additional
Information Concerning Taxes" in the Statement of Additional Information.
Future Developments. The Funds may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other derivative investments which are not presently contemplated
for use by the Funds or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with the
Funds' investment objective and legally permissible for the Funds. Before
entering into such transactions or making any such investment, the Funds
will provide appropriate disclosure in their prospectus or statement of
additional information.
Leverage Through Borrowing. The Capital Value Fund may borrow for
investment purposes up to 33 1/3% of the value of its total assets. This
borrowing, which is known as leveraging, generally will be unsecured,
except to the extent the Fund enters into reverse repurchase agreements
described below. Leveraging will exaggerate the effect on net asset value
of any increase or decrease in the market value of the Capital Value Fund's
portfolio. Money borrowed for leveraging will be subject to interest costs
which may or may not be recovered by appreciation of the securities
purchased; in certain cases, interest costs may exceed the return received
on the securities purchased.
Among the forms of borrowing in which the Capital Value Fund may
engage is the entry into reverse repurchase agreements with banks, brokers
or dealers. These transactions involve the transfer by the Fund of an
underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal, plus accrued
interest.
<PAGE>
Short Selling. The Capital Value Fund may make short sales, which are
transactions in which the Fund sells a security it does not own in
anticipation of a decline in the market value of that security. To complete
such a transaction, the Fund must borrow the security to make delivery to
the buyer. The Fund then is obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund will
incur a loss as a result of the short sale if the price of the security
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The Capital Value Fund may
purchase call options to provide a hedge against an increase in the price
of a security sold short by the Fund. When the Fund purchases a call option
it has to pay a premium to the person writing the option and a commission
to the broker selling the option. If the option is exercised by the Fund,
the premium and the commission paid may be more than the amount of the
brokerage commission charged if the security were to be purchased directly.
No securities will be sold short by the Capital Value Fund if, after effect
is given to any such short sale, the total market value of all securities
sold short would exceed 25% of the value of the Fund's net assets. The Fund
may not sell short the securities of any single issuer listed on a national
securities exchange to the extent of more than 5% of the value of the
Fund's net assets. The Fund may not sell short the securities of any class
of an issuer to the extent, at the time of the transaction, of more than 5%
of the outstanding securities of that class. In addition to the short sales
discussed above, the Capital Value Fund may make short sales "against the
box," a transaction in which the Capital Value Fund enters into a short
sale of a security which the Capital Value Fund owns. The Capital Value
Fund at no time will have more than 15% of the value of its net assets in
deposits on short sales against the box.
Lending Portfolio Securities. From time to time, in order to generate
additional income, the Funds may lend securities from their portfolios to
brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. Such loans may not exceed
33 1/3% of the value of a Fund's total assets. In connection with such
loans, the Fund lending the securities will receive collateral consisting
of cash, U.S. Government securities or irrevocable letters of credit which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. A Fund can increase its
income through the investment of such collateral. A Fund continues to be
entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned security and receives interest on the
amount of the loan. Such loans will be terminable at any time upon
specified notice. A Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund.
Forward Commitments. The Funds may purchase securities on a when-
issued or forward commitment basis, which means that delivery and payment
take place a number of days after the date of the commitment to purchase.
The payment obligation and the interest rate that will be received on a
when-issued security are fixed at the time a Fund enters into the
commitment. The Funds will make commitments to purchase such securities
only with the intention of actually acquiring the securities, but the Funds
may sell these securities before the settlement date if it is deemed
advisable. The Funds will not accrue income in respect of a security
purchased on a when-issued or forward commitment basis prior to its stated
delivery date.
<PAGE>
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in a Fund's portfolio are subject to changes
in value (both generally changing in the same way, i.e., appreciating when
interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and
changes, real or anticipated, in the level of interest rates. Securities
purchased on a when-issued or forward commitment basis may expose the Funds
to risks because they may experience such fluctuations prior to their
actual delivery. Purchasing securities on a when-issued or forward
commitment basis can involve the additional risk that the yield available
in the market when the delivery takes place actually may be higher than
that obtained in the transaction itself. A segregated account of a Fund
consisting of cash, cash equivalents or U.S. Government securities or other
high quality liquid debt securities at least equal at all times to the
amount of the when-issued or forward commitments will be established and
maintained at such Fund's custodian bank. Purchasing securities on a when-
issued or forward commitment basis when that Fund is fully or almost fully
invested may result in greater potential fluctuations in the value of that
Fund's net assets and its net asset value per share.
Securities of Emerging Markets Issuers. Emerging markets will include
any countries (i) having an "emerging stock market" as defined by the
International Finance Corporation; (ii) with low to middle-income economies
according to the World Bank; or (iii) listed in World Bank publications as
developing. Currently, countries not included in these categories are
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland, the United Kingdom and the United States. Issuers whose
principal activities are in countries with emerging markets include
issuers: (1) organized under the laws of, (2) whose securities have their
primary trading market in, (3) deriving at least 50% of their revenues or
profits from goods sold, investments made, or services performed in, or (4)
having at least 50% of their assets located in, a country with an emerging
market. In emerging markets, the Funds may purchase debt securities issued
or guaranteed by foreign governments, including participations in loans
between foreign governments and financial institutions, and interests in
entities organized and operated for the purpose of restructuring the
investment characteristics of instruments issued or guaranteed by foreign
governments ("Sovereign Debt Obligations"). These include Brady Bonds,
Structured Securities and Loan Participations and Assignments (as
defined below).
Brady Bonds and Emerging Market Governmental Obligations. Each Fund
may invest in emerging market governmental debt obligations commonly
referred to as "Brady Bonds." Brady Bonds are debt securities, generally
denominated in U.S. dollars, issued under the framework of the "Brady
Plan," an initiative announced by former U.S. Treasury Secretary Nicholas
F. Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external commercial bank indebtedness. Investors should
recognize that Brady Bonds have only been issued relatively recently, and
accordingly do not have a long payment history. Brady Bonds issued to date
have traded at a deep discount from their face value. In addition to Brady
Bonds, the Funds may invest in emerging market governmental obligations
issued as a result of debt restructuring agreements outside of the scope
of the Brady Plan. A substantial portion of the Brady Bonds and other
similar obligations in which the Funds invest are likely to be acquired
at a discount, which involves certain considerations discussed below
<PAGE>
under "Certain Additional Investments and Investment Strategies--Zero
Coupon Securities and Discount Obligations." For a further discussion of
Brady Bonds, see "Additional Information Concerning Portfolio Activities
--Brady Bonds" in the Statement of Additional Information.
Loan Participations and Assignments. Each Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between
a borrower (often an issuer of Sovereign Debt Obligations) and one or more
financial institutions ("Lenders"). The Funds' investments in Loans are
expected in most instances to be in the form of participations in Loans
("Participations") and, in the case of the Capital Value Fund but not the
Strategy Fund, assignments of all or a portion of Loans ("Assignments")
from third parties. A Fund's investment in Participations typically will
result in such Fund having a contractual relationship only with the Lender
and not with the borrower. Such Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only
from the Lender selling the Participations and only upon receipt by the
Lender of the payments from the borrower. In connection with purchasing
Participations, a Fund generally will have no right to enforce compliance
by the borrower with the terms of the loan agreement relating to the Loan,
nor any rights of set-off against the borrower, and a Fund may not directly
benefit from any collateral supporting the Loan in which it has purchased
the Participations. As a result, the Fund may be subject to the credit risk
of both the borrower and the Lender that is selling the Participations and,
accordingly, the Funds will consider both the borrower and the Lender to be
issuers for purposes of their investment restrictions. In the event of the
insolvency of the Lender selling a Participation, a Fund may be treated as
a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. Certain Participations may be
structured in a manner designed to avoid purchasers of Participations being
subject to the credit risk of the Lender with respect to the
Participations, but even under such a structure, in the event of the
Lender's insolvency, the Lender's servicing of the Participations may be
delayed and the assignability of the Participations impaired. A Fund will
acquire Participations only if the Lender interpositioned between the Fund
and the borrower is a Lender having total assets of more than $25 billion
and whose senior unsecured debt is rated investment grade or higher (i.e.,
Baa/BBB or higher). A Fund's investments in Loans are considered to be debt
obligations for purposes of its investment restrictions. In addition, for
purposes of a Fund's investment restriction on investment in illiquid
securities, the Fund will treat loans as illiquid securities unless the
staff of the Securities and Exchange Commission concludes that a market in
these instruments has developed sufficiently such that they may be treated
as liquid. The Strategy Fund limits its investments in Participations to
15% of its total assets. The Capital Value Fund will not invest more than
15% of the value of its net assets in Participations and Assignments that
are illiquid, and in other illiquid securities.
U.S. Government Securities. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such
as those issued by the Federal National Mortgage Association, by
discretionary authority of the U.S. Government to purchase certain
<PAGE>
obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by the credit of
the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. Principal and interest may fluctuate based
on generally recognized reference rates or the relationship of rates.
While the U.S. Government provides financial support to such U.S.
Government-sponsored agencies and instrumentalities, no assurance can be
given that it will always do so since it is not so obligated by law. The
Fund will invest in such securities only when it is satisfied that the
credit risk with respect to the issuer is minimal.
Stripped Mortgage-Backed Securities. Each Fund may invest up to 10% of
its total assets in stripped mortgage-backed securities ("SMBS"), all of
which will be issued or guaranteed by the United States Government, its
agencies or instrumentalities. SMBS are derivative multiclass securities
that indirectly represent a participation in, or are secured by and payable
from, mortgage loans secured by real property. SMBS are structured with two
or more classes of securities that receive different proportions of the
interest and principal payments on an underlying pool of mortgage assets. A
common type of SMBS will have one class receiving all of the interest ("IO"
or interest-only class) and the other class receiving all of the principal
("PO" or principal-only class). SMBS may be highly sensitive to changes in
prepayment and interest rates, and under certain interest rate or
prepayment rate scenarios a Fund may fail to recoup fully its investment in
these securities even if the securities are of the highest credit quality.
Furthermore, the yield to maturity on these securities may be adversely
affected.
Depository Receipts. American Depository Receipts ("ADRs"), Global
Depository Receipts ("GDRs"), European Depository Receipts ("EDRs") and
other types of depository receipts (which, together with ADRs, GDRs and
EDRs, are collectively referred to as "Depository Receipts") evidence
ownership of underlying securities issued by either a non-U.S. or a U.S.
corporation that have been deposited with a depository or custodian bank.
The Funds treat Depository Receipts as interests in the underlying
securities for purposes of their investment policies. While Depository
Receipts may not necessarily be denominated in the same currency as the
securities into which they may be converted, they entail certain of the
risks associated with investments in foreign securities. Each Fund will
limit its investment in Depository Receipts not sponsored by the issuer of
the underlying securities to no more than 5% of the value of its net assets
(at the time of the investment). A purchaser of unsponsored Depository
Receipts may not have unlimited voting rights and may not receive as much
information about the issuer of the underlying security as with sponsored
Depository Receipts.
Structured Investments. Each Fund may invest in Structured
Investments, which are securities issued solely for the purpose of
restructuring the investment characteristics of other securities,
such as commercial bank loans or Brady Bonds. The Strategy Fund limits
its investments in Structured Investments to 5% of its total assets.
Structured Investment products may involve special risks, including
substantial volatility in their market values and potential illiquidity.
The Funds are permitted to invest in a class of Structured Investments
which is either subordinated or unsubordinated to the right of payment of
another class. Subordinated Structured Investments typically have higher
yields and present greater risks than unsubordinated structured investments.
<PAGE>
Although a Fund's purchase of subordinated Structured Investments would
have a similar economic effect to that of borrowing against the underlying
securities, the purchase will not be deemed to be a borrowing by that Fund
for purposes of that Fund's fundamental investment restriction on borrowing.
Zero Coupon Securities and Discount Obligations. Each Fund may invest
in zero coupon U.S. Treasury securities, which are treasury Notes and Bonds
that have been stripped of their unmatured interest coupons, the coupons
themselves and receipts or certificates representing interests in such
stripped debt obligations and coupons. The Funds also may invest in zero
coupon securities issued by financial institutions which constitute a
proportionate ownership of the issuer's pool of underlying U.S. Treasury
securities. Zero coupon securities are debt securities that pay no cash
income but are sold at substantial discounts from their value at maturity.
Certain zero coupon securities also are sold at substantial discounts from
their maturity value and provide for the commencement of regular interest
payments at a deferred date. In addition, as indicated above, certain of
the Fund's emerging market governmental debt securities may be acquired
at a discount ("Discount Obligations"). Zero coupon securities and Discount
Obligations involve special risk considerations and tend to be subject to
greater price fluctuations in response to changes in interest rates than
are ordinary interest-paying debt securities with similar maturities.
Federal income tax law requires the holder of a zero coupon security
or of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, a Fund may be required to distribute such income
accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements. For a further
discussion of these investments, including certain additional risks
associated therewith, see "Additional Information Concerning Portfolio
Activities--Zero Coupon Securities and Discount Obligations" in the
Statement of Additional Information.
Convertible Securities. A convertible security is a fixed-income
security that may be converted at either a stated price or stated rate into
underlying shares of common stock. Convertible securities have general
characteristics similar to both fixed-income and equity securities.
Although to a lesser extent than with fixed-income securities generally,
the market value of convertible securities tends to decline as interest
rates increase and, conversely, tends to increase as interest rates decline.
In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value
of the underlying common stock, and therefore, also will react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same
extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities
tend to rise as a reflection of the value of the underlying common stock.
While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in
common stock of the same issuer.
<PAGE>
As fixed-income securities, convertible securities are investments
that provide for a stable stream of income with generally higher yields
than common stocks. Of course, like all fixed-income securities, there
can be no assurance of current income because the issuers of the
convertible securities may default on their obligations. Convertible
securities, however, generally offer lower interest or dividend yields
than non-convertible securities of similar quality because of the potential
for capital appreciation. A convertible security, in addition to providing
fixed income, offers the potential for capital appreciation through the
conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance
of capital appreciation, however, because securities prices fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to common
stock, of the same issuer. Because of the subordination feature, however,
convertible securities typically have lower ratings than similar non-
convertible securities.
Other Investment Companies. Each Fund may invest in the securities of
other investment funds to the extent permitted by the 1940 Act. Under the
1940 Act, a Fund may invest up to 10% of its total assets in shares of
other investment funds and up to 5% of its total assets in any one
investment fund, provided that the investment does not represent more than
3% of the voting stock of the acquired investment fund. By investing in
another investment fund, a Fund bears a ratable share of the investment
fund's expenses, as well as continuing to bear the Fund's advisory and
administrative fees with respect to the amount of the investment.
Repurchase Agreements. The Funds may enter into repurchase agreements
only with member banks of the Federal Reserve System and primary dealers in
United States Government securities and only with respect to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities. Repurchase agreements are contracts under which the
buyer of a security simultaneously buys and commits to resell the security
to the seller at an agreed upon price and date. Under a repurchase
agreement, the seller is required to maintain the value of the securities
subject to the repurchase agreement at not less than their repurchase price.
The Sub-Investment Adviser will monitor the value of such securities daily
to determine that the value equals or exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities. Repurchase
agreements with maturities of more than seven days will be treated as
illiquid securities by the Funds.
Bank Obligations. Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time (in no event longer
than seven days) at a stated interest rate. Certificates of deposit are
negotiable certificates evidencing the obligation of a bank to repay funds
deposited with it for a specified period of time. Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn
on it by a customer. These and other short-term instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rate.
<PAGE>
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The Funds will
invest in commercial paper that is rated at least Prime-1 by Moody's or A-1
by S&P or, if not rated, is determined by the Investment Adviser to be of
comparable quality.
Illiquid or Restricted Securities. Each Fund may purchase securities
for which there is a limited trading market or which are subject to
restrictions on resale to the public. Investments in securities which are
"restricted" may involve added expense to a Fund should the Fund be
required to bear registration costs with respect to such securities and
could involve delays in disposing of such securities which might have an
adverse effect upon the price and timing of sales of such securities and
the liquidity of the Fund with respect to redemptions. Neither Fund may
enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid (such
as "restricted securities" which are illiquid, and securities that are
not readily marketable) if, in the aggregate, more than 15% of the value
of that Fund's net assets would be so invested. As more fully described in
the Funds' Statement of Additional Information, the Funds may purchase
certain restricted securities ("Rule 144A securities") for which there is
a secondary market of qualified institutional buyers as contemplated by
recently adopted Rule 144A under the Securities Act of 1933. A Fund's
holdings of Rule 144A securities which are liquid securities will not be
subject to the 15% limitation described above. Rule 144A is a relatively
recent development and there is no assurance that a liquid market in Rule
144A securities will develop or be maintained. The Board of Directors of
the Company will be responsible for monitoring the liquidity of Rule 144A
securities and the selection by the Investment Adviser of such securities.
INVESTMENT RESTRICTIONS
Comstock Partners Strategy Fund
The Strategy Fund has adopted the following fundamental investment
restrictions which, together with the fundamental investment restrictions
described in the Funds' Statement of Additional Information, may not be
changed without the affirmative vote of the holders of a majority of the
Strategy Fund's outstanding voting securities, as defined under "Capital
Stock" in the Statement of Additional Information. The Strategy Fund may
not:
(i) invest more than 25% of its total assets in any one industry.
(Securities issued or guaranteed by the United States Government, its
agencies or instrumentalities are not considered to represent
industries.);
(ii) borrow money or issue senior securities (as defined in the
1940 Act) except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might require the
untimely disposition of securities, in amounts not exceeding 15% of
its total assets; and
(iii) pledge, mortgage or hypothecate its assets other than to
secure borrowings permitted by restriction (ii) above. (The deposit in
escrow of securities in connection with the writing of put and call
<PAGE>
options, collateralized loans of securities and collateral
arrangements with respect to margin requirements for futures
transactions are not deemed to be pledges or hypothecations
for this purpose.)
Comstock Partners Capital Value Fund
The Capital Value Fund has adopted the following fundamental in-
vestment restrictions which, together with the fundamental in-
vestment restrictions described in the Statement of Additional In-
formation, may not be changed without the affirmative vote of the holders
of a majority of the Capital Value Fund's outstanding voting securities, as
defined under "Capital Stock" in the Statement of Additional Information.
The Capital Value Fund may not:
(i) borrow money or issue senior securities, except to the
extent permitted under the 1940 Act, which currently limits
borrowing, except for certain temporary purposes, to no more than
33 1/3% of the value of the Capital Value Fund's total assets.
(For purposes of this investment restriction, the entry into options
futures contracts, including those related to indices, and options
on futures contracts or indices shall not constitute borrowing.);
(ii) pledge, mortgage and hypothecate its assets, other than to
secure permitted borrowings. (The deposit of assets in escrow in
connection with portfolio transactions is not deemed to be a pledge or
hypothecation for this purpose.);
(iii) invest more than 5% of its total assets in the obligations
of any issuer, except that up to 25% of the value of the Capital Value
Fund's total assets may be invested, and obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
may be purchased, without regard to any such limitation; and
(iv) invest more than 25% of its total assets in any one
industry. (Securities issued or guaranteed by the United States
Government, its agencies or instrumentalities are not considered
to represent industries.)
____________________
If a percentage restriction set forth above with respect to a Fund is
adhered to at the time a transaction is effected, later changes in
percentage resulting from changes in value or in the number of outstanding
securities of an issuer will not be considered a violation. However, in the
event that a Fund's asset coverage on any borrowing falls below the level
required by Section 18 of the 1940 Act, the Fund will reduce its borrowings
to the extent it is required to do so by Section 18(f) of the 1940 Act.
RISK FACTORS
There is no assurance that the Funds will achieve their investment
objectives, and investment in a Fund should not be considered a complete
investment program. Investors should note that the Funds have the ability
to invest in a wide range of securities and instruments, and, subject to
the investment policies and restrictions described herein, the Investment
Adviser may substantially change the composition of each Fund's investment
portfolio from time to time.
<PAGE>
Certain Investment Techniques. The use of investment techniques such
as engaging in financial futures and options and currency transactions,
purchasing securities on a forward commitment basis, lending portfolio
securities, purchasing foreign securities and, in the case of the Capital
Value Fund, engaging in short-selling and leverage through borrowing,
involves greater risk than that incurred by many other funds with similar
objectives to the Funds. These risks are described above under "Other
Investment Policies." In addition, using these techniques may produce
higher than normal portfolio turnover and may affect the degree to which
the Funds' net asset value fluctuates. Higher portfolio turnover rates are
likely to result in comparatively greater brokerage commissions or
transaction costs. Short-term gains realized from portfolio transactions
are taxable to shareholders as ordinary income. See "Additional Information
Concerning Taxes" in the Statement of Additional Information.
A Fund's ability to engage in certain short-term transactions may be
limited by the requirement that, to qualify as regulated investment
company, it must earn less than 30% of its gross income from the
disposition of securities held for less than three months. This 30% test
limits, among other strategies, the extent to which the Funds may sell
securities held for less than three months, write options expiring in less
than three months, invest in certain futures contracts and, in the case of
the Capital Value Fund, effect short sales of securities. However,
portfolio turnover will not otherwise be a limiting factor in making
investment decisions.
Investing in Foreign Securities. In making foreign investments, the
Funds will give appropriate consideration to the following factors, among
others:
Foreign securities markets generally are not as developed or efficient
as those in the United States. Securities of some foreign issuers are less
liquid and more volatile than securities of comparable U.S. issuers.
Similarly, volume and liquidity in most foreign securities markets are less
than in the United States and, at times, volatility of price can be greater
than in the United States. The issuers of some of these securities, such as
foreign bank obligations, may be subject to less stringent or different
regulation than are U.S. issuers. In addition, there may be less publicly
available information about a non-U.S. issuer, and non-U.S. issuers
generally are not subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to
U.S. issuers.
Many countries providing investment opportunities for the Funds have
experienced substantial, and in some periods extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have adverse effects on the economies
and securities markets of certain of these countries. In an attempt to
control inflation, wage and price controls have been imposed in certain
countries.
Because stock certificates and other evidences of ownership of such
securities usually are held outside the United States, the Funds will be
subject to additional risks which include possible adverse political and
economic developments, possible seizure or nationalization of foreign
deposits and possible adoption of governmental restrictions which might
adversely affect the payment of principal and interest on the foreign
<PAGE>
securities or might restrict the payment of principal and interest to
investors located outside the country of the issuer, whether from currency
blockage or otherwise. Custodial expenses for a portfolio of non-U.S.
securities generally are higher than for a portfolio of U.S. securities.
By investing in foreign securities, the Funds will be exposed to the
direct or indirect consequences of political, social and economic changes
in various countries. Political changes in a country may affect the
willingness of a foreign government to make or provide for timely payments
of its obligations. The country's economic status, as reflected, among
other things, in its inflation rate, the amount of its external debt and
its gross domestic product, will also affect the government's ability to
honor its obligations.
No established secondary markets may exist for many of the foreign
securities in which the Funds may invest. Reduced secondary market
liquidity may have an adverse effect on the market price and a Fund's
ability to dispose of particular instruments when necessary to meet its
liquidity requirements or in response to specific economic events such as a
deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain foreign securities also may make it more
difficult for a Fund to obtain accurate market quotations for purposes of
valuing its portfolio. Market quotations are generally available on many
foreign securities only from a limited number of dealers and may not
necessarily represent firm bids of those dealers or prices for actual sales.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations. Some currency exchange
costs may be incurred when a Fund changes investments from one country to
another.
Furthermore, some of these securities may be subject to brokerage
taxes levied by foreign governments, which have the effect of increasing
the cost of such investment and reducing the realized gain or increasing
the realized loss on such securities at the time of sale. Income received
by a Fund from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States, however, may reduce or
eliminate such taxes. All such taxes paid by a Fund will reduce its net
income available for distribution to its shareholders. See "Additional
Information Concerning Taxes--Foreign Withholding Taxes" in the Statement
of Additional Information.
Foreign Currency Exchange. Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central
banks or the failure to intervene or by currency controls or political
developments in the U.S. or abroad.
The foreign currency market offers less protection against defaults in
the forward trading of currencies than is available when trading in
currencies occurs on an exchange. Since a forward currency contract is not
<PAGE>
guaranteed by an exchange or clearinghouse, a default on the contract would
deprive a Fund of unrealized profits or force that Fund to cover its
commitments for purchase or resale, if any, at the current market price.
Lower Rated Securities. You should carefully consider the relative
risks of investing in the higher yielding (and, therefore, higher risk)
debt securities in which the Funds may invest. The Capital Value Fund may
invest without limitation in such securities when management believes that
such securities offer opportunities for capital growth. The Strategy Fund
may invest up to 25% of its assets in debt securities rated as low as C by
Moody's or S&P or, if not rated, are determined by the Investment Adviser
to be of comparable quality. Management's decision to invest in lower rated
securities is not subject to shareholder approval. Lower rated securities
are securities such as those rated Ba by Moody's or BB by S&P or as low as
the lowest rating assigned by Moody's or S&P. They generally are not meant
for short-term investing and may be subject to certain risks with respect
to the issuing entity and to greater market fluctuations than certain lower
yielding, higher rated fixed-income securities. Obligations rated Ba by
Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and
principal payments may be very moderate. Obligations rated BB by S&P are
regarded as having predominantly speculative characteristics and, while
such obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payment.
Obligations rated C by Moody's are regarded as having extremely poor
prospects of ever attaining any real investment standing. Obligations rated
D by S&P are in default and the payment of interest and/or repayment of
principal is in arrears. Such obligations, though high yielding, are
characterized by great risk. See "Description of Bond and Commercial Paper
Ratings" in the Statement of Additional Information for a general
description of Moody's and S&P securities ratings. The ratings of Moody's
and S&P represent their opinions as to the quality of the securities which
they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of these securities. Therefore, although these ratings
may be an initial criterion for selection of portfolio investments, the
Investment Adviser also will evaluate these securities and the ability of
the issuers of such securities to pay interest and principal. The Funds'
ability to achieve their investment objectives may be more dependent on the
Investment Adviser's credit analysis than might be the case for funds that
invested in higher rated securities. Once the rating of a portfolio
security has been changed, the Funds will consider all circumstances
deemed relevant in determining whether to continue to hold the security.
The market price and yield of debt securities rated Ba or lower by
Moody's and BB or lower by S&P are more volatile than those of higher rated
securities. Factors adversely affecting the market price and yield of these
securities will adversely affect a Fund's net asset value. In addition, the
retail secondary market for these securities may be less liquid than that
of higher rated securities; adverse market conditions could make it
difficult at times for the Funds to sell certain securities or could result
in lower prices than those used in calculating a Fund's net asset value.
The market values of certain lower rated debt securities tend to
reflect individual corporate developments to a greater extent than do
<PAGE>
higher rated securities, which react primarily to fluctuations in the
general level of interest rates, and tend to be more sensitive to economic
conditions than are higher rated securities. Companies that issue such
securities often are highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is greater than is the
case with higher rated securities.
The Funds may invest in lower rated zero coupon securities and pay-
in-kind bonds (bonds which pay interest through the issuance of additional
bonds), which involve special considerations. These securities may be
subject to greater fluctuations in value due to changes in interest rates
than interest-bearing securities and thus may be considered more
speculative than comparably rated interest-bearing securities. See
"Investment Objectives and Policies."
Derivatives. Each Fund utilizes certain investment strategies commonly
referred to as derivatives, such as trading in futures, options and foreign
currencies, for speculative purposes (i.e. to seek to generate additional
income or gains) and/or to hedge against either a decline in the value of
certain securities owned by the Fund or an increase in the price of
securities which the Fund plans to purchase. Derivatives often fluctuate in
value more than the securities or other instruments on which they are
based, and relatively small changes in the value of the underlying
securities or instruments may have significantly larger effects on the
value of derivatives held by the Funds. Derivatives may entail the risk
of loss of the entire amount invested or, in certain cases, losses in
excess of the amount invested. A derivative utilized for hedging purposes
may limit the amount of potential gain on the related transaction or may
result in greater losses than if the derivative had not been used.
In addition to instruments described above, each Fund may invest in a
wide range of equity securities as well as participations, stripped
mortgage-backed securities, structured investments and illiquid or
restricted securities, and may lend portfolio securities and enter into
repurchase agreements, each of which involves certain additional risks. For
a more complete discussion of the risks associated with investments in the
Funds, see "Investment Objective and Policies."
Foreign Derivatives Transactions. Unlike trading on domestic exchanges
for certain derivatives instruments, trading on foreign exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal
markets so that no common clearing facility exists and a trader may look
only to the broker for performance of the contract. In addition, unless a
Fund hedges against fluctuations in the exchange rate between the U.S.
dollar and the currencies in which trading is done on foreign exchanges,
any profits that the Fund might realize in trading could be eliminated by
adverse changes in the exchange rate, or the Fund could incur losses as a
result of those changes. Transactions on foreign exchanges may include both
instruments which are traded on domestic exchanges and those which are not.
Other Investment Considerations. Each Fund's net asset value is not
fixed and should be expected to fluctuate. You should purchase a Fund's
shares only as a supplement to an overall investment program and only if
you are willing to undertake the risks involved.
<PAGE>
For the portion of a Fund's portfolio invested in equity securities,
investors should be aware that equity securities fluctuate in value, often
based on factors unrelated to the value of the issuer of the securities,
and that fluctuations can be pronounced. Changes in the value of a Fund's
portfolio securities, regardless of whether the securities are equity or
debt, will result in changes in the value of a Fund share and thus a Fund's
yield and total return to investors.
For the portion of a Fund's portfolio invested in debt securities,
investors should be aware that even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities. See "Investment
Policies and Restrictions" above.
MANAGEMENT ARRANGEMENTS
The Board of Directors of the Company is responsible for the overall
management and operation of the Funds. The Company's officers are
responsible for the day-to-day operations of the Funds under the
supervision of the Board of Directors.
Investment Adviser
The Company, on behalf of the Funds, has engaged Comstock Partners,
Inc. (the "Investment Adviser") to provide professional investment
management for each Fund. The principals of the firm are Stanley D.
Salvigsen and Charles L. Minter. The Investment Adviser was founded in
October 1986 and has served as sub-investment adviser to the predecessor to
the Capital Value Fund, the Dreyfus Capital Value Fund, from April 30, 1987
until July 25, 1996, and to the Dreyfus Variable Investment Fund-Managed
Assets Portfolio since May 21, 1990. In addition, the Investment Adviser
has served as investment adviser to the Strategy Fund since the Strategy
Fund's inception in 1988. The Investment Adviser also provides investment
advisory services through discretionary accounts having aggregate assets as
of July 30, 1996 of approximately $44 million. It is the publisher of the
Comstock Investment Strategy Review and the Comstock Investment Strategy
Commentary, investment strategy publications furnished to subscribers. The
principal address of the Investment Adviser is 10 Exchange Place, Suite
2010, Jersey City, New Jersey 07302-3913.
Under the terms of an Amended Investment Advisory Agreement between
the Company, on behalf of the Strategy Fund, and the Investment Adviser,
the Investment Adviser furnishes continuing investment supervision to the
Strategy Fund and is responsible for the management of the Strategy Fund's
portfolio. It furnishes office space, equipment and personnel to the
Strategy Fund in connection with the performance of its investment
management responsibilities. For its services, the Investment Adviser
receives from the Company, on behalf of the Strategy Fund, a monthly fee at
an annual rate of .60% of the Strategy Fund's average daily net assets.
Under the terms of an Investment Advisory Agreement between the
Company, on behalf of the Capital Value Fund, and the Investment Adviser,
the Investment Adviser will have responsibility for investment decisions
for, and the day-to-day management of, that portfolio. For its services,
<PAGE>
the Investment Adviser is entitled to receive an annual fee from the
Company, on behalf of the Capital Value Fund, computed daily and paid
monthly at the following annual rate: .40 of 1% of the first $300 million
of the Capital Value Fund's average daily net assets, .45 of 1% of the
Capital Value Fund's average daily net assets between $300 million and
$750 million, .50 of 1% of the Capital Value Fund's average daily net
assets between $750 million and $1 billion and .55 of 1% of the Capital
Value Fund's average daily net assets in excess of $1 billion.
Mr. Salvigsen began his investment career in 1964 at the Value Line
Investment Survey. He ultimately became the Managing Editor of the Value
Line Special Situation Service, a publication of the Value Line Investment
Survey. Mr. Salvigsen was an equity analyst at The Dreyfus Corporation and
Oppenheimer & Co., Inc., as well as Cyrus J. Lawrence, Inc., where he
served as a vice president and member of the Investment Policy Committee.
From 1983 to 1986, Mr. Salvigsen was the Chief Investment Strategist at
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") where
he had primary responsibility for formulating the overall investment
strategy of the firm. Mr. Minter joined Merrill Lynch in 1966 and in 1970
became a member of its New York Institutional Sales office. From 1976 to
1986, Mr. Minter was Vice President - Institutional Sales at Merrill Lynch.
In that capacity he serviced institutional accounts and supervised
portfolios that included commodity and financial futures, options, foreign
securities and zero coupon bonds. W. Troy Hottenstein, CFA, joined Comstock
Partners, Inc. in 1991 as an investment analyst upon graduation from
Princeton University with a degree in Economics. He has worked closely with
Messrs. Salvigsen and Minter in implementation of investment policy. He is
a Chartered Financial Analyst and is the Chief Operating Officer of the
Investment Adviser.
Each Fund's investment portfolio is managed by the Investment
Committee of the Investment Adviser, which consists of Messrs. Salvigsen,
Minter and Hottenstein. The Company has established a policy that, in the
event of any change in the composition of the Investment Committee, the
members of the Company's Board of Directors who are not interested persons
of a Fund will consider promptly what action, if any, should be taken with
respect to that Fund's management arrangements.
Sub-Investment Adviser
The Investment Adviser has engaged The Dreyfus Corporation to provide
sub-investment advisory services with respect to each Fund. Under the terms
of a Sub-Investment Advisory Agreement relating to the Strategy Fund, the
Sub-Investment Adviser manages the short-term cash and cash equivalent
investments of the Strategy Fund and provides investment research and other
advice regarding the Strategy Fund's portfolio. The Sub-Investment Adviser
also provides general advice regarding economic factors and trends,
including statistical and other factual information. For such services, at
no cost to the Strategy Fund, the Investment Adviser pays the Sub-
Investment Adviser a monthly fee at an annual rate of .15% of the Strategy
Fund's average daily net assets.
The Dreyfus Corporation also acts as the sub-investment adviser to
the Capital Value Fund pursuant to a separate Sub-Investment Advisory and
Administration Agreement between the Company, on behalf of the Fund, and
the Sub-Investment Adviser. Under that agreement, the Sub-Investment
Adviser manages the short-term cash and cash-equivalent investments of
the Capital Value Fund and provides investment research and other advice
<PAGE>
regarding the Capital Value Fund's portfolio. In addition, the Sub-
Investment Adviser provides general advice regarding economic factors and
trends and acts as administrator to the Capital Value Fund. For its
services under the Sub-Investment Advisory and Administration Agreement
relating to the Capital Value Fund, the Sub-Investment Adviser is entitled
to receive an annual fee computed daily and paid monthly by the Company at
the following annual rate: .35 of 1% of the first $300 million of the
Capital Value Fund's average daily net assets, .30 of 1% of the Capital
Value Fund's average daily net assets between $300 million and $750
million, .25 of 1% of the Capital Value Fund's average daily net assets
between $750 million and $1 billion and .20 of 1% of the Capital Value
Fund's average daily net assets in excess of $1 billion.
The Sub-Investment Adviser is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). The Sub-Investment Adviser was formed in 1947 and, as of
July 31, 1996, managed or administered approximately $79 billion in assets
for approximately 1.7 million investor accounts nationwide. The principal
address of the Sub-Investment Adviser is 200 Park Avenue, New York, New
York 10166.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank
Holding Company Act of 1956, as amended. Mellon provides a comprehensive
range of financial products and services in domestic and selected
international markets. Mellon is among the twenty-five largest bank holding
companies in the United States based on total assets. Mellon's principal
wholly-owned subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National
Association, Mellon Bank (MD), The Boston Company, Inc., AFCO Credit
Corporation and a number of companies known as Mellon Financial Services
Corporations. Through its subsidiaries (including the Sub-Investment
Adviser), Mellon managed approximately $220 billion in assets as of June
30, 1996, including approximately $83 billion in proprietary mutual fund
assets. As of June 30, 1996, various subsidiaries of Mellon provided non-
investment services, such as custodial or administration services, for more
than $876 billion in assets including approximately $57 billion in mutual
fund assets.
Administrators
Under the terms of an administration agreement between the Company, on
behalf of the Strategy Fund, and Princeton Administrators, L.P.
("Princeton"), Princeton performs or arranges for the performance of
certain administrative services (i.e., services other than investment
advice and related portfolio activities) necessary for the operation of the
Strategy Fund, including maintaining the books and records of the Strategy
Fund, preparing reports and other documents required by United States
federal, state and other applicable laws and regulations to maintain the
registration of the Strategy Fund and its shares and providing the Strategy
Fund with administrative office facilities. For the services rendered to
the Strategy Fund and the facilities furnished, the Strategy Fund pays
Princeton a monthly fee equal to the greater of (i) $300,000 per annum
($25,000 per month), or (ii) an annual rate equal to .25% of the Strategy
Fund's average daily net assets up to $100 million, .225% of the Strategy
Fund's average daily net assets on the next $100 million, .20% of the
Strategy Fund's average daily net assets on the next $400 million and .175%
of the Strategy Fund's average daily net assets in excess of $600 million.
The principal
<PAGE>
address of Princeton is 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Under the terms of the Sub-Investment Advisory and Administration
Agreement relating to the Capital Value Fund, the Sub-Investment Adviser
has agreed to perform or arrange for the performance of certain
administrative services necessary for the operation of the Capital Value
Fund, including, among other responsibilities, supplying office facilities,
statistical and research data, data processing services, clerical,
accounting and bookkeeping services, internal auditing services, internal
executive and administrative services, and stationery and office supplies;
preparing reports to the Capital Value Fund's shareholders, tax returns,
reports to and filings with state Blue Sky authorities; calculating the net
asset value of the Capital Value Fund on a daily basis; and, subject to the
supervision of the Company's Board of Directors, generally assisting in all
aspects of the Capital Value Fund's operations (except with respect to
investment advisory services provided by the Investment Adviser). For a
description of the fees payable by Capital Value Fund to the Sub-Investment
Adviser, see "Management Arrangements--Sub-Investment Adviser" above.
Transfer and Dividend Disbursing Agent
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Sub-
Investment Adviser, is located at P.O. Box 9671, Providence, Rhode
Island 02940-9671, and serves as the Funds' Transfer and Dividend
Disbursing Agent (the "Transfer Agent").
PURCHASE OF FUND SHARES
The Funds' distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109. The Distributor's ultimate parent is Boston
Institutional Group, Inc.
Class A shares, Class B shares and Class C shares may be purchased
only by clients of certain financial institutions (which may include banks),
securities dealers ("Selected Dealers") and other industry professionals
(collectively, "Service Agents"), except that full-time or part-time
employees of the Investment Adviser or Sub-Investment Adviser or any of its
affiliates or subsidiaries, directors of the Investment Adviser or Sub-
Investment Adviser, Board members of a fund advised by the Investment
Adviser or Sub-Investment Adviser, including members of the Company's Board,
or the spouse or minor child of any of the foregoing may purchase Class A
shares directly through the Distributor. Subsequent purchases may be sent
directly to the Transfer Agent or your Service Agent.
Class R shares (available only for the Capital Value Fund) are offered
only to institutional investors acting for themselves or in a fiduciary,
advisory, agency, custodial or similar capacity, for qualified or non-
qualified employee benefit plans, including pension, profit-sharing, SEP-
IRAs and other deferred compensation plans, whether established by
corporations, partnerships, non-profit entities or state and local
governments ("Retirement Plans"). The term "Retirement Plans" does not
include IRAs or IRA "Rollover Accounts." Class R shares may be purchased
for a Retirement Plan only by a custodian, trustee, investment manager or
other
<PAGE>
entity authorized to act on behalf of such Plan. Institutions effecting
transactions in Class R shares for the accounts of their clients may charge
their clients direct fees in connection with such transactions.
When purchasing shares of either Fund, you must specify which Class is
being purchased. Stock certificates are issued only upon your written
request. No certificates are issued for fractional shares. The Company, on
behalf of each Fund, reserves the right to reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at
least $100. However, the minimum initial investment for Dreyfus-sponsored
Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant
is $750, with no minimum for subsequent purchases. Individuals who open an
IRA also may open a non-working spousal IRA with a minimum initial
investment of $250. Subsequent investments in a spousal IRA must be at
least $250. The initial investment must be accompanied by the Funds'
Account Application. For full-time or part-time employees of the Sub-
Investment Adviser, or any of its affiliates or subsidiaries, directors of
the Investment Adviser or Sub-Investment Adviser, Board members of a fund
advised by the Investment Adviser or Sub-Investment Adviser, including
members of the Company's Board, or the spouse or minor child of any of the
foregoing, the minimum initial investment is $1,000. For full-time or
part-time employees of the Sub-Investment Adviser or any of its affiliates
or subsidiaries who elect to have a portion of their pay directly deposited
into their Fund account, the minimum initial investment is $50. Full-time
employees of the Investment Adviser may purchase shares of each Fund
without regard to minimum initial investment requirements. The Fund
reserves the right to offer Fund shares without regard to minimum purchase
requirements to employees participating in certain qualified or non-
qualified employee benefit plans or other programs where contributions or
account information can be transmitted in a manner and form acceptable to
the Fund. The Fund reserves the right to vary further the initial and
subsequent investment minimum requirements at any time.
The Code imposes various limitations on the amount that may be
contributed to certain Retirement Plans. These limitations apply with
respect to participants at the plan level and, therefore, do not directly
affect the amount that may be invested in the Fund by a Retirement Plan.
Participants and plan sponsors should consult their tax advisers for
details.
You may purchase shares of either Fund by check or wire, or through
the TeleTransfer Privilege described below. Checks should be made payable
to "Comstock Partners Strategy Fund" or "Comstock Partners Capital Value
Fund", as the case may be, or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian." Payments to open new accounts which
are mailed should be sent to Comstock Partners Funds, Inc., P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account
Application. For subsequent investments, your Fund account number should
appear on the check and an investment slip should be enclosed and sent to
Comstock Partners Funds, Inc., P.O. Box 105, Newark, New Jersey 07101-0105.
For Dreyfus retirement plan accounts, both initial and subsequent
investments should be sent to The Dreyfus Trust Company, Custodian, P.O.
Box 6427, Providence, Rhode Island 02940-6427. Neither initial nor
subsequent investments should be made by third party check.
<PAGE>
Purchase orders may be delivered in person only to a Dreyfus Financial
Center. These orders will be forwarded to the Transfer Agent and will be
processed only upon receipt thereby. For the location of the nearest
Dreyfus Financial Center, please call 1-800-554-4611.
Wire payments may be made if your bank account is in a commercial bank
that is a member of the Federal Reserve System or any other bank having a
correspondent bank in New York City. You may request your bank to transmit
immediately available funds by wire to The Bank of New York, together with
DDA# 8900119551, for purchase of shares in your name.
The wire must include your Fund account number (for new accounts, you
must reference the Fund and Class to be purchased and also include your
Taxpayer Identification Number ("TIN") instead), account registration and
dealer number, if applicable. If your initial purchase of Fund shares is by
wire, please call 1-800-554-4611 after completing your wire payment to
obtain your Fund account number. Please include your Fund account number on
the Funds' Account Application and promptly mail the Account Application to
the Funds, as no redemptions will be permitted until the Account
Application is received. Further information about remitting funds in this
manner may be obtained from your bank. All payments should be in U.S.
dollars and, to avoid fees and delays, should be drawn only on U.S. banks.
Payments into the account of a corporation, foundation or other
organization should not be made by third party check. A charge will be
imposed if any check used for investment in your account does not clear.
The Funds make available to certain large institutions the ability to issue
purchase instructions through compatible computer facilities.
Fund shares also may be purchased through the AUTOMATIC Asset Builder,
the Government Direct Deposit Privilege and the Payroll Savings Plan
described under "Additional Shareholder Services." These services enable
you to make regularly scheduled investments and may provide you with a
convenient way to invest for long-term financial goals. You should be
aware, however, that periodic investment plans do not guarantee a profit
and will not protect an investor against loss in a declining market.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct
the institution to transmit immediately available funds through the
Automated Clearing House to The Bank of New York with instructions to
credit your Fund account. The instructions must specify your Fund account
registration and your Fund account number preceded by the digits "1111."
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where
(i) the employers or affiliated employers maintaining such plans or
programs have a minimum of 250 employees eligible for participation in such
plans or programs or (ii) such plan's or program's aggregate initial
investment in the Dreyfus Family of Funds or certain other products made
available by the Distributor to such plans or programs exceeds one million
dollars ("Eligible Benefit Plans"). Plan sponsors, administrators or
trustees, as applicable, are responsible for notifying the Distributor when
the relevant requirement is satisfied. Shares of funds in the Dreyfus
Family of Funds then held by such employee benefit plans or programs will
be aggregated to determine the fee payable. The Distributor reserves the
<PAGE>
right to cease paying these fees at any time. The Distributor will pay such
fees from its own funds, other than amounts received from the Fund,
including past profits or any other source available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes"
and the Funds' Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to such Fund could subject
you to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
Shares of each Fund are sold on a continuous basis. Net asset value
per share is determined as of the close of business on the New York Stock
Exchange (generally 4:00 p.m., New York time) on each business day. For
purposes of determining net asset value, options and futures contracts will
be valued 15 minutes after the close of trading on the floor of the New
York Stock Exchange. Net asset value per share for each Class of each Fund
is computed by dividing the value of the applicable Fund's net assets
attributable to the Class (i.e., the value of such Fund's assets less
liabilities attributable to that Class) by the total number of shares of
that Class outstanding. With the exception of certain fees and expenses
relating to the Class A, Class B and Class C Service and Distribution Plans
and certain other expenses attributable solely to a particular Class, all
Fund expenses will be borne on a pro rata basis by each Class on the basis
of the relative net assets of the respective Classes. See "The Funds'
Expenses" and "Service and Distribution Plans." Each Fund's investments are
valued based on market value, or where market quotations are not readily
available, based on fair value as determined in good faith by the Board of
Directors of the Company.
When an order is received by the Transfer Agent by 4:00 p.m., New York
time, on any business day, Fund shares will be purchased at the price
determined on that day. Otherwise, Fund shares will be purchased at the
price determined on the next business day.
Orders for the purchase of Fund shares received by Service Agents by
4:00 p.m., New York time, on any business day and transmitted to the
Transfer Agent by the close of its business day (normally 5:15 p.m., New
York time) will be based on the public offering price per share determined
on that day, as described above. Otherwise, the orders will be based on the
next day's determined public offering price. It is the responsibility of
each Service Agent to transmit orders so that they will be received by the
Transfer Agent before the close of its business day.
Service Agents may receive different levels of compensation for
selling different Classes of shares. Management understands that some
Service Agents may impose certain conditions on their clients which are
different from those described in this Prospectus, and, to the extent
permitted by applicable regulatory authority, may charge their clients
direct fees which would be in addition to any amounts which might be
received under the applicable Service and Distribution Plan. You should
consult your Service Agent in this regard.
Class A Shares (Strategy Fund and Capital Value Fund)
Class A shares of each Fund have a public offering price equal to
their net asset value per share (see "Determination of Net Asset Value"
<PAGE>
and "Statement of Assets and Liabilities" in the Statement of Additional
Information) plus a sales load as shown below:
<TABLE>
<CAPTION>
Total Sales Load
Dealers'
As a % of As a %<FN1> of Reallowance
offering net asset as a % of
price per value per offering
Amount of Transaction share share price
<S> <C> <C> <C>
Less than $50,000 . . . . . . . . . 4.50 4.70 4.25
$50,000 to less than $100,000 . . . 4.00 4.20 3.75
$100,000 to less than $250,000 . . . 3.00 3.10 2.75
$250,000 to less than $500,000 . . . 2.50 2.60 2.25
$500,000 to less than $1,000,000 . . 2.00 2.00 1.75
$1,000,000 or more . . . . . . . . . 0 0
<FN>
<FN1> Rounded to the nearest one-hundredth percent.
</TABLE>
A CDSC of 1% will be assessed at the time of redemption of Class A
shares of a Fund purchased without an initial sales charge as part of an
investment of at least $1,000,000 and redeemed within two years after
purchase. The terms contained in the section of the Funds' Prospectus
entitled "Redemption of Shares" (other than the amount of the CDSC and time
periods) are applicable to the Class A shares subject to a CDSC. Letter of
Intent and Right of Accumulation apply to such purchases of Class A shares.
If you were an actual beneficial owner of shares of the Dreyfus
Capital Value Fund, the Capital Value Fund's predecessor, held in a Dreyfus
Capital Value Fund account on April 16, 1987, you may purchase Capital
Value Fund Class A shares for the Capital Value Fund account without a
sales load.
Full-time employees of NASD member firms and full-time employees of
other financial institutions which have entered into an agreement with the
Distributor pertaining to the sale of shares of the Funds (or which
otherwise have a brokerage related or clearing arrangement with an NASD
member firm or financial institution with respect to the sale of Fund
shares) may purchase Class A shares of either Fund for themselves directly
or pursuant to an employee benefit plan or other program, or for their
spouses or minor children at net asset value, provided that they have
furnished the Distributor with such information it may request from time to
time in order to verify eligibility for this privilege. This privilege also
applies to full-time employees of financial institutions affiliated with
NASD member firms whose full-time employees are eligible to purchase Class
shares at net asset value. In addition, Class A shares are offered at net
A asset value to full-time or part-time employees of the Investment Adviser
and full-time or part-time employees of the Sub-Investment Adviser or any
of its affiliates or subsidiaries, Board members of a fund advised by the
Investment Adviser or Sub-Investment Adviser, including members of the
Company's Board, or the spouse or minor child of any of the foregoing.
<PAGE>
Class A shares may be purchased at net asset value through certain
broker-dealers and other financial institutions which have entered into an
agreement with the Distributor, which includes a requirement that such
shares be sold for the benefit of clients participating in a "wrap account"
or a similar program under which such clients pay a fee to such broker-
dealer or other financial institution.
Class A shares of each Fund will be offered at net asset value without
a sales load to employees participating in Eligible Benefit Plans. Class A
shares of each Fund also may be purchased (including by exchange) at net
asset value without a sales load for Dreyfus-sponsored IRA "Rollover
Accounts" with the distribution proceeds from a qualified retirement plan
or a Dreyfus-sponsored 403(b)(7) plan, provided that, at the time of such
distribution, such qualified retirement plan or Dreyfus-sponsored 403(b)(7)
plan (a) met the requirements of an Eligible Benefit Plan and all or a
portion of such plan's assets were invested in funds in the Dreyfus Family
of Funds or certain other products made available by the Distributor to
such plans, or (b) invested all of its assets in certain funds in the
Dreyfus Family of Funds or certain other products made available by the
Distributor to such plans.
Class A shares of a Fund may be purchased at net asset value, subject
to appropriate documentation through a broker-dealer or other financial
institution, with the proceeds from the redemption of shares of a
registered open-end management investment company not managed by the
Investment Adviser or the Sub-Investment Adviser or its affiliates. The
purchase of Class A shares of a Fund must be made within 60 days of such
redemption and the shareholder must have either (i) paid an initial sales
charge or a contingent deferred sales charge or (ii) been obligated to pay
at any time during the holding period, but did not actually pay on
redemption, a deferred sales charge with respect to such redeemed shares.
Class A shares of a Fund also may be purchased at net asset value,
subject to appropriate documentation, by (i) qualified separate accounts
maintained by an insurance company pursuant to the laws of any State or
territory of the United States, (ii) a State, county or city or
instrumentality thereof, (iii) a charitable organization (as defined in
Section 501(c)(3) of the Code) investing $50,000 or more in Fund shares,
and (iv) a charitable remainder trust (as defined in Section 501(c)(3) of
the Code).
The dealer reallowance may be changed from time to time but will
remain the same for all dealers. The Distributor, at its expense, may
provide additional promotional incentives to dealers that sell shares of
funds which retain the Investment Adviser or the Sub-Investment Adviser
as investment adviser or sub-investment adviser and which are sold with a
sales load, such as Class A shares of each Fund. In some instances, these
incentives may be offered only to certain dealers who have sold or may sell
significant amounts of shares.
Class B Shares (Capital Value Fund only)
The public offering price for Class B shares of the Capital Value Fund
is the net asset value per share of that Class. No initial sales charge is
imposed at the time of purchase. A CDSC is imposed, however, on certain
redemptions of Class B shares as described under "Redemption of Shares." At
the time of purchase, the Distributor compensates certain Service Agents
<PAGE>
for selling Class B shares of the Capital Value Fund and is reimbursed by
the Investment Adviser and/or other parties. The proceeds of the CDSC and
the distribution fee, in part, are used to defray these expenses. The
proceeds of the CDSC and certain payments under the Class B and Class C
Service and Distribution Plans may be assigned to parties which reimburse
these expenses.
Class C Shares (Strategy Fund and Capital Value Fund)
Class C shares of each Fund have a public offering price equal to the
net asset value per share of Class C of that Fund. No initial sales charge
is imposed at the time of purchase. A 1% CDSC, however, is imposed on
redemptions of Class C shares made within the first year of purchase. See
"Redemption of Shares--Contingent Deferred Sales Charge--Class C shares."
At the time of purchase, the Distributor compensates certain Service Agents
for selling Class C shares of a Fund and is reimbursed by the Investment
Adviser and/or other parties. The proceeds of the CDSC and certain payments
under the Class B and Class C Service and Distribution Plans may be
assigned to parties which reimburse these expenses.
Class R Shares (Capital Value Fund only)
The public offering price for Capital Value Fund Class R shares is the
net asset value per share of that Class.
Right of Accumulation - Class A Shares
Reduced sales loads apply to any purchase of Class A shares of either
Fund, shares of certain other funds advised by the Sub-Investment Adviser
which are sold with a sales load or shares acquired by a previous exchange
of shares purchased with a sales load (hereinafter referred to as "Eligible
Funds"), by you and any related "purchaser" as defined in the Statement of
Additional Information, where the aggregate investment, including such
purchase, is $50,000 or more. If, for example, you previously purchased and
still hold Class A shares of either Fund, or of any other Eligible Fund or
combination thereof, with an aggregate current market value of $40,000 and
subsequently purchase Class A shares of either Fund or an Eligible Fund
having a current value of $20,000, the sales load applicable to the
subsequent purchase would be reduced to 4% of the offering price. All
present holdings of Eligible Funds may be combined to determine the current
offering price of the aggregate investment in ascertaining the sales load
applicable to each subsequent purchase.
To qualify for reduced sales loads, at the time of a purchase you or
your Service Agent must notify the Distributor if orders are made by wire,
or the Transfer Agent if orders are made by mail. The reduced sales load is
subject to confirmation of your holdings through a check of appropriate
records.
TeleTransfer Privilege
You may purchase Class A and Class C shares of the Strategy Fund and
Class A, Class B, Class C and Class R shares of the Capital Value Fund
(minimum $500, maximum $150,000 per day per Fund) by telephone if you have
checked the appropriate box and supplied the necessary information on the
Funds' Account Application or have filed a Shareholder Services Form with
<PAGE>
the Transfer Agent. The proceeds will be transferred between the bank
account designated in one of these documents and your Fund account. Only a
bank account maintained in a domestic financial institution which is an
Automated Clearing House member may be so designated. The Funds may modify
or terminate this Privilege at any time or charge a service fee upon notice
to shareholders, although no such fee currently is contemplated.
If you have selected the TeleTransfer Privilege, you may request a
TeleTransfer purchase of Fund shares by telephoning 1-800-645-6561 or, if
you are calling from overseas, call 516-794-5452.
ADDITIONAL SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents may
impose certain conditions on their clients which are different from those
described in this Prospectus. You should consult your Service Agent in this
regard. Because separate accounts are maintained for each Class of shares
of the Funds, the services and privileges described under this heading will
operate for a given account only with respect to the Class of shares in
that account.
Exchange Privilege
The Exchange Privilege enables you to purchase, in exchange for Class
A and Class C shares of the Strategy Fund or Class A, Class B, Class C or
Class R shares of the Capital Value Fund, shares of the same class of
certain funds managed or administered by the Sub-Investment Adviser, to the
extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
The Exchange Privilege may be exercised twice during a calendar year as
described below. Because the Strategy Fund no longer issues Class O shares
except in connection with the reinvestment of dividends on outstanding
Class O shares, exchanges of shares of other funds for shares of the
Strategy Fund will be made only for the Strategy Fund's Class A or Class
C shares.
The shares so purchased will be held in a special account created
solely for this purpose ("Exchange Account"). Exchanges of shares from an
Exchange Account only can be made into certain other funds managed or
administered by the Sub-Investment Adviser. No CDSC is charged when an
investor exchanges into an Exchange Account; however, the applicable CDSC
will be imposed when shares are redeemed from an Exchange Account or other
applicable Fund account. Upon redemption, the applicable CDSC will be
calculated without regard to the time such shares were held in an Exchange
Account. See "Redemption of Shares." Redemption proceeds for Exchange
Account shares are paid by Federal wire or check only. Exchange Account
shares also are eligible for the Auto-Exchange Privilege, the Dividend
Sweep and the Automatic Withdrawal Plan. If you desire to use the Exchange
Privilege, you should consult your Service Agent or the Distributor to
determine if it is available and whether any other conditions are imposed
on its use. WITH RESPECT TO CAPITAL VALUE FUND CLASS R SHARES HELD BY
RETIREMENT PLANS, EXCHANGES MAY BE MADE ONLY BETWEEN A SHAREHOLDER'S
RETIREMENT PLAN ACCOUNT IN ONE FUND AND SUCH SHAREHOLDER'S RETIREMENT PLAN
ACCOUNT IN ANOTHER FUND.
<PAGE>
To use the Exchange Privilege, you or your Service Agent acting on
your behalf must give exchange instructions to the Transfer Agent in
writing, by wire or by telephone. If you previously have established
the Telephone Exchange Privilege, you may telephone exchange instructions
by calling 1-800-645-6561 or, if you are calling from overseas, call
516-794-5452. See "Redemption of Shares--Redemption Procedures." Before any
exchange, you must obtain and should review a copy of the current
prospectus of the fund into which the exchange is being made. Prospectuses
may be obtained from the Distributor. Except in the case of Personal
Retirement Plans, the shares being exchanged must have a current value of
at least $100; furthermore, in establishing a new account by exchange, the
shares being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
Telephone exchanges may be made only if the appropriate "YES" box has been
checked on the Account Application, or a separate signed Shareholder
Services Form is on file with the Transfer Agent. Upon an exchange into a
new account, the following shareholder services and privileges, as
applicable and where available, will be automatically carried over to the
fund into which the exchange is made: Exchange Privilege, Wire Redemption
Privilege, Telephone Redemption Privilege, TeleTransfer Privilege, and the
dividend/capital gain distribution option (except for Dividend Sweep)
selected by the investor.
Shares will be exchanged at the next determined net asset value,
however, a sales load may be charged with respect to exchanges of Class A
shares of either Fund into funds sold with a sales load. No CDSC will be
imposed on Class B shares or Class C shares at the time of an exchange;
however, Class B or Class C shares acquired through an exchange will be
subject on redemption to the higher CDSC applicable to the exchanged or
acquired shares. The CDSC applicable on redemption of the acquired Class B
or Class C shares will be calculated from the date of the initial purchase
of the Class B or Class C shares exchanged. If you are exchanging Class A
shares of either Fund into a fund that charges a sales load, you may
qualify for share prices which do not include the sales load or which
reflect a reduced sales load, if the shares of the fund from which you are
exchanging were: (a) purchased with a sales load, (b) acquired by a
previous exchange from shares purchased with a sales load, or (c) acquired
through reinvestment of dividends or distributions paid with respect to the
foregoing categories of shares. To qualify, at the time of an exchange you
must notify the Transfer Agent or your Service Agent must notify the
Distributor. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal fee in accordance with rules promulgated by the
Securities and Exchange Commission. The Funds reserve the right to reject
any exchange request in whole or in part. The availability of the Exchange
Privilege may be modified or terminated at any time upon notice to
shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange
by the shareholder and, therefore, an exchanging shareholder may realize
a taxable gain or loss.
<PAGE>
Auto-Exchange Privilege
Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares
of either Fund, in shares of the same class of certain other funds in the
Dreyfus Family of Funds in which you are currently an investor. With
respect to Class R shares held by Retirement Plans, exchanges pursuant to
the Auto-Exchange Privilege may be made only between a shareholder's
Retirement Plan account in one fund and such shareholder's Retirement Plan
account in another fund. The amount you designate, which can be expressed
either in terms of a specific dollar or share amount ($100 minimum) will be
exchanged automatically on the first and/or fifteenth day of the month (or
the next business day if such first or fifteenth day is not a business day)
according to the schedule you have selected. Shares will be exchanged at
the then-current net asset value; however, a sales load may be charged with
respect to exchanges of Class A shares into funds sold with a sales load.
No CDSC will be imposed on Class B or Class C shares of the Funds at the
time of an exchange; however, the Class B or Class C shares of the Funds
acquired through an exchange will be subject to the higher CDSC applicable
to the exchanged or acquired shares. The CDSC applicable on redemption of
the acquired Class B or Class C shares will be calculated from the date of
the initial purchase of the Class B or Class C shares exchanged. See
"Shareholder Services" in the Statement of Additional Information. The
right to exercise this Privilege may be modified or cancelled by the Fund
or the Transfer Agent. You may modify or cancel your exercise of this
Privilege at any time by writing to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671. The Fund may charge a service
fee for the use of this Privilege. No such fee currently is contemplated.
The exchange of shares of one fund for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss. For more information concerning this Privilege and
the funds in the Dreyfus Family of Funds eligible to participate in this
Privilege, or to obtain a Dreyfus Auto-Exchange Authorization Form, please
call toll free 1-800-554-4611.
Automatic Asset Builder
Automatic Asset Builder permits you to purchase Fund Class A and Class
C shares of the Strategy Fund and Class A, Class B, Class C or Class R
shares of the Capital Value Fund (minimum of $100 and maximum of $150,000
per transaction) at regular intervals selected by you. Such shares are
purchased by transferring funds from the bank account designated by you. At
your option, the bank account designated by you will be debited in the
specified amount, and shares will be purchased, once a month, on either the
first or fifteenth day (or the next business day if such first or fifteenth
day is not a business day), or twice a month, on both days. Only an account
maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. To establish an Automatic Asset
Builder account, you must file an authorization form with the Transfer
Agent. You may obtain the necessary authorization form from the Distributor.
You may cancel this Privilege or change the amount of purchase at any time
by mailing written notification to Comstock Partners Funds, Inc. P.O. Box
6527, Providence, Rhode Island 02940-6527, or, if for Dreyfus retirement
plan accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427,
Providence, Rhode Island 02940-6427, and the notification will be effective
three business days following receipt. Either Fund may modify or terminate
<PAGE>
this Privilege at any time or charge a service fee, although no such fee
currently is contemplated.
Government Direct Deposit Privilege
Government Direct Deposit Privilege enables you to purchase shares of
either Fund (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into
your Fund account. You may deposit as much of such payments as you elect.
To enroll in the Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment that
you desire to include in this Privilege. The appropriate form may be
obtained by calling 1-800-645-6561. Death or legal incapacity will
terminate your participation in this Privilege. You may elect at any time
to terminate your participation by notifying in writing the appropriate
Federal agency. Further, the Funds may terminate your participation upon
30 days' notice to you.
Payroll Savings Plans
The Payroll Savings Plan permits you to purchase Class A and Class C
shares of the Strategy Fund and shares of each class of the Capital Value
Fund (minimum of $100 per transaction) automatically on a regular basis.
Depending upon your employer's direct deposit program, you may have part or
all of your paycheck transferred to your existing Dreyfus account
electronically through the Automated Clearing House system at each pay
period. To establish a Payroll Savings Plan account, you must file an
authorization form with your employer's payroll department. Your employer
must complete the reverse side of the form and return it to Comstock
Partners Funds, Inc., P.O. Box 9671, Providence, Rhode Island 02940-9671.
You may obtain the necessary authorization form by calling 1-800-645-6561.
You may change the amount of purchase or cancel the authorization only by
written notification to your employer. It is the sole responsibility of
your employer, not the Distributor, the Investment Adviser, the Sub-
Investment Adviser, the Funds, the Transfer Agent or any other person,
to arrange for transactions under the Payroll Savings Plan. The Funds
may modify or terminate this Privilege at any time or charge a service
fee. No such fee currently is contemplated. Shares held under Keogh Plans,
IRAs or other retirement plans are not eligible for this Privilege.
Dividend Options
The Dividend Sweep enables you to invest automatically dividends or
dividends and capital gain distributions, if any, paid by either Fund in
shares of the same Class of another fund advised or administered by the
Sub-Investment Adviser of which you are a shareholder. Shares of the other
fund will be purchased at the then-current net asset value; however, a
sales load may be charged with respect to investments in Class A shares of
a fund sold with a sales load. If you are investing in a fund that charges
a sales load, you may qualify for share prices which do not include the
sales load or which reflect a reduced sales load. If you are investing in
a fund or class that charges a CDSC, the shares purchased will be subject
on redemption to the CDSC, if any, applicable to the purchased shares. See
"Shareholder Services" in the Statement of Additional Information. The
Dividend ACH permits you to transfer electronically on the payment date
dividends or dividends and capital gain distributions, if any, from the
applicable Fund to a designated bank account. Only an account maintained
<PAGE>
at a domestic financial institution which is an Automated Clearing House
member may be so designated. Banks may charge a fee for this service.
For more information concerning these privileges, or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to Comstock Partners
Funds, Inc., P.O. Box 9671, Providence, Rhode Island 02940-9671. To select
a new fund after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three
business days following receipt. These privileges are available only for
existing accounts and may not be used to open new accounts. Minimum
subsequent investments do not apply for the Dividend Sweep. The Funds may
modify or terminate these privileges at any time or charge a service fee.
No such fee currently is contemplated. Shares held under Keogh Plans,
IRAs or other retirement plans are not eligible for the Dividend Sweep.
Automatic Withdrawal Plan
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $5,000 minimum account. Particular Retirement Plans,
including Dreyfus sponsored retirement plans, may permit certain
participants to establish an automatic withdrawal plan from such Retirement
Plans. Participants should consult their Retirement Plan sponsor and tax
adviser for details. Such a withdrawal plan is different than the Automatic
Withdrawal Plan. An application for the Automatic Withdrawal Plan can be
obtained by calling 1-800-645-6561. The Automatic Withdrawal Plan may be
ended at any time by you, the Fund or the Transfer Agent. Shares for which
stock certificates have been issued may not be redeemed through the
Automatic Withdrawal Plan.
Class B or Class C shares withdrawn pursuant to the Automatic
Withdrawal Plan will be subject to any applicable CDSC. Purchases of
additional Class A shares of a Fund where the sales load is imposed
concurrently with withdrawals of Class A shares generally are undesirable.
Any correspondence with respect to the Automatic Withdrawal Plan should be
addressed to Comstock Partners Funds, Inc., P.O. Box 9671, Providence,
Rhode Island 02940-9671, or, if for Dreyfus retirement plan accounts,
to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence, Rhode
Island 02940-6427.
Retirement Plans
Each Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k)
Salary Reduction Plans and 403(b)(7) Plans. Plan support services are also
available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566;
for IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; for
SEP-IRAs, 401(k) Salary Reduction Plans and 403(b)(7) Plans, please call
1-800-322-7880.
<PAGE>
Letter of Intent - Class A Shares
By signing a Letter of Intent form available from the Distributor by
calling 1-800-645-6561, you become eligible for the reduced sales load
applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth in
the Letter of Intent. A minimum initial purchase of $5,000 is required. To
compute the applicable sales load, the offering price of shares you hold
(on the date of submission of the Letter of Intent) in any Eligible Fund
that may be used toward "Right of Accumulation" benefits described above
may be used as a credit toward completion of the Letter of Intent. However,
the reduced sales load will be applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in
the Letter of Intent for payment of a higher sales load if you do not
purchase the full amount indicated in the Letter of Intent. The escrow will
be released when you fulfill the terms of the Letter of Intent by
purchasing the specified amount. If your purchases qualify for a further
sales load reduction, the sales load will be adjusted to reflect your total
purchase at the end of 13 months. If total purchases are less than the
amount specified, you will be requested to remit an amount equal to the
difference between the sales load actually paid and the sales load
applicable to the aggregate purchases actually made. If such remittance is
not received within 20 days, the Transfer Agent, as attorney-in-fact
pursuant to the terms of the Letter of Intent, will redeem an appropriate
number of Class A shares of the relevant Fund held in escrow to realize the
difference. Signing a Letter of Intent does not bind you to purchase, or
the relevant Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but you must complete the intended purchase
to obtain the reduced sales load. At the time you purchase Class A shares
of a Fund, you must indicate your intention to do so under a Letter of
Intent.
REDEMPTION OF SHARES
General
You may request redemption of your shares of either Fund at any time.
Redemption requests should be transmitted to the Transfer Agent as
described below. When a request is received in proper form, the Company
will redeem the shares at the next determined net asset value for the Class
being redeemed. If you hold shares of more than one Class, any redemption
request must specify the Class of shares being redeemed. If you fail to
specify the Class of shares to be redeemed or if you own fewer shares of
the Class than specified to be redeemed, the redemption request may be
delayed until the Transfer Agent receives further instructions from you
or your Service Agent.
The Company imposes no charges (other than any applicable CDSC) when
shares are redeemed. Service Agents may charge their clients a nominal fee
for effecting redemptions of shares. It is the responsibility of each
Service Agent to transmit redemption orders to the Transfer Agent. Any
certificates representing shares being redeemed must be submitted with the
redemption request. The value of the shares redeemed may be more or less
than their original cost, depending on the then-current net asset value of
the Class being redeemed.
<PAGE>
Distributions from qualified Retirement Plans IRAs (including IRA
"Rollover Accounts") and certain non-qualified deferred compensation plans,
except distributions representing returns of non-deductible contributions
to the Retirement Plan or IRA, generally are taxable income to the
participant. Distributions from such a Retirement Plan or IRA to a
participant prior to the time the participant reaches age 59 1/2 or becomes
permanently disabled may subject the participant to an additional 10%
penalty tax imposed by the IRS. Participants should consult their tax
advisers concerning the timing and consequences of distributions from a
Retirement Plan or IRA. Participants in qualified Retirement Plans will
receive a disclosure statement describing the consequences of a
distribution from such a Plan from the administrator, trustee or custodian
of the Plan, before receiving the distribution. The Company will not report
to the IRS redemptions of shares of either Fund by qualified Retirement
Plans, IRAs or certain non-qualified deferred compensation plans. The
administrator, trustee or custodian of such Retirement Plans and IRAs will
be responsible for reporting distributions from such Plans and IRAs to the
IRS.
Ordinarily payment will be made for all shares redeemed within seven
days after receipt by the Transfer Agent of a redemption request in proper
form, except as provided by the rules of the Securities and Exchange
Commission. However, if you have purchased shares of a Fund by check, by
the TeleTransfer Privilege or through the Automatic Asset Builder and
subsequently submit a written redemption request to the Transfer Agent, the
redemption proceeds will be transmitted to you promptly upon bank clearance
of your purchase check, the TeleTransfer Purchase or the Automatic Asset
Builder order, which may take up to eight business days or more. In
addition, if you redeem through the TeleTransfer Privilege, the relevant
Fund will reject requests to redeem shares for a period of eight business
days after receipt by the Transfer Agent of the Purchase Check, the
TeleTransfer Purchase or the Automatic Asset Builder Order against which
such redemption is requested. These procedures will not apply if your
shares were purchased by wire payment, or if you otherwise have a
sufficient collected balance in your account to cover the redemption
request. Prior to the time any redemption is effective, dividends on such
shares will accrue and be payable, and you will be entitled to exercise
all other rights of beneficial ownership. Fund shares will not be redeemed
until the Transfer Agent has received your Account Application.
Each Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
Contingent Deferred Sales Charge - Class B Shares (Capital Value Fund only)
A CDSC payable to the Distributor is imposed on any redemption of
Class B shares of the Capital Value Fund, which CDSC reduces the current
net asset value of your Class B shares to an amount which is lower than
the dollar amount of all payments by you for the purchase of Class B
shares of the Capital Value Fund held by you at the time of redemption.
No CDSC will be imposed to the extent that the net asset value of the
Class B shares redeemed does not exceed (i) the current net asset value
of Class B shares acquired through reinvestment of dividends or capital
gain distributions, plus (ii) increases in the net asset value of your
Class B shares above the dollar amount of all your payments for the
purchase of Class B shares of the Capital Value Fund held by you at the
time of redemption.
<PAGE>
If the aggregate value of the Class B shares redeemed has declined
below their original cost as a result of the Capital Value Fund's
performance, a CDSC may be applied to the then-current net asset value
rather than the purchase price.
In circumstances where the CDSC is imposed, the amount of the charge
will depend on the number of years from the time you purchased the Class B
shares until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the
purchase of Class B shares, all payments during a month will be aggregated
and deemed to have been made on the first day of the month. The following
table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
CDSC as a % of
amount invested or
Year since purchase redemption
payment was made proceeds
<S> <C>
First . . . . . . . . . . . . . . 4.00
Second . . . . . . . . . . . . . 4.00
Third . . . . . . . . . . . . . . 3.00
Fourth . . . . . . . . . . . . . 3.00
Fifth . . . . . . . . . . . . . . 2.00
Sixth . . . . . . . . . . . . . . 1.00
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible
rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value
of Class B shares of the Capital Value Fund above the total amount of
payments for the purchase of Class B shares made during the preceding six
years; then of amounts representing the cost of shares purchased six years
prior to the redemption; and finally, of amounts representing the cost of
shares held for the longest period of time within the applicable six-year
period.
For example, assume an investor purchased 100 Capital Value Fund Class
B shares at $10 per share for a cost of $1,000. Subsequently, the share-
holder acquired 5 additional shares through dividend reinvestment. During
the second year after the purchase the investor decided to redeem $500 of
his or her investment. Assuming at the time of the redemption the net asset
value had appreciated to $12 per share, the value of the investor's shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be
applied to the value of the reinvested dividend shares and the amount which
represents appreciation ($260). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of 4% (the applicable
rate in the second year after purchase) for a total CDSC of $9.60.
Contingent Deferred Sales Charge - Class C Shares
A CDSC of 1% payable to the Distributor is imposed on any redemption
of Class C shares of a Fund within one year of the date of purchase. The
<PAGE>
basis for calculating the payment of any such CDSC will be the method used
in calculating the CDSC for Class B shares of the Capital Value Fund. See
"Contingent Deferred Sales Charge--Class B Shares" above.
Waiver of CDSC
The CDSC applicable to Class B and Class C shares may be waived in
connection with (a) redemptions made within one year after the death or
disability, as defined in Section 72(m)(7) of the Code, of the shareholder,
(b) redemptions by employees participating in Eligible Benefit Plans, (c)
redemptions as a result of a combination of any investment company with the
Company by merger, acquisition of assets or otherwise and (d) a
distribution following retirement under a tax-deferred retirement plan or
attaining age 70 1/2 in the case of an IRA or Keogh plan or custodial
account pursuant to section 403(b) of the Code. If the Company's Board
determines to discontinue the waiver of the CDSC, the disclosure in the
Funds' prospectus will be revised appropriately. Any shares subject to a
CDSC which were purchased prior to the termination of such waiver will
have the CDSC waived as provided in the Funds' prospectus at the time of
the purchase of such shares.
To qualify for a waiver of the CDSC, at the time of redemption you
must notify the Transfer Agent or your Service Agent must notify the
Distributor. Any such qualification is subject to confirmation of your
entitlement.
Redemption Procedures
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, the Wire Redemption Privilege, the Telephone
Redemption Privilege or the TeleTransfer Privilege. Other redemption
procedures may be in effect for investors who effect transactions in Fund
shares through Service Agents. The Company makes available to certain large
institutions the ability to issue redemption instructions through
compatible computer facilities.
You may redeem or exchange shares of either Fund by telephone if you
have checked the appropriate box on the Funds' Account Application or have
filed a Shareholder Services Form with the Transfer Agent. If you select a
telephone redemption or exchange privilege, you authorize the Transfer
Agent to act on telephone instructions from any person representing himself
or herself to be you or a representative of your Service Agent, and
reasonably believed by the Transfer Agent to be genuine. The Company will
require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions
are genuine and, if it does not follow such procedures, the relevant Fund
or the Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions. Neither the Funds nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During time of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of shares of either Fund. In such cases,
you should consider using the other redemption procedures described herein.
Use of these other redemption procedures may result in your redemption
request being processed at a later time than it would have been if
<PAGE>
telephone redemption or telephone exchange had been used. During the
delay, the relevant Fund's net asset value may fluctuate.
Regular Redemption
Under the regular redemption procedure, you may redeem shares of each
Fund by written request mailed to Comstock Partners Funds, Inc., P.O. Box
6527, Providence Rhode Island 02940-6527. Redemption requests for Dreyfus
retirement plan accounts should be sent to The Dreyfus Trust Company,
Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427. Redemption
requests may be delivered in person only to a Dreyfus Financial Center.
These requests will be forwarded to the Fund and will be processed only
upon receipt thereby. For the location of the nearest Dreyfus Financial
Center, please call 1-800-554-4611.
Redemption requests must be signed by each shareholder, including
each owner of a joint account, and each signature must be guaranteed. The
Transfer Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from
domestic banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and
savings associations, as well as from participants in the New York
Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Signature Program ("STAMP") and the Stock Exchanges
Medallion Program. If you have any questions with respect to signature-
guarantees, please call 1-800-554-6461.
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written signature-
guaranteed request.
Wire Redemption Privilege
You may request by wire or telephone that redemption proceeds (minimum
$1,000) be wired to your account at a bank which is a member of the Federal
Reserve System, or a correspondent bank if your bank is not a member. To
establish the Wire Redemption Privilege, you must check the appropriate box
and supply the necessary information on the Funds' Account Application or
file a Shareholder Services Form with the Transfer Agent. You may direct
that redemption proceeds be paid by check (maximum $150,000 per day) made
out to the owners of record and mailed to your address. Redemption proceeds
of less than $1,000 will be paid automatically by check. Holders of jointly
registered Fund or bank accounts may have redemption proceeds of only up to
$250,000 wired within any 30-day period. You may telephone redemption
requests by calling 1-800-645-6561 or, if you are calling from overseas,
call 516-794-5452. The Company reserves the right to refuse any redemption
request, including requests made shortly after a change of address, and may
limit the amount involved or the number of such requests. This Privilege
may be modified or terminated at any time by the Transfer Agent or the
Company. The Statement of Additional Information sets forth instructions
for transmitting redemption requests by wire. Shares held under Keogh
Plans, IRAs or other retirement plans, and shares for which certificates
have been issued, are not eligible for this Privilege.
<PAGE>
Telephone Redemption Privilege
You may redeem shares of either Fund (maximum $150,000 per day) by
telephone if you have checked the appropriate box on the Funds' Account
Application or have filed a Shareholder Services Form with the Transfer
Agent. The redemption proceeds will be paid by check and mailed to your
address. You may telephone redemption instructions by calling 1-800-645-
6561 or, if you are calling from overseas, call 1-516-794-5452. The Company
reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of telephone redemption requests. This Privilege may
be modified or terminated at any time by the Transfer Agent or the Company.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares
for which certificates have been issued, are not eligible for this
Privilege.
TeleTransfer Privilege
You may redeem shares of either Fund (minimum $500) by telephone if
you have checked the appropriate box and supplied the necessary information
on the Funds' Account Application or have filed a Shareholder Services Form
with the Transfer Agent. The proceeds will be transferred between your Fund
account and the bank account designated in one of these documents. Only
such an account maintained in a domestic financial institution which is an
Automated Clearing House member may be so designated. Redemption proceeds
will be on deposit in your account at an Automated Clearing House member
bank ordinarily two days after receipt of the redemption request or, at
your request, paid by check (maximum $150,000 per day) and mailed to your
address. Holders of jointly registered Fund or bank accounts may redeem
through the TeleTransfer Privilege for transfer to their bank account only
up to $250,000 within any 30-day period. The Company reserves the right to
refuse any request made by telephone, including requests made shortly after
a change of address, and may limit the amount involved or the number of
such requests. The Company may modify or terminate this Privilege at any
time or charge a service fee upon notice to shareholders, although no such
fee currently is contemplated.
If you have selected the TeleTransfer Privilege, you may request a
TeleTransfer redemption by telephoning 1-800-645-6561 or, if you are
calling from overseas, call 516-794-5452. Shares held under Keogh Plans,
IRAs or other retirement plans, and shares issued in certificate form,
are not eligible for this Privilege.
Reinstatement Privilege
You may reinvest in up to the number of shares you have redeemed,
within 30 days of redemption of Class A shares of either Fund, at their
then-prevailing net asset value without a sales load. The Reinstatement
Privilege may be exercised only once.
Any gain recognized on a redemption is taxable despite reinvestment in
a Fund pursuant to this Privilege. Any loss realized as a result of such a
redemption may not be allowed as a deduction for federal income tax
purposes, but may be applied, depending on the amount reinvested, to adjust
the cost basis of the shares acquired upon reinvestment. In addition, if
<PAGE>
the shares redeemed had been acquired within the 90 days preceding the
redemption, the amount of any gain or loss on the redemption may have to be
computed without regard to any sales charges incurred on the original
purchase of the redeemed shares (except to the extent those sales charges
exceed the sales charges waived in connection with the reinvestment). In
such a case, the sales charges (or portion thereof) not taken into account
with respect to the original purchase are treated as having been paid in
connection with the reinvestment such Fund's Class A shares.
SERVICE AND DISTRIBUTION PLANS
Class A, B and C shares of the Funds are subject to Service and
Distribution Plans adopted pursuant to Rule 12b-1 under the 1940 Act ("Rule
12b-1"). Potential investors should read this Prospectus in light of the
terms governing the Agreement between their Service Agents and the
Distributor. A Service Agent entitled to receive compensation for selling
and servicing the Funds' shares may receive different levels of
compensation with respect to different Classes of shares.
Service and Distribution Plan - Class A Shares
Under the Class A Service and Distribution Plan, the Company, at the
expense of the Class A shares of each Fund, (a) reimburses the Distributor
for payments to certain Service Agents for distributing such Fund's Class A
shares and servicing shareholder accounts, and (b) pays the Sub-Investment
Adviser, Dreyfus Service Corporation and any affiliate of either of them
(collectively, "Dreyfus") for advertising and marketing relating to the
Class A shares of such Fund and for shareholder servicing activities, at an
aggregate annual rate of .25 of 1% of the value of the average daily net
assets of Class A of such fund. Each of the Distributor and Dreyfus may pay
one or more Service Agents a fee in respect of the Capital Value Fund's or
the Strategy Fund's Class A shares, as the case may be, owned by
shareholders for whom the Service Agent provides shareholder services or
for whom the Service Agent is the dealer or holder of record. Each of the
Distributor and Dreyfus determine the amounts, if any, to be paid to
Service Agents under the Class A Service and Distribution Plan and the
basis on which such payments are made. The Class A Service and Distribution
Plan also provides that the Investment Adviser and the Sub-Investment
Adviser may pay Service Agents out of their investment advisory fees, their
past profits or any other source available to them. From time to time, the
Distributor and/or Dreyfus may defer or waive receipt of fees under the
Class A Service and Distribution Plan while retaining the ability to be
paid under the Class A Service and Distribution Plan thereafter. The
foregoing fees payable under the Class A Service and Distribution Plan are
payable without regard to actual expenses incurred. See the Funds'
Statement of Additional Information for more details on the Class A Service
and Distribution Plan.
Service and Distribution Plans - Class B and Class C Shares
Under the Class B and Class C Service and Distribution Plans, the
Company, at the expense of the Class B shares of the Capital Value Fund and
Class C shares of each Fund, as the case may be, (a) pays the Distributor
for distributing the Capital Value Fund's Class B shares and each Fund's
Class C shares at an annual rate of .75 of 1% of the value of the average
daily net assets of Class B or Class C of the applicable Fund, and (b) pays
<PAGE>
the Distributor for the provision of certain services to the holders of
Class B shares and Class C shares, as the case may be, a fee at the annual
rate of .25 of 1% of the value of the average daily net assets of Class B
or Class C of the applicable Fund. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Funds and providing reports and other
information, and providing services related to the maintenance of such
shareholder accounts. The Distributor may pay one or more Service Agents
fee in respect of distribution and other services for Class B and Class C
shares. The Distributor determines the amounts, if any, to be paid to
Service Agents under the Class B and Class C Service and Distribution Plans
and the basis on which such payments are made. The Class B and Class C
Service and Distribution Plans also provides that the Investment Adviser
and the Sub-Investment Adviser may pay Service Agents out of their
investment advisory fees, their past profits or any other source available
to them. From time to time the Distributor and/or Dreyfus may defer
or waive receipt of fees under the Class B and Class C Service and
Distribution Plans while retaining the ability to be paid under the Class B
and Class C Service and Distribution Plans thereafter. The foregoing fees
payable under the Class B and Class C Service and Distribution Plans are
payable without regard to actual expenses incurred.
General
Banking laws and regulations, including the Glass-Steagall Act as
currently interpreted by the Board of Governors of the Federal Reserve
System, prohibit banks generally from issuing, underwriting, selling or
distributing securities. Accordingly, banks will be engaged to act as
Service Agents only to perform administrative and shareholder servicing
functions. The Company believes that banks, subject to banking laws and
regulations, may perform such administrative and shareholder servicing
functions without violation of such banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities
of banks and their affiliates, as well as future interpretations of present
requirements, could require banks to discontinue providing such
administrative and shareholder servicing functions. If banks were required
to discontinue providing all or a part of such functions, their customers
would be permitted to remain the beneficial owners of shares of the Funds
and alternative means for continuing the servicing of such customers would
be sought. The Company does not anticipate that investors would suffer any
adverse financial consequences as a result of these occurrences.
In addition, state securities laws on this issue may differ from
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state laws.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The Strategy Fund intends to pay dividends from net investment income
at least monthly and to distribute net realized capital gains, if any, at
least annually. The Capital Value Fund intends to pay dividends from net
investment income and distribute net realized capital gains, if any, at
least annually. Each Fund, however, may make distributions on a more
<PAGE>
frequent basis to comply with the distribution requirements of the Code, in
all events in a manner consistent with the provisions of the 1940 Act.
The Funds will not make distributions from net realized capital gains
unless capital loss carryovers, if any, have been utilized or have expired.
In general, shareholders of a Fund will receive dividends and distributions
on their shares in additional shares of the same Class of that Fund valued
at net asset value on the ex-dividend date computed in the manner described
under "Net Asset Value," or shareholders may elect to receive all dividends
and distributions in cash. All expenses are accrued daily and are deducted
before the declaration of dividends. Dividends paid by each Class of a Fund
will be calculated at the same time and in the same manner and will be of
the same amount, except that the expenses attributable solely to a
particular Class will be borne exclusively by such Class. Class B and Class
C shares of a Fund will receive lower per share dividends than Class A
shares of that Fund, and Class A shares of the Capital Value Fund will
receive lower per share dividends than Capital Value Fund Class R shares,
because of the higher expenses borne by the relevant Class. See "Fee
Table."
Taxes - General
The Strategy Fund has qualified, and the Capital Value Fund intends to
qualify and elect, to be treated as a regulated investment company under
subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
If a Fund so qualifies, the Fund will not be subject to federal income
taxes on its net investment income (i.e., such Fund's investment company
taxable income, as that term is defined in the Code, determined without
regard to the deduction for dividends paid) and net capital gain (i.e., the
excess of a Fund's net long-term capital gain over its net short-term
capital loss), if any, that it distributes to its shareholders in each
taxable year, provided that it distributes at least 90% of its net
investment income for such taxable year. A Fund will, however, be subject
to a nondeductible 4% excise tax on the excess, if any, of certain required
distributions of ordinary income and net realized capital gains over
amounts distributed or deemed distributed by such Fund by the end of each
calendar year. To the extent possible, the Funds intend to structure their
distributions to avoid liability for this excise tax.
Distributions
Dividends paid by a Fund from its net investment income will be
taxable to shareholders as ordinary income, whether received in cash or in
additional shares. Distributions of net capital gain that are designated by
a Fund as "capital gain dividends," will be taxable to shareholders as
long-term capital gain, whether received in cash or in additional shares,
regardless of the length of time the shareholder has owned Fund shares. The
maximum current federal income tax rate imposed on individuals with respect
to long-term capital gains is 28%, whereas the maximum federal income tax
rate imposed on individuals with respect to ordinary income (and on short-
term capital gains, which are taxed at the same rates as ordinary income)
is 39.6%. With respect to corporate taxpayers, long-term capital gains are
currently taxed at the same federal income tax rates as ordinary income and
short-term capital gains.
<PAGE>
Dividends paid by a Fund to qualified Retirement Plans, IRAs
(including IRA "Rollover Accounts") or certain non-qualified deferred
compensation plans ordinarily will not be subject to taxation until the
proceeds are distributed from the Retirement Plan. The Funds will not
report dividends paid to such Plans and IRAs to the IRS. Generally,
distributions from such Retirement Plans, except those representing returns
of non-deductible contributions thereto, will be taxable as ordinary income
and, if made prior to the time the participant reaches age 59 1/2,
generally will be subject to an additional tax equal to 10% of the taxable
portion of the distribution. If the distribution from such a Retirement
Plan (other than certain governmental or church plans) or IRA for any
taxable year following the year in which the participant reaches age 70 1/2
is less than the "minimum required distribution" for that taxable year, an
excise tax equal to 50% of the deficiency may be imposed by the IRS. The
administrator, trustee or custodian of such a Retirement Plan or IRA will
be responsible for reporting distributions from such Plans and IRAs to the
IRS. Participants in qualified Retirement Plans will receive a disclosure
statement describing the consequences of a distribution from such a Plan
from the administrator, trustee or custodian of the Plan prior to receiving
the distribution. Moreover, certain contributions to a qualified Retirement
Plan or IRA in excess of the amounts permitted by law may be subject to an
excise tax.
Shareholders will be notified annually as to the federal tax status of
dividends and distributions from the Funds. Because it is expected that
only a small portion of each Fund's net investment income will arise from
dividends on common or preferred stock of domestic corporations, no
significant portion of distributions by the Funds, is expected to be
eligible for the dividends received deduction allowed to corporations under
the Code.
Generally, shareholders will be taxable on dividends or distributions
in the year of receipt. However, dividends declared in October, November or
December of any year, payable to shareholders of record as of a specified
date in such a month, will be deemed to have been received by the
shareholders and paid by a Fund no later than December 31, provided such
dividends are paid during January of the following year.
Shareholders should consider the tax implications of buying shares of
a Fund prior to a dividend or distribution by such Fund. The price of
shares purchased at the time may reflect the amount of the forthcoming
dividend or distribution. Such dividend or distribution may have the effect
of reducing the net asset value of shares below a shareholder's cost and
thus would be a return on investment in an economic sense, but nevertheless
it will be taxable to the shareholder.
Sale of Shares
Gain or loss, if any, recognized on the sale or other disposition of
shares of a Fund, if the shares are capital assets in the shareholder's
hands, will be taxed as a capital gain or loss. As a general rule, a
shareholder's gain or loss will be long-term capital gain or loss if the
shares have been held for more than one year. If a shareholder sells or
otherwise disposes of a share of a Fund held for six months or less, any
loss on the sale or other disposition of such share shall be treated as
long-term capital loss to the extent of any capital gain dividends received
by the shareholder with respect to such share. Any loss realized on a sale
<PAGE>
or exchange of shares will be disallowed to the extent such shares are
replaced within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss.
Foreign Shareholders
Dividends paid by a Fund from net investment income to a shareholder
who, as to the United States, is a nonresident alien individual, a foreign
trust or estate, a foreign corporation or a foreign partnership (a "foreign
shareholder") will be subject to United States withholding tax at a rate of
30% unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Foreign shareholders are urged to
consult their own tax advisers concerning the applicability of the United
States withholding tax and any foreign taxes.
Backup Withholding
The Funds may be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends, distributions from net realized
securities gains, and redemption proceeds paid to non-corporate
shareholders. This tax may be withheld from dividends, distributions from
net realized securities gains and redemption proceeds if (i) the payee
fails to furnish the applicable Fund with the payee's correct taxpayer
identification number (e.g., an individual's social security number), (ii)
the IRS notifies the Fund that the payee has failed to report properly
certain interest and dividend income to the IRS and to respond to notices
to that effect, or (iii) when required to do so, the payee fails to certify
that he or she is not subject to backup withholding. Redemption proceeds
may be subject to withholding under the circumstances described in (i)
above. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules from payments made to a shareholder may
be credited against such shareholder's federal income tax liability.
Other Taxation
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and treasury regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Code
sections and the treasury regulations promulgated thereunder. The Code and
the treasury regulations are subject to change by legislative or
administrative action either prospectively or retroactively.
Dividends from net investment income and capital gain dividends may
also be subject to state, local and foreign taxes.
Descriptions of tax consequences set forth in this Prospectus and in
the Statement of Additional Information are intended to be a general guide.
Investors should consult their own tax advisers regarding specific
questions as to the federal, state, local and foreign tax consequences of
ownership of shares of the Funds.
<PAGE>
CERTAIN INFORMATION REGARDING PERFORMANCE
Advertisements and communications to shareholders may contain various
measures of a Fund's performance, including various expressions of total
return and current distribution rate. They may occasionally cite statistics
to reflect the Fund's volatility or risk. Performance for each Class may be
calculated on the basis of average annual total return and/or total return.
These total return figures reflect changes in the price of the shares and
assume that any income dividends and/or capital gains distributions made by
the Fund during the measuring period were reinvested in shares of the same
Class. These figures also take into account any applicable service and
distribution fees.
The Strategy Fund presents performance information for each Class of
shares commencing with the Strategy Fund's inception. Performance
information for the period prior to August 1, 1991 reflects the performance
of the Strategy Fund as a closed-end fund and does not reflect payment of
the underwriting discount paid in connection with the initial public
offering of the Strategy Fund's shares as a closed-end fund. In addition,
as an open-end fund, the Strategy Fund incurs certain additional expenses
as a result of the continuous offering and redemption of its shares.
Because Strategy Fund Class O shares have not been issued by the Strategy
Fund since July 15, 1992 except in connection with the reinvestment of
dividends on outstanding on outstanding Strategy Fund Class O shares,
performance information in any advertisements (other than reports to
shareholders) with respect to the period commencing July 15, 1992 does not
contain information with respect to the performance of Strategy Fund Class
O shares for such period. In addition, because the Strategy Fund no longer
sells its Class O shares, any information relating Strategy Fund Class O
shares listed in newspaper or similar listings of the Strategy Fund's net
asset value and public offering price is only for informational purposes
of the existing Class O shareholders.
Performance information for the Capital Value Fund includes the
performance of Dreyfus Capital Value Fund, Inc., the Fund's predecessor,
and performance information for each Class of shares is presented
commencing with the inception of the Dreyfus Capital Value Fund, Inc.
Performance information for each Class of shares of the Company will
reflect performance for time periods prior to the introduction of such
Class, and performance for such time periods will not reflect any fees and
expenses payable by such Class that were not borne by the Fund (or its
predecessor) prior to the introduction of such Class. Class A average
annual return figures for both Funds reflect the maximum initial sales
and Class B and Class C average annual return figures reflect any
applicable CDSC. As a result, at any given time, the performance of Class
B and Class C of a Fund should be expected to be lower than that of Class
A of that Fund and the performance of Class A, Class B and Class C of a
Fund should be expected to be lower than that of Class R. Performance for
each Class will be calculated separately.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in a Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end
of a stated period of time, after giving effect to the reinvestment of
dividends and distributions during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis, would
<PAGE>
result in the redeemable value of the investment at the end of the period.
Advertisements of a Fund's performance will include the Fund's average
annual total return for one, five and ten year periods (if available), or
for shorter time periods depending upon the length of time during which the
Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value (or maximum offering price in the case of Class A) per share at the
beginning of the period. Advertisements may include the percentage rate of
total return or may include the value of a hypothetical investment at the
end of the period which assumes the application of the percentage rate of
total return. Total return also may be calculated by using the net asset
value per share at the beginning of the period instead of the maximum
offering price per share at the beginning of the period for Class A shares
of a Fund or without giving effect to any applicable CDSC at the end of the
period for Class B or Class C shares of a Fund. Calculations based on the
net asset value per share do not reflect the deduction of the applicable
sales charge on Class A shares of the Funds, which, if reflected, would
reduce the performance quoted.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
The Strategy Fund's annual report to shareholders, which is available
without charge upon request, contains a discussion of the Strategy Fund's
performance for the fiscal year ended April 30, 1996. Further information
with respect to the performance of the Dreyfus Capital Value Fund, the
predecessor to the Capital Value Fund, for its seven months ended April 30,
1996, is contained in the Dreyfus Capital Value Fund's annual report, which
is available without charge upon request.
NET ASSET VALUE
The net asset value of a share of each Class of each Fund, for the
purpose of pricing purchase orders and redemption orders, is generally
determined as of the close of business on the New York Stock Exchange
(generally 4:00 p.m., New York time) on each business day by dividing the
value of the relevant Fund's assets attributable to that Class, less the
liabilities attributable to that Class, by the number of shares of that
Class outstanding. For purposes of determining net asset value, options and
futures contracts will be valued 15 minutes after the close of trading on
the floor of the New York Stock Exchange. With the exception of certain
fees and expenses borne pursuant to the Class A, B and C Service and
Distribution Plans and certain other expenses attributable solely to a
particular Class, all expenses of the respective Fund will be borne on a
pro rata basis by each Class of such Fund on the basis of the relative net
assets of the respective Classes. See "The Funds' Expenses" and "Service
and Distribution Plans." As used in this Prospectus, the term "business
<PAGE>
day" refers to those days when the Investment Adviser, the Administrator,
the Transfer Agent and the New York Stock Exchange are all open for
business, which is Monday through Friday except for holidays.
ORGANIZATION AND CAPITAL STOCK
The Company was incorporated in Maryland on March 14, 1988 under the
name "Comstock Partners Strategy Fund, Inc." The Company originally
commenced operations in May of 1988 as a closed-end investment company. The
Company converted to an open-end investment company effective as of
August 1, 1991.
On February 8, 1996, (i) the Company changed its name to Comstock
Partners Funds, Inc., (ii) Comstock Partners Strategy Fund, the Company's
existing portfolio, became a separate portfolio of the Company and (iii)
the Capital Value Fund was organized as a new portfolio of the Company. On
July 25, 1996, the Capital Value Fund acquired all of the assets and
liabilities (whether contingent or otherwise) of the Dreyfus Capital Value
Fund in exchange for shares in the Capital Value Fund. The Capital Value
Fund commenced operations upon the consummation of the Reorganization.
The Company's charter, as amended, authorizes the issuance of separate
series of shares corresponding to shares of multiple investment portfolios
of the Company. As of the date this Prospectus, the Company consists of two
investment portfolios: the Strategy Fund and the Capital Value Fund.
The authorized capital stock of the Company consists of 1,000,000,000
shares, par value $.001 per share. The Company is authorized to issue
150,000,000 Strategy Fund Class O shares, 200,000,000 Strategy Fund Class A
shares and 200,000,000 Strategy Fund Class C shares. In addition, the
Company is authorized to issue 125,000,000 Capital Value Fund Class A
shares, 125,000,000 Capital Value Fund Class B shares, 125,000,000 Capital
Value Fund Class C shares and 125,000,000 Capital Value Fund Class R
shares. Each Class A, Class B, Class C and Class R share represents an
interest in the Strategy Fund or the Capital Value Fund, as the case may
be, in proportion to its net asset value, and has identical rights except
that Class A, B and C shares bear fees and expenses on an ongoing basis
pursuant to the Fund's Class A, Class B and Class C Service and
Distribution Plans, respectively, and Class B and C shares bear additional
incremental shareholder administrative expenses resulting from deferred
sales charge arrangements. In addition, only the holders of Class A, Class
B and Class C shares have voting rights with respect to matters pertaining
to the Class A, Class B and Class C Service and Distribution Plans,
respectively.
The Company's Board of Directors may reclassify unissued shares of the
Company into additional classes of Common Stock at a future date. The
Company's Board of Directors may, in the future, authorize the issuance of
shares of additional classes of capital stock representing different
investment portfolios.
Except as described above with respect to the Company's Service and
Distribution Plans, all shares of the Company have equal voting rights and
will be voted in the aggregate and not by class, except where voting by
class is required by law. Under the corporate law of Maryland, the
Company's state of incorporation, and the Company's By-Laws (except as
required under the 1940 Act), the Company is not required and does not
<PAGE>
currently intend to hold annual meetings for the election of directors.
Shareholders, however, will have the right to call for a special meeting
of shareholders if such a request is made, in writing, by shareholders
entitled to cast at least 10% of the votes entitled to be cast at the
meeting (or by shareholders entitled to cast at least 10% of the Class A,
Class B or Class C votes entitled to be cast with respect to matters
relating to the Class A, Class B or Class C Service and Distribution Plans,
respectively). In such cases, the Company will assist in calling the
meeting as required under the 1940 Act. A more complete statement of the
voting rights of shareholders is contained in the Funds' Statement of
Additional Information.
All shares of the Company, when issued, will be fully paid and
nonassessable.
REPORTS TO SHAREHOLDERS
Each Fund will send unaudited reports at least semi-annually, and
annual reports containing audited financial statements, to all of its
shareholders.
<PAGE>
No person has been authorized to give any information
or to make any representations not contained in this
Prospectus and, if given or made, such information or
representation must not be relied upon as having been
authorized by the Company, the Funds' investment
adviser, the Funds' sub-investment adviser or their
distributor. The Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any
security other than the registered securities to which
it relates nor does it constitute an offer to sell or
a solicitation of an offer to buy the securities in
any State or jurisdiction of the United States or any
country in which such offer would be unlawful. Neither
the delivery of this Prospectus nor any sale made
hereunder shall create any implication that
information contained herein is correct as of any time
subsequent to the date hereof.
____________________
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . .
The Funds' Expenses . . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . . .
Alternative Purchase Methods . . . . . . . . . . .
The Company . . . . . . . . . . . . . . . . . . . .
Investment Objectives and Policies . . . . . . . .
Investment Restrictions . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . .
Management Arrangements . . . . . . . . . . . . . .
Purchase of Fund Shares . . . . . . . . . . . . . .
Additional Shareholder Services . . . . . . . . . .
Redemption of Shares . . . . . . . . . . . . . . .
Service and Distribution Plans . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . .
Certain Information Regarding Performance . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . .
Organization and Capital Stock . . . . . . . . . .
Reports to Shareholders . . . . . . . . . . . . . .
<PAGE>
[LOGO]
COMSTOCK PARTNERS FUNDS
COMSTOCK PARTNERS
STRATEGY FUND
COMSTOCK PARTNERS
CAPITAL VALUE FUND
Common Stock
____________________
PROSPECTUS
____________________
<PAGE>
Part B
<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
Comstock Partners Strategy Fund
Comstock Partners Capital Value Fund
10 Exchange Place, Suite 2010,
Jersey City, New Jersey 07302-3913
(201) 332-4436
----------------------------------------------------------------
August 28, 1996
STATEMENT OF ADDITIONAL INFORMATION
Comstock Partners Funds, Inc. (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".
Comstock Partners Strategy Fund's investment objective is to maximize
total return, consisting of capital appreciation and current income, over the
long-term investment horizon by investing primarily in a portfolio of debt
securities. The Strategy Fund is classified as a non-diversified portfolio.
Comstock Partners Capital Value Fund's investment objective is to maximize
total return, consisting of capital appreciation and current income. The Fund
invests in a wide range of equity and debt securities and money market
instruments. The Capital Value Fund is classified as a diversified portfolio.
The Strategy Fund currently offers Class A and Class C shares. Class O
Shares are no longer issued by the Strategy Fund except in connection with the
reinvestment of dividends on outstanding Class O shares. The Capital Value Fund
currently offers four classes of shares: Class A, Class B, Class C and Class R.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Funds'
Prospectus dated August 28, 1996 (which may be revised from time to time) (the
"Prospectus"). This Statement of Additional Information contains additional
information to that set forth in the Prospectus and should be read in
conjunction with the Prospectus, additional copies of which may be obtained
without charge by sending your request in writing to 144 Glenn Curtis
Boulevard, Uniondale, New York 11556-0144, or by calling 1-800-645-6561.
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TABLE OF CONTENTS
page
Description of Bond and Commercial Paper Ratings . . . . . . . . . . . . . 3
Additional Information Concerning Portfolio Activities . . . . . . . . . . 5
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Management Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . 36
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Service and Distribution Plans . . . . . . . . . . . . . . . . . . . . . . 41
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Additional Information Concerning Taxes . . . . . . . . . . . . . . . . . . 44
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Transfer Agent and Dividend Disbursing Agent . . . . . . . . . . . . . . . 54
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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DESCRIPTION OF BOND AND COMMERCIAL PAPER RATINGS
A rating by a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general
and are not absolute standards of quality or guarantees as to the
creditworthiness of an issuer. Consequently, Comstock Partners, Inc., the
Funds' investment adviser (the "Investment Adviser") believes that the quality
of debt securities in which a Fund invests should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating is evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. The Investment Adviser will utilize
Moody's Investors Service, Inc. ("Moody's") and/or Standard & Poor's Ratings
Group, a division of The McGraw Hill Companies, Inc. ("S&P") for determining
the applicable ratings.
Bonds
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by
all standards. Together with bonds rated Aaa (Moody's highest rating), they
comprise what are generally known as high-grade bonds. Aa bonds are rated lower
than Aaa bonds because margins of protection may not be as large as those of
Aaa bonds, or fluctuations of protective elements may be of greater amplitude,
or there may be other elements present which make the long-term risks appear
somewhat larger than those applicable to Aaa securities. Bonds which are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Moody's Baa rated bonds are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements because
their future cannot be considered as well assured. Uncertainty of position
characterizes bonds in this class, because the protection of interest and
principal payments may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period of time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
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Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Bonds rated AA by S&P have a very strong capacity to pay interest and
principal and differ only in a small degree from issues rated AAA (S&P's
highest rating). Bonds rated AAA are considered by S&P to be the highest grade
obligations and have an extremely strong capacity to pay interest and
principal. Bonds rated A by S&P have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
S&P's BBB rated bonds are regarded as having adequate capacity to pay
interest and principal. Although these bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and principal.
Bonds rated-BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds may have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated D are in default, and payment of interest and/or
principal is in arrears.
Commercial Paper
Moody's: The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Issuers (or related supporting institutions) rated Prime-1
are considered to have a superior capacity for repayment of short-term
promissory obligations. Issuers (or related supporting institutions) rated
Prime-2 have a strong capacity for repayment of short-term promissory
obligations. Issuers (or related supporting institutions) rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
S&P: Commercial paper rated A-1 by S&P indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelmingly safe characteristics are denoted
A-l+. Capacity for timely payment on issues with an A-2 designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1. Issues carrying an A-3 designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
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ADDITIONAL INFORMATION CONCERNING PORTFOLIO ACTIVITIES
Options, Futures and Currency Transactions
The Funds are not commodity pools and all futures transactions engaged in
by the Fund must constitute bona fide hedging in accordance with the Commodity
Exchange Act, as amended, and the rules and regulations promulgated by the
Commodity Futures Trading Commission ("CFTC"); provided, however, that a Fund
may enter into futures contracts or options thereon for purposes other than
bona fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open contracts and options would not exceed 5%
of the liquidation value of that Fund's portfolio; provided further, that in
case of an option that is in-the-money at the time of the purchase, the in-the-
money amount may be excluded in calculating the 5% limitation. Because the 5%
limitation applies only at the time a Fund enters into a futures contract or
option thereon, the value of futures contracts and options thereon may be
significantly more or less than 5% of the value of that Fund's portfolio. The
Funds may write covered call or put options on securities and stock indices and
purchase put and call options on securities and stock indices for speculative
purposes. In addition, through the writing of covered options and the purchase
of options and the purchase and sale of stock index futures contracts, interest
rate futures contracts and related options on such futures contracts, the
Investment Adviser may at times seek to hedge against a decline in the value of
securities included in a Fund's portfolio or an increase in the price of
securities which it plans to purchase for a Fund; provided, that the value of
all futures contracts sold by a Fund will not exceed the total market value of
the Fund's portfolio securities; and provided, further, that with respect to
all futures contracts traded by a Fund, the Fund will establish a segregated
account consisting of cash or cash equivalents (or other instruments permitted
under applicable regulations) in an amount equal to the total market value of
such futures contracts less the amount of initial margin on deposit for such
contracts. Expenses and losses incurred by a Fund as a result of such hedging
strategies will reduce that Fund's current return.
The ability of the Funds to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that
may exist in various types of options or futures. In addition, daily limits on
price fluctuations on exchanges on which the Funds conduct their futures and
options transactions may prevent the prompt liquidation of positions at the
optimal time, thus subjecting the Funds to the potential of losses. Therefore
no assurance can be given that the Funds will be able to utilize these
instruments effectively for the purposes stated below. Furthermore, the Funds'
ability to engage in options and futures transactions may be limited by tax
considerations. Options and futures transactions may involve certain risks
which are described below.
In connection with transactions in stock index futures contracts, interest
rate futures contracts and options thereon written by the Funds on such futures
contracts, a Fund engaging in such transactions will be required to deposit as
"initial margin" an amount of cash and short-term United States Government
securities equal to 5% to 8% of the contract amount. Thereafter, subsequent
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payments (referred to as "variation margin") are made to and from the broker to
reflect changes in the value of the futures contract.
Writing Covered Options on Securities. Each Fund may write covered call
options and covered put options on optionable securities of the types in which
it is permitted to invest from time to time as its Investment Adviser
determines is appropriate in seeking to attain its objectives. Call options
written by a Fund give the holder the right to buy the underlying securities
from that Fund at a stated exercise price; put options give the holder the
right to sell the underlying security to a Fund at a stated price.
Each Fund may write only covered options, which means that, so long as
that Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges). In the case of put
options, each Fund will maintain in a separate account cash or short-term
United States Government securities with a value equal to or greater than the
exercise price of the underlying securities. Each Fund may also write
combinations of covered puts and calls on the same underlying security.
Each Fund intends to treat certain options in respect of specific
securities that are not traded on a securities exchange and the securities
underlying covered call options written by a Fund as illiquid securities. See
"Investment Objectives and Policies -- Certain Additional Investments and
Investment Strategies -- Illiquid Securities" in the Prospectus.
Each Fund will receive a premium from writing a put or call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, a Fund
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
Each Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. A Fund will
realize a profit or loss from such transaction if the cost of such transaction
is less or more than the premium received from the writing of the option. In
the case of a put option, any loss so incurred may be partially or entirely
offset by the premium received from a simultaneous or subsequent sale of a
different put option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying
security, any loss to a Fund resulting from the repurchase of a call option is
likely to be offset in whole or in part by unrealized appreciation of the
underlying security owned by that Fund.
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Options written ordinarily will have expiration dates between one and nine
months from the date written. The exercise price of the options may be below,
equal to or above the market values of the underlying securities at the time
the options are written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. A Fund may write (a) in-the-money call options when the
Investment Adviser expects that the price of the underlying security will
remain stable or decline moderately during the option period, (b) at-the-money
call options when the Investment Adviser expects that the price of the
underlying security will remain stable or advance moderately during the option
period and (c) out-of-the-money call options when the Investment Adviser
expects that the premiums received from writing the call option plus the
appreciation in market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. In these circumstances, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of
call options as to the relation of exercise price to market price) may be
utilized in the same market environments that such call options are used in
equivalent transactions.
So long as a Fund's obligation as the writer of an option continues, a
Fund may be assigned an exercise notice by the broker-dealer through which the
option was sold, requiring the Fund to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. A Fund can no longer effect a
closing purchase transaction with respect to an option once it has been
assigned an exercise notice.
Put and Call Options on Securities. Each Fund may purchase put options for
speculative purposes or to protect its portfolio holdings in an underlying
security against a decline in market value. Such hedge protection is provided
during the life of the put option since a Fund, as holder of the put option, is
able to sell the underlying security at the put exercise price regardless of
any decline in the underlying security's market price. In order for a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options for hedging purposes, the Fund engaging
in that transaction will reduce any profit it might otherwise have realized on
its underlying security by the premium paid for the put option and by
transaction costs.
Each Fund may also purchase call options for speculative purposes or to
hedge against an increase in prices of securities that it wants ultimately to
buy. Such hedge protection is provided during the life of the call option since
a Fund, as holder of the call option, is able to buy the underlying security at
the exercise price regardless of any increase in the underlying security's
market price. In order for a call option to be profitable, the market price of
the underlying security must rise sufficiently above the exercise price to
cover the premium and transaction costs. By using call options for hedging
purposes, the Fund engaging in that transaction will reduce any profit it might
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have realized had it bought the underlying security at the time it purchased
the call option by the premium paid for the call option and by transaction
costs.
Alternatively, the Investment Adviser may purchase a call or a put option
on a security in lieu of an actual investment in, or disposition of, a
particular security if it expects an increase or a decrease, as the case may
be, in the price of the security.
The purchase of an option entails a risk of loss of the entire investment
because an option may become worthless upon expiration.
An option position may be closed out only if a secondary market for an
option of the same series exists on a recognized national securities exchange
or in the over-the-counter market. Because of this fact and current trading
conditions, the Funds expect to purchase only call or put options issued by the
Options Clearing Corporation. The Funds expect to write options on national
securities exchanges and in the over-the-counter market.
While they may choose to do otherwise, the Funds generally will purchase
or write only those options for which the Investment Adviser believes there is
an active secondary market so as to facilitate closing transactions. There is
no assurance that sufficient trading interest to create a liquid secondary
market on a securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may exist. A
liquid secondary market in an option may cease to exist for a variety of
reasons. In the past, for example, higher than anticipated trading activity or
order flow, or other unforeseen events, at times have rendered certain clearing
facilities inadequate and resulted in the institution of special procedures,
such as trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such event, it might not be
possible to effect closing transactions in particular options. If, as a covered
call option writer, a Fund is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise
or it otherwise covers its position.
Purchase and Sale of Options and Futures Contracts on Stock Indices. Each
Fund may purchase put and call options and write covered put and call options
on stock indices for speculative purposes or as a hedge against movements in
the equity markets. Each Fund may also purchase and sell stock index futures
contracts for speculative purposes or as a hedge against movements in the
equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index ordinarily gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of that stock index is greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
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specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike options on specific
securities, all settlements of options on stock indices are in cash and gain or
loss depends on general movements in stock included in the index rather than
price movements in particular stocks. When a Fund writes an option on a stock
index, it will establish a segregated account with the Fund's custodian in
which it will deposit cash or cash equivalents (or other instruments permitted
under applicable regulations) or a combination thereof in an amount equal to
the market value of the option, and it will maintain the account while the
option is open. As indicated above, the purchase of an option entails a risk of
loss of the entire investment because an option may become worthless upon
expiration.
A stock index futures contract is an agreement in which one party agrees
to deliver to the other an amount of cash equal to a specific amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of securities is made.
If the Investment Adviser expects general stock market prices to rise, it
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase,
but that increase would be offset in part by the increase in the value of a
Fund's index option or futures contract resulting from the increase in the
index. If, on the other hand, the Investment Adviser expects general stock
market prices to decline, it might purchase a put option or sell a futures
contract on the index. If that index does in fact decline, the value of some or
all of the equity securities in a Fund's portfolio may also be expected to
decline, but that decrease would be offset in part by the increase in the value
of that Fund's position in such put option or futures contract.
Alternatively, the Investment Adviser may purchase a call or a put option
(or buy or sell a futures contract) on a stock index in lieu of an actual
investment in, or disposition of, particular equity securities if it expects an
increase or a decrease, as the case may be, in general stock market prices.
Purchase and Sale of Interest Rate Futures Contracts. Each Fund may
purchase and sell interest rate futures contracts on United States Treasury
bills, notes and bonds for speculative purposes or to hedge its portfolio of
fixed income securities against the adverse effects of anticipated movements in
interest rates.
Each Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of that Fund. This interest rate risk can be
reduced without employing futures contracts as a hedge by selling long-term
fixed income securities and either reinvesting the proceeds in securities with
shorter maturities or by holding assets in cash. This strategy, however,
entails increased transaction costs in the form of dealer spreads and brokerage
commissions and would as a result of the shortening of maturities typically
reduce the average yield of the Fund engaging in the strategy.
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The sale of interest rate futures contracts provides an alternative means
of hedging against rising interest rates. As rates increase, the value of a
Fund's short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of that
Fund's investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than the transaction
costs incurred in the purchase and sale of portfolio securities.
Each Fund may purchase interest rate futures contracts in anticipation of
a decline in interest rates when it is not fully invested in debt securities it
intends to purchase. As such purchases are made, the Funds intend that an
equivalent amount of futures contracts will be closed out.
Alternatively, the Investment Adviser may buy or sell an interest rate
futures contract in lieu of an actual investment in, or disposition of,
particular fixed income securities if it expects an increase or a decrease, as
the case may be, in interest rates.
Options on Stock Index Futures Contracts and Interest Rate Futures
Contracts. Each Fund may purchase call and put options and write covered call
and put options on stock index and interest rate futures contracts. A Fund may
use such options on futures contracts for speculative purposes or in connection
with its hedging strategies in lieu of purchasing and writing options directly
on the underlying securities or stock indices or purchasing and selling the
underlying futures. For example, a Fund may purchase put options or write call
options on stock index futures contracts or interest rate futures contracts,
rather than selling futures contracts, in anticipation of a decline in general
stock market prices or rise in interest rates, respectively, or purchase call
options or write covered put options on stock index or interest rate futures
contracts, rather than purchasing such futures contracts, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which that Fund intends to purchase.
Foreign Currency Transactions. Each Fund may enter into forward foreign
currency exchange contracts ("forward contracts") for speculative purposes or
to attempt to minimize the risk to the Fund from adverse changes in the
relationship between the United States dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. A Fund may enter into a forward contract
for hedging purposes, for example, when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the United States dollar price of the security. Likewise, for
example, when a Fund believes that a foreign currency may suffer a substantial
decline against the United States dollar, it may enter into a forward contract
to sell an amount of that foreign currency approximating the value of some or
all of the Fund's portfolio securities denominated in such foreign currency, or
when a Fund believes that the United States dollar may suffer a substantial
decline against a foreign currency, it may enter into a forward contract to buy
that foreign currency for a fixed dollar amount. This second investment
practice is generally referred to as "cross-hedging." The Fund may enter into a
<PAGE>
forward contract for speculative purposes in order to seek to take advantage of
changes in the relative values of two currencies which the Investment Adviser
believes may occur. Because in connection with a Fund's foreign currency
forward transactions an amount of the Fund's assets equal to the amount of the
purchase will be held aside or segregated to be used to pay for the commitment,
each Fund will always have cash, cash equivalents or readily marketable
securities available that are sufficient to cover any commitments of the Fund
under these contracts or to limit any potential risk. The segregated account
will be maintained with the relevant Fund's custodian or a sub-custodian and
marked-to-market on a daily basis. While these contracts are not currently
regulated by the CFTC, the CFTC may in the future assert authority to regulate
forward contracts. In such event, the Funds' ability to utilize forward
contracts in the manner set forth above may be restricted. Forward contracts
may limit potential gain from a positive change in the relationship between the
United States dollar and foreign currencies. Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than if it had not
engaged in such contracts.
Each Fund may purchase put and call options and write covered call and put
options on foreign currencies for speculative purposes or for the purpose of
protecting against declines in the dollar value of foreign portfolio securities
and against increases in the dollar cost of foreign securities to be acquired.
As is the case with other kinds of options, however, the writing of an option
on foreign currency for hedging purposes will constitute only a partial hedge,
up to the amount of the premium received, and the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against fluctuations in exchange rates although, in the
event of rate movements adverse to the Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs. Options on
foreign currencies to be written or purchased by the Fund will be traded on
United States and foreign exchanges or over-the-counter.
Each Fund may enter into exchange-traded contracts for the purchase or
sale for future delivery of foreign currencies ("foreign currency futures
contracts"). This investment technique may be used for speculative purposes or
to hedge against anticipated future changes in exchange rates which otherwise
might adversely affect the value of a Fund's portfolio securities or adversely
affect the prices of securities that the Fund intends to purchase at a later
date. The successful use of foreign currency futures contracts will depend, in
part, on the Investment Adviser's ability to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected manner, the
Funds may not achieve the anticipated benefits of foreign currency futures
contracts or may realize losses. The costs, limitations and risks associated
with transactions in foreign currency futures contracts are similar to those
associated with other types of futures contracts discussed in this Statement of
Additional Information under "Options, Futures and Currency Transactions."
The cost to a Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because transactions in currency
exchange are usually conducted on a principal basis, no fees or commissions are
involved. The use of forward currency exchange contracts does not eliminate
<PAGE>
fluctuations in the underlying prices of the securities, but it does establish
a rate of exchange that can be achieved in the future.
If a devaluation is generally anticipated, a Fund may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates. The requirements for qualification as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), may
cause a Fund to restrict the degree to which it engages in currency
transactions. See "Additional Information Concerning Taxes."
Risk Factors in Derivatives Transactions. Derivatives transactions involve
special risks, including possible default by the other party to the
transaction, illiquidity, increased volatility in the relevant Fund's net asset
value and, to the extent the Investment Adviser's view as to certain market
movements is incorrect, the risk that the use of such instruments could result
in substantially greater losses than if it had not been used. Use of put and
call options could result in losses to a Fund, force the purchase or sale of
portfolio securities at inopportune times or for prices higher or lower than
current market values, or cause the Fund to hold a security it might otherwise
sell. The use of currency transactions could result in the Fund's incurring
losses as a result of the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency in
addition to exchange rate fluctuations. The use of options and futures
transactions entails certain special risks. In particular, in the case of
hedging, the variable degree of correlation between price movements of options
or futures contracts and price movements in the related portfolio position of
the Fund could create the possibility that losses on the instrument will be
greater than gains in the value of the Fund's position. In addition, futures
and options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. The Fund might not be able to
close out certain positions without incurring substantial losses. To the extent
the Fund utilizes futures and options transactions for hedging, such
transactions should tend to minimize the risk of loss due to a decline in the
value of the hedged position and, at the same time, limit any potential gain to
the Fund that might result from an increase in value of the position. Finally,
the daily variation margin requirements for futures contracts create a greater
ongoing potential financial risk than would purchases of options, in which case
the exposure is limited to the cost of the initial premium and transaction
costs. Losses resulting from the use of options, futures or currency
transactions will reduce the Fund's net asset value, and possibly income, and
the losses may be greater than if such instruments had not been used.
Short-Selling
The Capital Value Fund may engage in short-selling. Until the Capital
Value Fund replaces a borrowed security in connection with a short sale, the
Capital Value Fund will: (a) maintain daily a segregated account, containing
cash, U.S. Government securities, or other instruments permitted under
applicable regulations, at such a level that (i) the amount deposited in the
account plus the amount deposited with the broker as collateral will equal the
current value of the security sold short and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
<PAGE>
not be less than the market value of the security at the time it was sold
short; or (b) otherwise cover its short position.
Bank Obligations
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to have their deposits insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under
state law are supervised and examined by state banking authorities but are
members of the Federal Reserve System only if they elect to join. In addition,
state banks whose certificates of deposit ("CDs") may be purchased by the Fund
are insured by the FDIC (although such insurance may not be of material benefit
to the Fund, depending upon the principal amount of the CDs of each bank held
by the Fund) and are subject to Federal examination and to a substantial body
of Federal law and regulation. As a result of Federal or state laws and
regulations, domestic branches of domestic banks generally are required, among
other things, to maintain specified levels of reserves, are limited in the
amounts which they can loan to a single borrower and are subject to other
regulation designed to promote financial soundness. However, not all such laws
and regulations apply to foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as CDs
and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branches, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
Foreign branches and subsidiaries are not necessarily subject to the same or
similar regulatory requirements that apply to domestic banks, such as mandatory
reserve requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank
than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent banks in addition to the issuing branches, or may be
limited by the terms of a specific obligation and by Federal or state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A domestic branch of a foreign bank with assets in
excess of $1 billion may be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is located if the
branch is licensed in that state. In addition, Federal branches licensed by the
Comptroller of the Currency and branches licensed by certain states ("State
Branches") may be required to: (1) pledge to the regulator, by depositing
assets with a designated bank within the state, a certain percentage of their
assets as fixed from time to time by the appropriate regulatory authority; and
(2) maintain assets within the state in an amount equal to a specified
percentage of the aggregate amount of liabilities of the foreign bank payable
at or through all of its agencies or branches within the state. The deposits of
<PAGE>
Federal and State branches generally must be insured by the FDIC if such
branches take deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, foreign subsidiaries of
domestic banks, foreign branches of foreign banks or domestic branches of
foreign banks, the Investment Adviser carefully evaluate such investments on a
case-by-case basis.
Repurchase Agreements
Each Fund's custodian or sub-custodian will have custody of, and will
hold in a segregated account, securities acquired by that Fund under a
repurchase agreement. Repurchase agreements are considered by the staff of the
Securities and Exchange Commission to be loans by the Fund. In an attempt to
reduce the risk of incurring a loss on a repurchase agreement, the Fund will
enter into repurchase agreements only with domestic banks with total assets in
excess of one billion dollars, or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to securities
of the type in which the Fund may invest, and will require that additional
securities be deposited with it if the value of the securities purchased should
decrease below the resale price. The Sub-Investment Adviser will monitor on an
ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. Each Fund will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
Brady Bonds
The Brady Plan framework, as it has developed, contemplates the exchange
of external commercial bank debt for newly issued bonds (Brady Bonds). Brady
Bonds may also be issued in respect of new money being advanced by existing
lenders in connection with the debt restructuring. Brady Bonds issued to date
generally have maturities of between 15 and 30 years from the date of issuance.
The following emerging market countries have issued Brady Bonds: Argentina,
Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico,
Nigeria, the Philippines, Poland, Uruguay and Venezuela. In addition, other
countries may announce plans to issue Brady Bonds. The Funds may invest in
Brady Bonds of emerging market countries that have been issued to date, as well
as those which may be issued in the future.
Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by
a debtor nation with its creditors. As a result, the financial packages offered
by each country differ. The types of options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of face value of such
debt which carry a below-market stated rate of interest (generally known as par
bonds), bonds issued at a discount from the face value of such debt (generally
known as discount bonds), bonds bearing an interest rate which increases over
time and bonds issued in exchange for the advancement of new money by existing
lenders. Discount bonds issued to date under the framework of the Brady Plan
have generally borne interest computed semiannually at a rate equal to 13/16 of
<PAGE>
one percent above the then current six month LIBOR (London Interbank Offered
Rate). Regardless of the stated face amount and stated interest rate of the
various types of Brady Bonds, the Fund will purchase Brady Bonds in secondary
markets, as described below, in which the price and yield to the investor
reflect market conditions at the time of purchase. Brady Bonds issued to date
have traded at a deep discount from their face value. Certain sovereign bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Certain Brady Bonds have been collateralized as to principal
due at maturity (typically 15 to 30 years from the date of issuance) by U.S.
Treasury zero coupon bonds with a maturity equal to the final maturity of such
Brady Bonds, although the collateral is not available to investors until the
final maturity of the Brady Bonds. Collateral purchases are financed by the
International Monetary Fund, the World Bank and the debtor nations' reserves.
In addition, interest payments on certain types of Brady Bonds may be
collateralized by cash or high-grade securities in amounts that typically
represent between 12 and 18 months of interest accruals on these instruments
with the balance of the interest accruals being uncollateralized. Brady Bonds
are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). The Fund may purchase
Brady Bonds with no or limited collateralization, and will be relying for
payment of interest and (except in the case of principal collateralized Brady
Bonds) principal primarily on the willingness and ability of the foreign
government to make payment in accordance with the terms of the Brady Bonds.
Brady Bonds issued to date are purchased and sold in secondary markets through
U.S. securities dealers and other financial institutions and are generally
maintained through European transnational securities depositories.
Zero Coupon Securities and Discount Obligations
When a zero coupon security is held to maturity, its entire return, which
consists of the amortization of discount, comes from the difference between its
purchase price and its maturity value. This difference is known at the time of
purchase, so that investors holding zero coupon securities until maturity know
at the time of their investment what the expected return on their investment
will be.
Zero coupon securities and Discount Obligations tend to be subject to
greater price fluctuations in response to changes in interest rates than are
ordinary interest-paying debt securities with similar maturities. The value of
zero coupon securities and Discount Obligations appreciates more during periods
of declining interest rates and depreciates more during periods of rising
interest rates than ordinary interest-paying debt securities with similar
maturities. Under current federal income tax law, the Fund is required to
accrue as income each year a portion of the original issue discount with
respect to zero coupon securities and other securities issued at a discount to
the stated redemption price. Accordingly, a Fund may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
<PAGE>
current cash to satisfy certain distribution requirements of that Fund. See
"Additional Information Concerning Taxes."
Structured Investments
Issuers of structured investments are typically organized by investment
banking firms which receive fees in connection with establishing each issuing
entity and arranging for the placement of its securities. This type of
restructuring of investment characteristics involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified instruments
(such as Brady Bonds) and the issuance by that entity of one or more classes of
securities backed by, or representing interests in, the underlying instruments.
The cash flow on the underlying instruments may be apportioned among the newly
issued structured investments to create securities with different investment
characteristics such as varying maturities, payment priorities or interest rate
provisions; the extent of the payments made with respect to structured
investments is dependent on the extent of the cash flow on the underlying
instruments. Because structured investments of the type in which the Fund
anticipates investing typically involve no credit enhancement, their credit
risk will generally be equivalent to that of the underlying instruments.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). As a result, the Funds' investment in these structured investments
may be limited by the restrictions contained in the 1940 Act described under
"Investment Objective and Policies" in the Funds' Prospectus. Structured
investments are typically sold in private placement transactions, and there
currently is no active trading market for structured investments.
Preferred Stock
As a general rule, the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk. Because preferred stock is junior to debt securities
and other obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in a
debt security with similar stated yield characteristics.
Convertible Securities
Convertible securities are fixed income securities that may be converted
into or exchanged for, at either a stated price or stated rate, underlying
shares of common stock. Convertible securities have general characteristics
similar to both fixed income and equity securities. Although to a lesser extent
than with fixed income securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends
to increase as interest rates decline. In addition, because of the conversion
feature, the market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stocks and therefore
also will react to variations in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
<PAGE>
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities
tend to rise as a reflection of the value of the underlying common stock. While
no securities investments are without risk, investments in convertible
securities generally entail less risk than investments in common stock of the
same issuer.
As fixed income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. However, like all fixed income securities, there can be no assurance of
current income because the issuers of the convertible securities may default on
their obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible securities of similar quality
because of the potential for capital appreciation. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock.
There can be no assurance of capital appreciation, however, because securities
prices fluctuate. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority in right of payment to
all equity securities, and convertible preferred stock is senior to common
stock of the same issuer. Because of the subordination feature, however,
convertible securities typically have lower ratings than similar non-
convertible securities.
Warrants
The value of a warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not exercised
prior to its expiration date. Each Fund may invest up to 5% of the value of its
net assets in warrants for equity securities, but will not invest more than 2%
of the value of its net assets in warrants which are not listed on the New York
or American Stock Exchange.
Depository Receipts
Depository Receipts evidence ownership of underlying securities issued by
either a non-U.S. or a U.S. corporation that have been deposited with a
depositary or custodian bank. Depository Receipts may be issued in connection
with an offering of securities by the issuer of the underlying securities or
issued by a depositary bank as a vehicle to promote investment and trading in
the underlying securities. ADRs are receipts issued by U.S. banks or trust
companies in respect of securities of non-U.S. issuers held on deposit for use
in the U.S. securities markets. GDRs, EDRs and other types of Depository
Receipts are typically issued by a U.S. bank or trust company and traded
principally in the U.S. and other international markets.
<PAGE>
Rule 144A Securities
As indicated in the Prospectus, each Fund may purchase certain restricted
securities ("Rule 144A Securities") for which there is a secondary market of
qualified institutional buyers, as contemplated by Rule 144A under the
Securities Act of 1933. Rule 144A provides an exemption from the registration
requirements of the Securities Act for the resale of certain restricted
securities to qualified institutional buyers.
One effect of Rule 144A is that certain restricted securities may now be
liquid, though there is no assurance that a liquid market for Rule 144A
securities will develop or be maintained. The Board of Directors has adopted
policies and procedures for the purpose of determining whether securities that
are eligible for resale under Rule 144A are liquid or illiquid for purposes of
the Fund's 15% limitation on investment in illiquid securities. Pursuant to
those policies and procedures, the Board of Directors has delegated to the
Investment Adviser the determination as to whether a particular security is
liquid or illiquid, requiring that consideration be given to, among other
things, the frequency of trades and quotes for the security, the number of
dealers willing to sell the security and the number of potential purchasers,
dealer undertakings to make a market in the security, the nature of the
security and the time needed to dispose of the security. The Board of Directors
periodically reviews the Fund's purchases and sales of Rule 144A securities and
the Investment Adviser's compliance with the above procedures.
Loan Participation and Assignments
As indicated in the Prospectus, the Capital Value Fund may invest in
Participations and Assignments while the Strategy Fund may invest only in
Participations. When the Capital Value Fund purchases Assignments from Lenders
it will acquire direct rights against the borrower on the Loan (as such terms,
and other capitalized terms used in this paragraph, are defined in the
Prospectus). Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, however, the rights and
obligations acquired by the Capital Value Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender. The assignability of certain Sovereign Debt Obligations is
restricted by the governing documentation as to the nature of the assignee such
that the only way in which the Capital Value Fund may acquire an interest in a
Loan is through a Participation and not an Assignment. The Funds may have
difficulty disposing of Assignments and Participations because to do so it will
have to assign such securities to a third party. Because there is no
established secondary market for such securities, the Funds anticipate that
such securities could be sold only to a limited number of institutional
investors. The lack of an established secondary market may have an adverse
impact on the value of such securities and the Funds' ability to dispose of
particular Assignments or Participations when necessary to meet the Funds'
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of an
established secondary market for Assignments and Participations also may make
it more difficult for a Fund to assign a value to these securities for purposes
of valuing the Fund's portfolio and calculating its net asset value. A Fund
will not invest more than 15% of the value of its net assets in Participations
<PAGE>
and (in the case of the Capital Value Fund) Assignments that are illiquid, and
in other illiquid securities.
Leverage Through Borrowing (Capital Value Fund only)
For borrowings for investment purposes, the 1940 Act requires the Capital
Value Fund to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Capital Value Fund may be required to
sell some of its portfolio holdings within three days to reduce the debt and
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. The Capital Value Fund
also may be required to maintain minimum average balances in connection with
such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate. To the extent the Capital Value Fund enters into a
reverse repurchase agreement, the Capital Value Fund will maintain in a
segregated custodial account cash or U.S. Government securities or other high
quality liquid debt securities at least equal to the aggregate amount of its
reverse repurchase obligations, plus accrued interest, in certain cases, in
accordance with releases promulgated by the Securities and Exchange Commission.
The Securities and Exchange Commission views reverse repurchase transactions as
collateralized borrowings by the Capital Value Fund.
Lending Portfolio Securities
To a limited extent, each Fund may lend its portfolio securities to
brokers, dealers and other financial institutions, provided it receives cash
collateral which at all times is maintained in an amount equal to at least 100%
of the current market value of the securities loaned. By lending its portfolio
securities, a Fund can increase its income through the investment of the cash
collateral. For the purposes of this policy, the Funds consider collateral
consisting of U.S. Government securities or irrevocable letters of credit
issued by banks whose securities meet the standards for investment by the Funds
to be the equivalent of cash. Such loans may not exceed 33 1/3% of the value of
the relevant Fund's total assets. From time to time, a Fund may return to the
borrower or a third party which is unaffiliated with that Fund, and which is
acting as a "placing broker," a part of the interest earned from the investment
of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (i)
the relevant Fund must receive at least 100% cash collateral from the borrower;
(ii) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (iii) the Fund must be
able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
payable on the loaned securities, and any increase in market value; (v) the
Fund may pay only reasonable custodian fees in connection with the loan; and
(vi) while voting rights on the loaned securities may pass to the borrower, the
Company's Directors must terminate the loan and regain the right to vote the
<PAGE>
securities if a material event adversely affecting the investment occurs. These
conditions may be subject to future modification.
Certain Risk Factors
Lower Rated Securities. Each Fund is permitted to invest in securities
rated below Baa by Moody's and below BBB by S&P. Such securities, though higher
yielding, are characterized by risk. See "Risk Factors" in the Prospectus for a
discussion of certain risks and "Description of Bond and Commercial Paper
Ratings" herein for a general description of Moody's and S&P ratings. Although
ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value risk of these securities. The
Funds will rely on the Investment Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, the Investment
Adviser will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters. It also
is possible that a rating agency might not timely change the rating on a
particular issue to reflect subsequent events. Once the rating of a security in
a Fund's portfolio has been changed, the Investment Adviser will consider all
circumstances deemed relevant in determining whether that Fund should continue
to hold the security.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities and will fluctuate more over time. These securities are
considered by S&P and Moody's, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation and generally will involve more credit risk than
securities in the higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of these securities may experience financial
stress. During such periods, such issuers may not have sufficient revenues to
meet their interest payment obligations. The issuer's ability to service its
debt obligations also may be affected adversely by specific corporate
developments or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss
because of default by the issuer is significantly greater for the holders of
these securities because such securities generally are unsecured and often are
subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of these
securities, the Investment Adviser anticipates that such securities could be
sold only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it generally
is not as liquid as the secondary market for higher rated securities. The lack
of a liquid secondary market may have an adverse impact on market price and
<PAGE>
yield and a Fund's ability to dispose of particular issues when necessary to
meet that Fund's liquidity needs or in response to a specific economic event
such as a deterioration in the creditworthiness of the issuer. The lack of a
liquid secondary market for certain securities also may make it more difficult
for a Fund to obtain accurate market quotations for purposes of valuing that
Fund's portfolio and calculating its net asset value. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of these securities. In such cases, judgment
may play a greater role in valuation because less reliable, objective data may
be available.
These securities may be particularly susceptible to economic downturns. It
is likely that any economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such securities.
In addition, it is likely that any such economic downturn could adversely
affect the ability of the issuers of such securities to repay principal and pay
interest thereon and increase the incidence for default for such securities.
A Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. The Funds
have no arrangement with any persons concerning the acquisition of such
securities, and the Investment Adviser will review carefully the credit and
other characteristics pertinent to such new issues.
Lower rated zero coupon securities and pay-in-kind bonds (in which the
Capital Value Fund is limited to 5% of its total assets) involve special
considerations. Such zero coupon securities, pay-in-kind or delayed interest
bonds carry an additional risk in that, unlike bonds which pay interest
throughout the period to maturity, the Funds will realize no cash until the
cash payment date unless a portion of such securities are sold and, if the
issuer defaults, the Funds may obtain no return at all on their investment. See
"Additional Information Concerning Taxes."
Investing in Sovereign Debt Obligations of Emerging Market Countries.
Investing in Sovereign Debt Obligations involves economic and political risks.
The Sovereign Debt Obligations in which the Funds will invest in most cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of Sovereign Debt Obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers. The ability of governments to make timely payments on their
obligations is likely to be influenced strongly by the issuer's balance of
payments, including export performance, and its access to international credits
and investments. A country whose exports are concentrated in a few commodities
<PAGE>
could be vulnerable to a decline in the international prices of one or more of
those commodities. Increased protectionism on the part of a country's trading
partners also could adversely affect the country's exports and diminish its
trade account surplus, if any. To the extent that a country receives payment
for its exports in currencies other than dollars, its ability to make debt
payments denominated in dollars could be adversely affected.
To the extent that a country develops a trade deficit, it will need to
depend on continuing loans from foreign governments, multilateral organizations
or private commercial banks, aid payments from foreign governments and on
inflows of foreign investment. The access of a country to these forms of
external funding may not be certain, and a withdrawal of external funding could
adversely affect the capacity of a government to make payments on its
obligations. In addition, the cost of servicing debt obligations can be
affected by a change in international interest rates since the majority of
these obligations carry interest rates that are adjusted periodically based
upon international rates.
Central banks and other governmental authorities which control the
servicing of Sovereign Debt Obligations may not be willing or able to permit
the payment of the principal or interest when due in accordance with the terms
of the obligations. As a result, the issuers of Sovereign Debt Obligations may
default on their obligations. Defaults on certain Sovereign Debt Obligations
have occurred in the past. Holders of certain Sovereign Debt Obligations may be
requested to participate in the restructuring and rescheduling of these
obligations and to extend further loans to the issuers. These interests of
holders of Sovereign Debt Obligations could be adversely affected in the course
of restructuring arrangements or by certain other factors referred to below.
Furthermore, some of the participants in the secondary market for Sovereign
Debt Obligations also may be directly involved in negotiating the terms of
these arrangements and, therefore, may have access to information not available
to other market participants.
Each Fund is permitted to invest in Sovereign Debt Obligations that are
not current in the payment of interest or principal or are in default, so long
as the Investment Adviser believes it to be consistent with that Fund's
investment objective. A Fund may have limited legal recourse in the event of a
default with respect to certain Sovereign Debt Obligations it holds.
Bankruptcy, moratorium and other similar laws applicable to issuers of
Sovereign Debt Obligations may be substantially different from those applicable
to issuers of private debt obligations. The political context, expressed as the
willingness of an issuer of Sovereign Debt Obligations to meet the terms of the
debt obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments in
the event of default under commercial bank loan agreements.
Another factor bearing on the ability of a country to repay Sovereign Debt
Obligations is the level of the country's international reserves. Fluctuations
in the level of these reserves can affect the amount of foreign exchange
readily available for external debt payments and, thus, could have a bearing on
the capacity of the country to make payments on its Sovereign Debt Obligations.
<PAGE>
Expropriation, confiscatory taxation, nationalization, political, economic
or social instability or other similar developments, such as military coups,
have occurred in the past in countries in which the Fund will invest and could
adversely affect the Fund's assets should these conditions or events recur.
Foreign investment in certain Sovereign Debt Obligations is restricted or
controlled to varying degrees. These restrictions or controls at times may
limit or preclude foreign investment in certain Sovereign Debt Obligations and
increase the costs and expenses of the Fund investing in such instruments.
Certain countries in which the Funds will invest require governmental approval
prior to investments by foreign persons, limit the amount of investment by
foreign persons in a particular issuer, limit the investment by foreign persons
only to a specific class of securities of an issuer that may have less
advantageous rights than the classes available for purchase by domiciliaries of
the countries and/or impose additional taxes on foreign investors.
In addition, if a deterioration occurs in a country's balance of payments,
the country could impose temporary restrictions on foreign capital remittances.
A Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation of capital, as well as by the
application to that Fund of any restrictions on investments. Investing in local
markets may require the Fund to adopt special procedures, seek local government
approvals or take other actions, each of which may involve additional costs to
the Fund.
INVESTMENT RESTRICTIONS
Comstock Partners Capital Value Fund (Fundamental Restrictions)
In addition to the restrictions described under "Investment Restrictions"
in the Prospectus, the Capital Value Fund may not:
1. Make loans to others, except through the purchase of debt
obligations or the entry into repurchase agreements. However, the Fund may
lend its portfolio securities in any amount not to exceed 33 1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board of Directors.
2. Purchase securities on margin, but the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of securities.
3. Purchase or sell commodities or commodity contracts.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow or similar arrangements in connection with
portfolio transactions, such as in connection with writing covered options
and the purchase of securities on a when-issued or delayed-delivery basis
and collateral and initial or variation margin arrangements with respect
to options, futures contracts, including those relating to indices, and
options on futures contracts or indices, or in connection with the
<PAGE>
purchase of any securities on margin for purposes of Investment
Restriction No. 2 above.
5. Purchase the obligations of any issuer if such purchase would
cause more than 5% of the value of its total assets to be invested in
securities of such issuer, except that up to 25% of the value of the
Fund's total assets may be invested, and obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities may be
purchased, without regard to such limitations.
6. Purchase, hold or deal in real estate, but this shall not
prohibit the Fund from investing in securities of companies engaged in
real estate activities or investments.
7. Underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities.
Comstock Partners Strategy Fund (Fundamental Restrictions)
In addition to the restrictions described under "Investment Restrictions"
in the Prospectus, the Strategy Fund may not:
1. Make loans of securities to other persons in excess of 33-1/3%
of its total assets; provided the Fund may invest without limitation in
short-term obligations (including repurchase agreements) and publicly
distributed obligations.
2. Underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities.
3. Purchase or sell real estate or any interest therein, except
securities issued by companies (including partnerships and real estate
investment trusts) that invest in real estate or interests therein.
4. Purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary for the
clearance of purchases and sales of portfolio securities, but it may make
margin deposits in connection with transactions in options, futures and
options on futures.
5. Purchase or sell commodities or commodity contracts, except
that, for the purpose of hedging, it may enter into (i) contracts for the
purchase or sale of debt and/or equity securities for future delivery,
including futures contracts and options on domestic and foreign securities
indices and (ii) forward foreign currency exchange contracts and foreign
currency futures contracts, as well as option contracts on foreign
currencies.
The Capital Value Fund has adopted restriction 3 above, and the Strategy
Fund has adopted restriction number 5 above, in order to comply with certain
state securities laws. In these laws, the term "commodity contract" is defined
as a "contract or option providing for the delivery or receipt at a future date
of a specified amount and grade of a traded commodity at a specified price and
<PAGE>
delivery point." None of the transactions described in the Funds' Prospectus
under the caption "Certain Additional Investments and Investment Strategies -
Derivatives Transactions - Options, Futures and Currencies" and in this
Statement of Additional Information under the caption "Additional Information
Concerning Portfolio Activities - Options, Futures and Currency Transactions"
(other than certain transactions involving securities or indices of securities,
which the Funds do not consider to be "commodities" for purposes of this
restriction) involves the delivery or receipt of a commodity; all such
transactions are settled by means of cash payments. Accordingly, such
transactions are not subject to the restrictions set forth above.
A Fund's fundamental investment restrictions set forth above, together
with those described in the Prospectus, may not be changed without the
affirmative vote of the holders of a majority of that Fund's outstanding voting
securities, as defined under "Capital Stock" in this Statement of Additional
Information.
Comstock Partners Capital Value Fund (Other Investment Restrictions)
In addition to the fundamental investment restrictions set forth above,
the Company's Board of Directors has adopted the following investment
restrictions with respect to the Capital Value Fund in order to comply with
certain legal requirements. The following restrictions are not fundamental
policies of the Capital Value Fund and may be changed by the Company's Board of
Directors without the approval of shareholders of the Capital Value Fund. The
Capital Value Fund may not:
1. Purchase the securities of any issuer if such purchase would
cause the Fund to hold more than 10% of the outstanding voting securities
of such issuer. This restriction applies only with respect to 75% of the
Fund's assets.
2. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
3. Purchase securities of investment companies except (a) in the
open market where no commission except the ordinary broker's commission is
paid, which purchases are limited to a maximum of (i) 3% of the total
voting stock of any one investment company, (ii) 5% of its net assets with
respect to any one investment company and (iii) 10% of its net assets in
the aggregate, or (b) those received as part of a merger or consolidation.
4. Purchase or retain the securities of any issuer if the officers
or directors of the Company, its Investment Adviser or Sub-Investment
Adviser who individually own beneficially more than 1/2 of 1% of the
securities of such issuer together own beneficially more than 5% of the
securities of such issuer.
<PAGE>
5. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
6. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Fund's Prospectus and this Statement of
Additional Information.
7. Invest more than 2% of the value of the Fund's net assets in
warrants which are not listed on the New York Stock Exchange or American
Stock Exchange, or more than 5% of the value of the Fund's net assets in
warrants regardless of whether so listed.
8. Invest in interests in oil, gas or mineral exploration or
development programs.
9. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are
illiquid, if, in the aggregate, more that 15% of the value of the Fund's
net assets would be so invested.
Comstock Partners Strategy Fund (Other Investment Restrictions)
In addition to the fundamental investment restrictions set forth above,
the Company's Board of Directors has adopted the following investment
restrictions with respect to the Strategy Fund in order to comply with certain
legal requirements. The following restrictions are not fundamental policies of
the Strategy Fund and may be changed by the Company's Board of Directors
without the approval of shareholders of the Strategy Fund. The Strategy Fund
may not:
1. Invest more than 5% of its total assets in securities of
unseasoned issuers, including their predecessors, which have been in
operation for less than three years, or in equity securities of issuers
which are not readily marketable.
2. Invest in oil, gas or other mineral exploration development
programs or leases.
3. Invest more than 2% of the value of the Fund's net assets in
warrants which are not listed on the New York Stock Exchange or American
Stock Exchange, or more than 5% of the value of the Fund's net assets in
warrants regardless of whether so listed.
4. Invest in securities issued by other open-end investment
companies.
5. Purchase or sell securities issued by companies (including
partnerships and real estate investment trusts) that invest in real estate
or interests therein, except readily marketable interests in real estate
investment trusts or readily marketable securities of companies (including
partnerships) which invest in real estate.
6. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are
<PAGE>
illiquid if, in the aggregate, more than 15% of the value of the Fund's
net assets would be so invested.
7. Invest more than 15% of its assets in illiquid securities.
Notwithstanding such 15% limitation, to the extent the laws of any state
in which the Fund's shares are registered or qualified for sale require a
lower limitation, the Fund will observe such limitation. As of the date
hereof, therefore, the Fund will not invest more than 10% of its total
assets in securities which are subject to this investment restriction (7).
Rule 144A securities determined to be liquid by the Fund's Board of
Directors are not subject to the limitations set forth in this investment
restriction (7).
_______________________
If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from changes in
value or in the number of outstanding securities of an issuer will not be
considered a violation.
If a percentage restriction is adhered to at the time an investment is
made, a later increase in percentage resulting from a change in values or
assets will not constitute a violation of such restriction. However, in the
event that asset coverage on any borrowing by a Fund falls below the level
required by Section 18 of the 1940 Act, that Fund will reduce its borrowings to
the extent it is required to do so by Section 18(f)(1) of the 1940 Act.
A Fund may make commitments more restrictive than the restrictions listed
above so as to permit the sale of Fund shares in certain states. Should a Fund
determine that a commitment is no longer in the best interests of the Fund and
its shareholders, the Funds reserve the right to revoke the commitment by
terminating the sale of the relevant Fund's shares in the state involved.
MANAGEMENT ARRANGEMENTS
Directors and Officers
The Board of Directors of the Company is responsible for the overall
management and operation of the Funds. The directors and executive officers of
the Company and their principal occupations during the last five years are set
forth below.
<PAGE>
Principal
Position(s) Occupation(s)
Name, Address, and Age with Company During Past 5 Years
- ---------------------- ------------ -------------------
*Stanley D. Salvigsen Director, Director, Chairman
10 Exchange Place Chairman of the of the Board and
Suite 2010 Board, Chief Chief Executive
Jersey City, NJ 07302-3913 Executive Officer Officer of Comstock
54 years old and Member of Partners, Inc.
Executive since November
Committee 1986.
*Charles L. Minter Director, Vice Director, Vice
10 Exchange Place Chairman of the Chairman of the
Suite 2010 Board, President, Board and Secretary
Jersey City, NJ 07302-3913 and Member of of Comstock
55 years old Executive Partners, Inc.
Committee since January 1987,
and President of
Comstock Partners,
Inc. since March
1994.
M. Bruce Adelberg Director, Member Consultant, MBA
MBA Research of Research Group and
33 Channel Lane Audit Committee Director of Carrols
Salem, SC 29676 Corporation (food
59 years old services) and
Carrols Holdings,
Inc.
E.W. Kelley Director, Member Managing General
Kelley & Partners, Ltd. of Audit Partner, Kelley &
36 South Pennsylvania Street Committee Partners, Ltd.
Suite 550 (consumer products
Indianapolis, IN and services).
79 years old Chairman,
Consolidated
Products, Inc.
(food services).
Sven B. Karlen, Jr. Director, Member General Partner of
Grandview Partners, L.P. of Audit Grandview Partners,
One Financial Center Committee L.P. (investments)
Boston, MA 02111
52 years old
Robert M. Smith Director, Member President, Smith
Ansbacher (Dublin) of Audit Advisers, Ltd.
Smith Advisers, LTD. Committee (investments), from
812 Coachway January 1993 -
Annapolis, MD 21401 November 1995,
66 years old President and
Director of
Ansbacher (Dublin)
Asset Management
Ltd.
*W. Troy Hottenstein, CFA Secretary Chief Operating
10 Exchange Place Officer and, since
Suite 2010 1991, Research
Jersey City, NJ 07302-3913 Analyst at Comstock
27 years old Partners, Inc.
*Robert C. Ringstad Vice President, Vice President
10 Exchange Place Treasurer, Chief Operations--Regent
Suite 2010 Financial Officer Investor Services
Jersey City, NJ 07302-3913 and Assistant
65 years old Secretary
* Interested person as defined in the 1940 Act, because of affiliations
with Comstock Partners, Inc., the Investment Adviser.
<PAGE>
For so long as the Class A, Class B or Class C Service and Distribution
Plans remain in effect, the Directors of the Company who are not "interested
persons" of the Company, as defined in the 1940 Act, will be selected and
nominated by the Directors who are not "interested persons" of the Company.
The Executive Committee of the Board of Directors of the Company exercises
all of the powers and authority of the Board of Directors between meetings of
the Board of Directors.
As of July 1996, the Company pays each non-interested director a fee of
$20,000 per year (consisting of $10,000 per portfolio of the Company), and
reimburses each such director for expenses of attendance.
No Director of the Company serves as a director of any other investment
company advised or administered by The Dreyfus Corporation, the Funds' sub-
investment adviser. None of the Company's officers, nor any affiliated persons
of the Company, received aggregate compensation in excess of $60,000 from the
Company during the fiscal year ended April 30, 1996. For the fiscal year ended
April 30, 1996, the aggregate amount of fees and expenses received by each
Director from the Company were as follows:
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual Benefits From Company
From of Company Upon Paid to Board
Name of Board Member Company<F1> Expenses Retirement Member<F1>
- --------------------- -------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Stanley D. Salvigsen 0 0 0 0
Charles L. Minter 0 0 0 0
M. Bruce Adelberg $ 8,750 0 0 $ 8,750
Robert M. Goodyear, Jr. $ 2,500 0 0 $ 2,500
Sven B. Karlen, Jr. $ 500 0 0 $ 500
E. W. Kelley $17,500 0 0 $17,500
Bruce C. Lueck $ 2,500 0 0 $ 2,500
Robert M. Smith $17,500 0 0 $17,500
____________________
<FN>
<F1> Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $2,313.99 for the Company.
</TABLE>
As of August 22, 1996, the following entities were known by the Capital
Value Fund to own, of record or beneficially, 5% or more of the Capital Value
Fund's outstanding voting securities: Merrill Lynch, Pierce, Fenner & Smith
Incorporated was the record owner of 22.6093% of the outstanding Class A
shares, 31.7371% of the outstanding Class B shares and 61.0523% of the
outstanding Class C shares, of the Capital Value Fund; and Westcliff Capital
Management and Dreyfus Trust Co Custodian FBO Vance C Brown, respectively, were
the record owners of 67.3524% and 29.1975% of the outstanding Class R shares.
Each named entity has been deemed to be a "control person" as defined in the
1940 Act.
As of August 22, 1996, the following entities were known by the Strategy
Fund to own, of record or beneficially, 5% or more of the Strategy Fund's
outstanding voting securities: Merrill Lynch, Pierce, Fenner & Smith
Incorporated was the record owner of 56.2996% of the outstanding Class O
shares, 48.9348% of the outstanding Class A shares and 80.6177% of the
outstanding Class C shares, of the Strategy Fund; and Southtrust Estate Trust
<PAGE>
Company and National Bank of Georgia Trustee, respectively, were the record
owners of 8.3393% and 5.2115% of the outstanding Class C shares. Each named
entity has been deemed to be a "control person" as defined in the 1940 Act.
The officers and directors of the Company own less than 1% of each Class
of the Funds.
Investment Adviser
The Company, on behalf of the Capital Value Fund, has engaged the
Investment Adviser to provide professional investment management for the Fund
pursuant to an Investment Advisory Agreement, dated as of July 25, 1996,
between the Fund and the Investment Adviser (the "Capital Value Fund Investment
Advisory Agreement"). In addition, the Company, on behalf of the Strategy
Fund, has engaged the Investment Adviser to provide professional investment
management for the Strategy Fund pursuant to an Amended Investment Advisory
Agreement between the Fund and the Investment Adviser (the "Strategy Fund
Investment Advisory Agreement"). Unless earlier terminated as described below,
the Capital Value Fund Investment Advisory Agreement will remain in effect
until two years from the date of its effectiveness and from year to year
thereafter if approved annually (i) by a majority of the non-interested
directors of the Company (as defined in the 1940 Act) and (ii) by the Board of
Directors of the Company or by a majority of the outstanding shares of the
Capital Value Fund (as defined in the 1940 Act). In addition, unless earlier
terminated as described below, the Strategy Fund Investment Advisory Agreement
will remain in effect until September 30, 1996 and from year to year thereafter
if approved annually (i) by a majority of the non-interested directors of the
Company (as defined in the 1940 Act) and (ii) by the Board of Directors of the
Company or by a majority of the outstanding shares of the Strategy Fund (as
defined in the 1940 Act). Either Investment Advisory Agreement may be
terminated without penalty on 60 days' written notice by either party thereto
or by vote of the stockholders of the relevant Fund, and will terminate
automatically on assignment.
The Company (including the Funds) may, so long as each Investment Advisory
Agreement remains in effect, use "Comstock" as part of its name. The Investment
Adviser may, upon termination of an Investment Advisory Agreement, require the
Company (including the Funds) to refrain from using the name "Comstock" in any
form or combination in its name or in its business.
If expenses borne by a Fund in any fiscal year exceed expense limitations
imposed by applicable state securities regulations, the Investment Adviser will
reimburse that Fund for any such excess to the extent required by such
regulations in an amount not to exceed the Investment Adviser's annual fee
during the period in which such limitations were exceeded. Certain expenses
such as brokerage commissions, taxes, extraordinary expenses and interest are
excluded from such limitations, and the expenses incurred by Class A, Class B
and Class C shares of the relevant Fund pursuant to the Fund's Class A, Class B
and Class C Service and Distribution Plans, respectively, are included within
such expenses only to the extent required by any state in which the Fund's
shares are qualified for sale. California is the only state which currently
imposes such an expense limitation. The limitation is 2.5% of the first $30
<PAGE>
million of average net assets, 2.0% of the next $70 million of average net
assets and 1.5% of the remaining average net assets.
The investment advisory fees paid by the Strategy Fund to the Investment
Adviser for the fiscal years ended April 30, 1994, April 30, 1995 and April 30,
1996 amounted to $3,427,585, $2,858,688, and $1,977,868, respectively. The
Capital Value Fund did not commence operations until July 25, 1996.
Sub-Investment Adviser
The Company, on behalf of the Capital Value Fund, and the Investment
Adviser, on behalf of the Strategy Fund, has engaged The Dreyfus Corporation
(the "Sub-Investment Adviser") to provide sub-investment advisory services to
the Funds.
The Sub-Investment Advisory and Administration Agreement, dated as of July
25, 1996 (the "Capital Value Fund Sub-Investment Advisory Agreement"), between
the Company and the Sub-Investment Adviser, will remain in effect until two
years from the date of its effectiveness and from year to year thereafter if
approved annually (i) by a majority of the non-interested directors (as defined
in the 1940 Act) of the Company and (ii) by the Board of Directors of the
Company or by a majority (as defined in the 1940 Act) of the outstanding shares
of the Capital Value Fund. The Capital Value Fund Sub-Investment Advisory
Agreement may be terminated without penalty on 60 days' written notice, by
either party thereto, by the Company or by vote of the stockholders of the
Fund, and will terminate automatically on assignment (as defined in the 1940
Act).
In addition, the Amended Sub-Investment Advisory Agreement (the "Strategy
Fund Sub-Investment Advisory Agreement"), between the Sub-Investment Adviser
and the Investment Adviser, will remain in effect until September 30, 1996 and
from year to year thereafter if approved annually (i) by a majority of the
non-interested directors of the Company and (ii) by the Board of Directors of
the Company or by a majority of the outstanding shares of the Fund. The Sub-
Investment Advisory Agreement may be terminated without penalty on 60 days'
written notice, by either party thereto, by the Company or by vote of the
stockholders of the Fund, and will terminate automatically on assignment.
Under the Capital Value Fund Sub-Investment Advisory Agreement, the
Sub-Investment Adviser is obligated to waive, reduce or refund its fees
received from the Company on behalf of the Fund if and to the extent that the
Investment Adviser has waived, reduced or refunded all of the fees it was
entitled to receive during the period expense limitations, applicable to the
Fund and imposed by state securities laws, were exceeded and the Fund continues
to exceed those limitations.
Under the Strategy Fund Sub-Investment Advisory Agreement, the
Sub-Investment Adviser is obligated to reimburse the Investment Adviser in
proportion to the respective fees received by them to the extent that any
expense limitations applicable to the Fund imposed by state securities laws are
exceeded.
For the fiscal years ended April 30, 1994, April 30, 1995, and April 30,
1996 the Sub-Investment Adviser received fees from the Investment Adviser with
<PAGE>
respect to the Strategy Fund in the amounts of $856,896, $714,673 and $494,467,
respectively, from the Investment Adviser. The Capital Value Fund did not
commence operations until July 25, 1996.
Administrator
Under the terms of the Amended Administration Agreement between
Princeton Administrators, L.P. (the "Princeton") and the Strategy Fund,
Princeton performs or arranges for the performance of certain administrative
services necessary for the operation of the Strategy Fund. For the services
rendered to the Strategy Fund and the facilities furnished, the Strategy Fund
pays Princeton a monthly fee equal to the greater of (i) $300,000 per annum
($25,000 per month), or (ii) an annual rate equal to .25% of the Strategy
Fund's average daily net assets up to $100 million, .225% of the Strategy
Fund's average daily net assets on the next $100 million, .20% of the Strategy
Fund's average daily net assets on the next $400 million and 0.175% of the
Strategy Fund's average daily net assets in excess of $600 million. Prior to
January 1, 1994, the Strategy Fund paid Princeton a monthly fee equal to the
greater of (i) $300,000 per annum ($25,000 per month), or (ii) an annual rate
equal to .25% of the Strategy Fund's average daily net assets up to $200
million, .20% of the Strategy Fund's average daily net assets on the next $400
million and .175% of the Strategy Fund's average daily net assets in excess of
$600 million. For the fiscal years ended April 30, 1994, April 30, 1995, and
April 30, 1996, Princeton received fees pursuant to the contractual
arrangements then in effect amounting to $1,268,159, $1,027,896 and $734,288,
respectively, from the Strategy Fund.
Under the terms of the Sub-Investment Advisory and Administration
Agreement relating to the Capital Value Fund, the Sub-Investment Adviser has
agreed to perform or arrange for the performance of certain administrative
services necessary for the operation of the Capital Value Fund, including,
among other responsibilities, supplying office facilities, statistical and
research data, data processing services, clerical, accounting and bookkeeping
services, internal auditing services, internal executive and administrative
services, and stationery and office supplies; preparing reports to the Capital
Value Fund's shareholders, tax returns, reports to and filings with state Blue
Sky authorities; calculating the net asset value of the Capital Value Fund on a
daily basis; and, subject to the supervision of the Company's Board of
Directors, generally assisting in all aspects of the Capital Value Fund's
operations (except with respect to investment advisory services provided by the
Investment Adviser). For a description of the fees payable by Capital Value
Fund to the Sub-Investment Adviser, see "Management Arrangements---Sub-
Investment Adviser" above. The Capital Value Fund did not commence operations
until July 25, 1996.
Pursuant to an agreement, dated as of July 25, 1996, Princeton, the Sub-
Investment Adviser and the Company agreed that, in addition to its
responsibilities under the Sub-Investment Advisory Agreement relating to the
Capital Value Fund, among other things, the Sub-Investment Adviser shall
prepare and file all State Blue Sky filings for the Company, on behalf of the
Strategy Fund, and prepare and file with the Securities and Exchange Commission
each N-SAR for the Company. The Sub-Investment-Adviser agreed to adhere to the
standard of care which applies to the Sub-Investment Adviser pursuant to the
<PAGE>
Capital Value Fund Sub-Investment Advisory and Administration Agreement. In
addition, the parties also agreed that Princeton shall have no responsibility
for the performance of such services under the Strategy Fund Administration
Agreement.
In addition, pursuant to an agreement, dated as of July 25, 1996,
Princeton, the Sub-Investment Adviser and the Company agreed that, in addition
to its responsibilities under the Administration Agreement relating to the
Strategy Fund, among other things, Princeton shall perform certain
administrative services for the Capital Value Fund, including the preparation
and distribution of materials to the Company's Board of Directors in connection
with meetings of the Board and any committee thereof and the preparation and
distribution of minutes to such meetings. Princeton agreed to adhere to the
standard of care which applies Princeton pursuant to the Strategy Fund
Administration Agreement. In addition, the parties also agreed that the
Sub-Investment Adviser shall have no responsibility for the performance of such
services under the Capital Value Fund Sub-Investment Advisory and Administration
Agreement.
Fund Expenses
Except for the expenses borne by the Investment Adviser, the
Sub-Investment Adviser, Princeton and the Distributor (as described below)
pursuant to their respective agreements, the Company, on behalf of the relevant
Fund, will pay all expenses incurred in connection with its operation,
including, among other things, organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
brokerage fees and commissions, if any, Securities and Exchange Commission fees
and Blue Sky qualification fees, fees and expenses of non-interested directors,
officers' and employees' fees (other than officers or employees of the
Investment Advisor, the Sub-Investment Advisor or any affiliate thereof),
investment and sub-investment advisory fees, charges of custodians, transfer
and dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of maintaining the
Company's or such Fund's existence, payments to service organizations, costs of
independent pricing services, costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders, costs of shareholder reports and
meetings and any extraordinary expenses. Expenses attributable solely to a
particular Class, including the additional incremental shareholder
administrative expenses resulting from the Class B and Class C deferred sales
charge arrangements, are borne exclusively by that Class. In addition, the
Class A shares of each of the Funds bear certain servicing expenses in
accordance with the Class A Service and Distribution Plan, and the Class B
shares of the Capital Value Fund and Class C shares of the Capital Value Fund
and Strategy Fund bear certain servicing and distribution expenses in
accordance with the Class B and Class C Service and Distribution Plans. See
"Service and Distribution Plans."
<PAGE>
PURCHASE OF FUND SHARES
The Distributor
Premier Mutual Fund Services, Inc. serves as the Funds' distributor on a
best efforts basis (the "Distributor") pursuant to an agreement which is
renewable annually. The Distributor also acts as distributor for funds in the
Dreyfus Family of Funds and for certain other investment companies.
TeleTransfer Privilege
TeleTransfer purchase orders may be made at any time. Purchase orders
received by 4:00 P.M., New York time, on any business day that Dreyfus
Transfer, Inc., the Funds' transfer and dividend disbursing agent (the
"Transfer Agent"), and the New York Stock Exchange are open for business will
be credited to the shareholder's account in the relevant Fund on the next bank
business day following such purchase order. Purchase orders made after 4:00
P.M., New York time, on any business day the Transfer Agent and the New York
Stock Exchange are open for business, or orders made on Saturday, Sunday or any
Fund holiday (e.g., when the New York Stock Exchange is not open for business),
will be credited to the shareholder's Fund account on the second bank business
day following such purchase order. To qualify to use the TeleTransfer
Privilege, payments for purchase of a Fund's shares must be drawn on, and
redemption proceeds paid to, the same bank and account as is designated on the
Account Application or Shareholder Services Form on file. If the proceeds of a
particular redemption are to be wired to an account at any other bank, the
request must be in writing and signature-guaranteed. See "Redemption of Fund
Shares--Stock Certificates; Signatures."
Sales Loads-Class A
The scale of sales loads applies to purchases of Class A shares of the
Capital Value Fund or the Strategy Fund made by any "purchaser," which term
includes an individual and/or spouse purchasing securities for his, her or
their own account or for the account of any minor children, or a trustee or
other fiduciary purchasing securities for a single trust estate or a single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code) although more than one beneficiary is involved; or a group of accounts
established by or on behalf of employees of an employer or affiliated employers
pursuant to an employee benefit plan or other program (including accounts
established pursuant to Sections 403(b), 408(k) and 457 of the Code); or an
organized group which has been in existence for more than six months, provided
that it is not organized for the purpose of buying redeemable securities of a
registered investment company and provided that the purchases are made through
a central administration or a single dealer, or by other means which result in
economy of sales effort or expense. The term "purchaser" shall not include an
individual and/or spouse purchasing securities for his, her or their own
account or for the account of any minor children and such individual and/or
spouse purchasing securities on behalf of his or her IRA, Keogh Plan, or
403(b)(7) Plan to the extent such 403(b)(7) Plan is subject to the provisions
<PAGE>
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
custodial account or under certain employee benefit plans or other programs due
to concerns that such aggregation might constitute a prohibited transaction
under the Code or ERISA.
REDEMPTION OF FUND SHARES
Wire Redemption Privilege
By using this Privilege, the investor authorizes the Transfer Agent to act
on wire or telephone redemption instructions from any person representing
himself or herself to be the investor or a representative of the investor's
Service Agent, and reasonably believed by the Transfer Agent to be genuine.
Ordinarily, a Fund will initiate payment for shares redeemed pursuant to this
Privilege on the next business day after receipt if the Transfer Agent receives
the redemption request in proper form and the price for such payment will be at
the next determined net asset value following such redemption request.
Redemption proceeds will be transferred by Federal Reserve wire only to the
commercial bank account specified by the investor on the Account Application or
Shareholder Services Form. Redemption proceeds, if wired, must be in the amount
of $1,000 or more and will be wired to the investor's account at the bank of
record designated in the investor's file at the Transfer Agent, if the
investor's bank is a member of the Federal Reserve System, or to a
correspondent bank if the investor's bank is not a member. Fees ordinarily are
imposed by such bank and usually are borne by the investor. Immediate
notification by the correspondent bank to the investor's bank is necessary to
avoid a delay in crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may have
the wire transmitted by contacting a TREED Cables operator at 1-800-654-7171,
toll free. Investors should advise the operator that the above transmittal code
must be used and should also inform the operator of the Transfer Agent's answer
back sign.
To change the commercial bank or account designated to receive wire
redemption proceeds, a written request must be sent to the Transfer Agent. This
request must be signed by each shareholder, with each signature guaranteed as
described below under "Stock Certificates; Signatures."
<PAGE>
Redemptions in Kind
The Board of Directors reserves the right to make payments in whole or in
part in securities or other assets of a Fund in case of an emergency or any
time a cash distribution would impair the liquidity of that Fund to the
detriment of the existing shareholders. In such event, the securities would be
valued in the same manner as that Fund's portfolio is valued. If the recipient
sold such securities, brokerage charges would be incurred.
Suspension of Redemptions
The right of redemption may be suspended or the date of payment postponed
by a Fund (a) during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), (b) when trading in the
markets the Fund ordinarily utilizes is restricted, or when an emergency exists
as determined by the SEC so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the SEC by order may permit to protect the Fund's
shareholders.
Stock Certificates; Signatures
Any certificates representing Fund shares to be redeemed must be submitted
with the redemption request. Written redemption requests must be signed by each
shareholder, including each holder of a joint account, and each signature must
be guaranteed. Signatures on endorsed certificates submitted for redemption
also must be guaranteed. The Transfer Agent has adopted standards and
procedures pursuant to which signature-guarantees in proper form generally will
be accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents Medallion
Program ("STAMP") and the Stock Exchanges Medallion Program. Guarantees must be
signed by an authorized signatory of the guarantor and "Signature-Guaranteed"
must appear with the signature. The Transfer Agent may request additional
documentation from corporations, executors, administrators, trustees or
guardians and may accept other suitable verification arrangements from foreign
investors, such as consular verification. For more information with respect to
signature-guarantees, please call 1-800-645-6561.
SHAREHOLDER SERVICES
Exchange Privilege
Shares of other funds purchased by exchange will be purchased on the basis
of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales load
will be made without a sales load.
<PAGE>
B. Shares of funds purchased without a sales load may be exchanged for
shares of other funds sold with a sales load, and the applicable sales
load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged without a
sales load for shares of other funds sold without a sales load.
D. Shares of funds purchased with a sales load, shares of funds acquired
by a previous exchange from shares purchased with a sales load and
additional shares acquired through reinvestment of dividends or
distributions of any such funds (collectively referred to herein as
"Purchased Shares") may be exchanged for shares of other funds sold
with a sales load (referred to herein as "Offered Shares"), provided
that, if the sales load applicable to the Offered Shares exceeds the
maximum sales load that could have been imposed in connection with the
Purchased Shares (at the time the Purchased Shares were acquired),
without giving effect to any reduced loads, the difference will be
deducted.
E. Shares of funds subject to a contingent deferred sales charge ("CDSC")
that are exchanged for shares of another fund will be subject to the
higher applicable CDSC of the two funds, and for purposes of
calculating CDSC rates and conversion periods, if any, will be deemed
to have been held since the date the shares being exchanged were
initially purchased.
To accomplish an exchange under item D above, shareholders must notify the
Transfer Agent of their prior ownership of such fund shares and their account
number.
To request an exchange, an investor or the investor's Service Agent acting
on the investor's behalf must give exchange instructions to the Transfer Agent
in writing or by telephone. The ability to issue exchange instructions by
telephone is given to all Fund shareholders automatically, unless the investor
checks the applicable "No" box on the Account Application, indicating that the
investor specifically refuses this Privilege. By using the Telephone Exchange
Privilege, the investor authorizes the Transfer Agent to act on telephonic
instructions from any person representing himself or herself to be the investor
or a representative of the investor's Service Agent, and reasonably believed by
the Transfer Agent to be genuine. Telephone exchanges may be subject to
limitations as to the amount involved or the number of telephone exchanges
permitted. Shares issued in certificate form are not eligible for telephone
exchange.
Exchanges of Class R shares of the Capital Value Fund held by a Retirement
Plan may be made only between the investor's Retirement Plan account in one
fund and such investor's Retirement Plan account in another fund.
To establish a new account by exchange, shares of the fund being exchanged
must have a value of at least the minimum initial investment required for
shares of the fund into which the exchange is being made. For Dreyfus-sponsored
Keogh Plans, IRAs and IRAs set up under a Simplified Employee Pension Plan
("SEP-IRAs") with only one participant, the minimum initial investment is $750.
<PAGE>
To exchange shares held in corporate plans, 403(b)(7) Plans and SEP-IRAs with
more than one participant, the minimum initial investment is $100 if the plan
has at least $2,500 invested among shares of the funds in the Dreyfus Family of
Funds. To exchange shares held in personal retirement plans, the shares
exchanged must have a current value of at least $100.
Auto-Exchange Privilege
The Auto-Exchange Privilege permits an investor to purchase, in exchange
for shares of a Fund, shares of another fund advised or administered by the
Sub-Investment Adviser. This Privilege is available only for existing accounts.
With respect to Class R shares of the Capital Value Fund held by a Retirement
Plan, exchanges may be made only between the investor's Retirement Plan account
in one fund and such investor's Retirement Plan account in another fund. Shares
will be exchanged on the basis of relative net asset value as described above
under "Exchange Privilege." Enrollment in or modification or cancellation of
this Privilege is effective three business days following notification by the
investor. An investor will be notified if his account falls below the amount
designated to be exchanged under this Privilege. In this case, an investor's
account will fall to zero unless additional investments are made in excess of
the designated amount prior to the next Auto-Exchange transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege. Exchanges
of IRA shares may be made between IRA accounts and from regular accounts to IRA
accounts, but not from IRA accounts to regular accounts. With respect to all
other retirement accounts, exchanges may be made only among those accounts.
The Exchange Privilege and the Auto-Exchange Privilege are available
to shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between accounts
having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of other funds may be
obtained by calling 1-800-645-6561. The Company reserves the right to reject
any exchange request in whole or in part. The Exchange Privilege or the Auto-
Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.
Automatic Withdrawal Plan
The Automatic Withdrawal Plan permits an investor with a $5,000 minimum
account to request withdrawal of a specified dollar amount (minimum of $50) on
either a monthly or quarterly basis. Withdrawal payments are the proceeds from
sales of shares of a Fund, not the yield on the shares. If withdrawal payments
exceed reinvested dividends and distributions, the investor's shares will be
reduced and eventually may be depleted. An Automatic Withdrawal Plan may be
established by completing the appropriate application available from the
Distributor. The Automatic Withdrawal Plan may be terminated at any time by the
investor, a Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan. Class B or
Class C shares of a Fund withdrawn pursuant to the Automatic Withdrawal Plan
will be subject to any applicable CDSC.
<PAGE>
Dividend Sweep
The Dividend Sweep privilege allows investors to invest on the payment date
their dividends or dividends and capital gains distributions, if any, from a
Fund in shares of another fund advised or administered by the Sub-Investment
Adviser of which the investor is a shareholder. Shares of other funds purchased
pursuant to the Dividend Sweep will be purchased on the basis of relative net
asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested without
imposition of a sales load in shares of other funds that are offered
without sales load.
B. Dividends and distributions paid by a fund which does not charge a
sales load may be invested in shares of other funds sold with a sales
load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales load
may be invested in shares of other funds sold with a sales load
(referred to herein as "Offered Shares"), provided that, if the sales
load applicable to the Offered Shares exceeds the maximum sales load
charged by the fund from which dividends or distributions are being
swept, without giving effect to any reduced loads, the difference will
be deducted.
D. Dividends and distributions paid by a fund may be invested in shares
of other funds that impose a contingent deferred sales charge ("CDSC")
and the applicable CDSC, if any, will be imposed upon redemption of
such shares.
Corporate Pension/Profit-Sharing and Personal Retirement Plans
Each Fund makes available to corporations a variety of prototype pension
and profit sharing plans, including a 401(k) Salary Reduction Plan. In
addition, each Fund makes available Keogh Plans, IRAs, including SEP-IRAs and
IRA "Rollover Accounts," and 403(b)(7) Plans. Plan support services are also
available. For details, please call toll free 1-800-358-5566.
Investors who wish to purchase shares of a Fund in conjunction with a Keogh
Plan, a 403(b)(7) Plan or an IRA, including a SEP-IRA, may request from the
Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or IRAs may
charge a fee, payment of which could require the liquidation of shares. All
fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans may not
be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction Plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, is $2,500 with no
<PAGE>
minimum on subsequent purchases. The minimum initial investment for Dreyfus-
sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one
participant, is normally $750 with no minimum on subsequent purchases.
Individuals who open an IRA also may open a non-working spousal IRA with a
minimum investment of $250.
The investor should read the Prototype Retirement Plan and the appropriate
form of Custodial Agreement for further details on eligibility, service fees
and tax implications, and should consult a tax adviser.
SERVICE AND DISTRIBUTION PLANS
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Service and Distribution
Plans."
Service and Distribution Plan - Class A Shares
Rule 12b-1 (the "Rule") adopted by the SEC under the 1940 Act provides,
among other things, that an investment company may bear expenses of
distributing its shares only pursuant to a plan adopted in accordance with the
Rule. Because some or all of the fees paid for advertising or marketing the
Class A shares of the Company and the fees paid to the Distributor and to
certain banks, brokers, dealers or other financial institutions (collectively,
"Service Agents") could be deemed to be payment of distribution expenses, the
Company's Board of Directors has adopted such a plan with respect to the Class
A shares of each Fund (the "Class A Service and Distribution Plan"). The
Company's Board of Directors believes that there is a reasonable likelihood
that the Class A Service and Distribution Plan will benefit each Fund and its
Class A shareholders. In some states, banks or other financial institutions
effecting transactions in Class A shares may be required to register as dealers
pursuant to state law.
Under the Class A Service and Distribution Plan, servicing shareholder
accounts with respect to the Class A shares may include, among other things,
one or more of the following: answering client inquiries regarding the Fund;
assisting clients in changing dividend options, account designations and
addresses; performing subaccounting; establishing and maintaining shareholder
accounts and records; processing purchase and redemption transactions;
investing client cash account balances automatically in Fund shares; providing
periodic statements showing a client's account balance and integrating such
statements with those of other transactions and balances in the client's other
accounts serviced by the Service Agent; arranging for bank wires; and such
other services as the Fund may request, to the extent the Service Agent is
permitted by applicable statute, rule or regulation.
For the fiscal period from July 15, 1992 (introduction of Class A shares)
through April 30, 1993, the fiscal year ended April 30, 1994, the fiscal
year ended April 30, 1995, and the fiscal year ended April 30, 1996 the Strategy
Fund's Class A shares bore expenses of $33,323, $186,338, $60,311 and $261,869
respectively, pursuant to the Class A Service and Distribution Plan (formerly
known as the "Account Maintenance Plan").
<PAGE>
Service and Distribution Plans-Class B shares and Class C shares
In addition to the above described Class A Service and Distribution Plan,
the Company's Board of Directors has adopted a Class B Service and Distribution
Plan and a Class C Service and Distribution Plan under the Rule with respect to
Class B of the Capital Value Fund and Class C shares of each Fund, pursuant to
which the Company, on behalf of the relevant Fund, pays the Distributor and
Dreyfus Service Corporation for distributing such Fund's Class B shares (in the
case of the Capital Value Fund) and Class C shares, respectively, and for the
provision of certain services to the holders of such Class B and Class C
shares. The Company's Board of Directors believes that there is a reasonable
likelihood that the Class B Service and Distribution Plan will benefit the
Capital Value Fund and its Class B shareholders and that the Class C Service
and Distribution Plan will benefit each Fund and its Class C shareholders.
General
Quarterly reports of the amounts expended under each of the Class A, Class
B and Class C Service and Distribution Plans, and the purposes for which such
expenditures were incurred, must be made to the Board of Directors for its
review. In addition, the Class A, Class B and Class C Service and Distribution
Plans each provide that it may not be amended to increase materially the cost
which the Class A, Class B or Class C shares of a Fund, respectively, may bear
pursuant to such plan without the approval of such Class A, Class B or Class C
shareholders, respectively, and that other material amendments of the Class A,
Class B or Class C Service and Distribution Plan must be approved by the Board
of Directors, and by the Directors who are neither interested persons of the
Company nor have any direct or indirect financial interest in the operation of
such plans or in any agreements entered into in connection with such plans, by
vote cast in person at a meeting called for the purpose of considering such
amendments. The Class A, Class B and Class C Service and Distribution Plans and
the related service agreements are subject to annual approval by such vote of
the Board of Directors cast in person at a meeting called for the purpose of
voting on the Class A, Class B and Class C Service and Distribution Plans. The
Class A, Class B and Class C Service and Distribution Plans may each be
terminated at any time, with respect to a Fund, by vote of a majority of the
Directors who are not interested persons and have no direct or indirect
financial interest in the operation of such plans or in any agreements entered
into in connection with such plans or by vote of a majority of the Class A,
Class B or Class C shares of a Fund, respectively. Any related service
agreement may be terminated without penalty at any time, by such vote. Each
service agreement will terminate automatically in the event of its assignment
(as defined in the 1940 Act).
PORTFOLIO TRANSACTIONS
The Strategy Fund's portfolio turnover rate for the period beginning May
28, 1988 (commencement of operations) and ending April 30, 1989 and the fiscal
years ended April 30, 1990, April 30, 1991, April 30, 1992, April 30, 1993,
<PAGE>
April 30, 1994, April 30, 1995 and April 30, 1996 were 38%, 40%, 16%, 89%, 56%,
31%, 100% and 96%, respectively. The Capital Value Fund commenced operations
on July 25, 1996.
The Investment Adviser has discretion to select brokers and dealers to
execute portfolio transactions initiated by the Investment Adviser and to
select the markets in which such transactions are to be executed. Each
Investment Advisory Agreement provides, in substance, that in executing
portfolio transactions and selecting brokers or dealers, the primary
responsibility of the Investment Adviser is to seek the best combination of net
price and execution for the relevant Fund. It is expected that securities will
ordinarily be purchased in the primary markets, and that in assessing the best
net price and execution available to a Fund, the Investment Adviser will
consider all factors it deems relevant, including the breadth of the market in
the security, the size of the transaction, the price of the security, the
financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any (for the specific transaction and on a
continuing basis). Transactions in foreign securities markets may involve the
payment of fixed brokerage commissions, which are generally higher than those
in the United States. The purchase by a Fund of participations may be pursuant
to privately negotiated transactions pursuant to which that Fund may be
required to pay fees to the seller or forego a portion of payments in respect
of the participation.
In selecting brokers to execute particular transactions and in evaluating
the best net price and execution available, the Investment Adviser is
authorized to consider "brokerage and research services" (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934). The
Investment Adviser is also authorized to cause a Fund to pay to a broker who
provides such brokerage and research services a commission for executing a
portfolio transaction which is in excess of the amount of commission another
broker would have charged for effecting that transaction. The Investment
Adviser must determine in good faith, however, that such commission was
reasonable in relation to the value of the brokerage and research services
provided, viewed in terms of that particular transaction or in terms of all the
accounts over which the Investment Adviser exercises investment discretion. The
Investment Adviser may also have arrangements with brokers pursuant to which
such brokers provide research services to the Investment Adviser in exchange
for the placement of transactions with such brokers. Research services
furnished by brokers through whom a Fund effects securities transactions may be
used by the Investment Adviser in servicing all of the accounts of the Fund for
which investment discretion is exercised by the Investment Adviser, and not all
such services may be used by the Investment Adviser in connection with the
Funds. The research services provided may include, among other things, market
quotation and news services, portfolio analytic systems and support, access to
economic databases and analyses of macroeconomic and financial trends.
Each Investment Advisory Agreement requires the Investment Adviser to
provide fair and equitable treatment to the relevant Fund in the selection of
portfolio investments and the allocation of investment opportunities as between
that Fund and the Investment Adviser's other investment management clients, but
does not obligate the Investment Adviser to give that Fund exclusive or
preferential treatment. It is likely that from time to time the Investment
<PAGE>
Adviser may make similar investment decisions for a Fund and its other clients.
In some cases, the simultaneous purchase or sale of the same security by a Fund
and another client of the Investment Adviser could have a detrimental effect on
the price or volume of the security to be purchased or sold, as far as that
Fund is concerned. In other cases, coordination with transactions for other
clients and the ability to participate in volume transactions could benefit the
Fund engaging in the transaction.
ADDITIONAL INFORMATION CONCERNING TAXES
General
The Strategy Fund has qualified, and the Capital Value Fund intends to
qualify and elect, to be treated as a regulated investment company (a "RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, a Fund must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities, foreign currencies, or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) derive in each taxable year less than 30% of its gross income from the
sale or other disposition of any of the following held for less than three
months: stock or securities, or options, futures or forward contracts (other
than options, futures or forward contracts on foreign currencies), or foreign
currencies (or options, futures or forward contracts on foreign currencies)
but only if such currencies (or options, futures or forward contracts) are
not directly related to the Fund's principal business of investing in stock
or securities (or options and futures with respect to stocks or securities
(the "30% Limitation"); and (c) diversify its holdings so that, at the end
of each quarter of each taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, cash items, United States Government
securities, securities of other regulated investment companies and other
securities with such other securities limited, in respect of any one issuer,
to an amount not greater than 5% of the value of the Fund's assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than United States Government securities). These requirements may
restrict the degree to which a Fund may realize short-term gains and limit
the range of that Fund's investments.
As a RIC, a Fund will not be subject to Federal income tax on its net
investment income (i.e., its investment company taxable income, as that term is
defined in the Code, determined without regard to the deduction for dividends
paid) and "net capital gains" (i.e., the excess of the Fund's net long-term
capital gains over net short-term capital losses), if any, that it distributes
in each taxable year to its shareholders, provided that the Fund distributes at
least 90% of its net investment income for such taxable year. However, a Fund
would be subject to corporate income tax (currently at a rate of 35%) on any
undistributed net investment income and net capital gains. Each Fund expects to
designate amounts retained as undistributed net capital gains in a notice to its
shareholders who will be (i) required to include in income for United States
federal income tax purposes, as long-term capital gains, their proportionate
<PAGE>
shares of the undistributed amount, (ii) entitled to credit their proportionate
shares of the 35% tax paid by the Fund on the undistributed amount against their
federal income tax liabilities and to claim refunds to the extent such credits
exceed their liabilities and (iii) entitled to increase their tax basis, for
federal income tax purposes, in their shares by an amount equal to 65% of the
amount of undistributed net capital gains included in the shareholder's income.
Each Fund will be subject to a nondeductible 4% federal excise tax to the
extent that the Fund does not distribute by the end of each calendar at least
98% of its ordinary income for such year, at least 98% of its net capital gain
income (generally the excess, if any, of its capital gains over its capital
losses) for the one-year period ending, as a general rule, on October 31 of
that year, plus 100% of any ordinary income and net capital gain income for the
preceding calendar year that was not distributed during such year. For this
purpose, any income or gain retained by that Fund that is subject to a
corporate tax will be considered to have been distributed by year-end.
Original Issue Discount
Each Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in obligations
such as certain Brady Bonds or zero coupon securities having original issue
discount (i.e., an amount equal to the excess of the stated redemption price of
the security at maturity over its issue price) or market discount (i.e., an
amount equal to the excess of the stated redemption price of the security at
maturity over the basis of the security immediately after it was acquired) if
the Fund elects to accrue market discount on a current basis. In addition,
income may continue to accrue for federal income tax purposes with respect to a
non-performing investment. Any of the foregoing income would be treated as
income earned by the Fund and therefore would be subject to the distribution
requirements of the Code. Because such income may not be matched by a
corresponding cash distribution to the Fund, the Fund may be required to
dispose of other securities to be able to make distributions to its investors.
The extent to which a Fund may liquidate securities at a gain may be limited by
the 30% limitation discussed above.
Foreign Withholding Taxes
A Fund may be subject to certain taxes imposed by foreign countries with
respect to its income and capital gains. If a Fund qualifies as a RIC, certain
distribution requirements are met and more than 50% in value of a Fund's total
assets at the close of any taxable year consists of stocks or securities of
foreign corporations, the Fund may elect to treat any foreign income taxes paid
by it as paid by its shareholders. If eligible, each Fund intends to make this
election. If a Fund makes this election, its shareholders will be required to
include in income their respective pro rata portions of foreign income taxes
paid by the Fund and, if they itemize their deductions, will be entitled to
deduct such respective pro rata portions in computing their taxable incomes or,
alternatively, to claim foreign tax credits (subject to the limitations
discussed below). Each year that the Fund makes this election, it will report
to its shareholders the amount per share of foreign income taxes it has elected
to have treated as paid by its shareholders.
Generally, a credit for foreign income taxes is subject to the limitation
that it may not exceed the shareholder's United States tax attributable to his
<PAGE>
or her total foreign source taxable income. For this purpose, the source of a
Fund's income flows through to its shareholders. A Fund's gains from the sale
of securities will be treated as derived from United States sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables, will be treated as
ordinary income derived from United States sources. The limitation on the
foreign tax credit is applied separately to certain categories of income and the
related foreign taxes. In addition, the foreign tax credit is allowed to offset
only 90% of the revised alternative minimum tax imposed on corporations and
individuals. Because of these limitations, shareholders of a Fund may be unable
to claim a credit for the full amount of their proportionate share of the
foreign taxes paid by a Fund.
The foregoing is only a general description of the treatment of foreign
withholding or other foreign taxes under the United States federal income tax
laws. Because the availability of a credit or deduction depends on the
particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisers.
Options, Futures and Foreign Currency Transactions
A Fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to stockholders. These provisions
also may require a Fund to mark-to-market certain types of the positions in its
portfolio (i.e., treat them as if they were closed out at the end of each
taxable year) which may cause the Fund to recognize income without receiving
cash with which to make distributions in amounts necessary to satisfy the 90%
and 98% distribution requirements for avoiding income and excise taxes. Each
Fund will monitor its transactions, will make the appropriate tax elections, and
will make the appropriate entries in its books and records when it acquires any
foreign currency, option, future contract, forward contract, or hedged
investment in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company and minimize the
imposition of income and excise taxes.
Investments in Passive Foreign Investment Companies
If a Fund purchases shares in a foreign investment company treated for U.S.
federal income tax purposes as a "passive foreign investment company" (a
"PFIC"), the Fund making the purchase may be subject to U.S. federal income tax
on a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by the Fund to
its shareholders. Additional charges in the nature of interest may be imposed
on a Fund in respect of deferred taxes arising from such distributions or
gains. If a Fund were to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code (a "QEF"), in lieu of the foregoing
<PAGE>
requirements, that Fund might be required to include in income each year a
portion of the ordinary earnings and net capital gain of the qualified electing
fund, even if not distributed to the Fund, and such amounts would be subject to
the 90% and excise tax distribution requirements described above in the
Prospectus.
In the case of PFIC stock owned by a RIC, proposed Treasury regulations not
currently in effect provided for a mark-to-market election for RICs that would
permit a RIC to elect to mark-to-market stock in a PFIC annually and thereby
avoid the need for a RIC to make a QEF election. These regulations would be
effective for taxable years ending after promulgation of the regulations as
final regulations.
As indicated in the Prospectus, descriptions of tax consequences set forth
in this Statement of Additional Information and the Prospectus are intended to
be a general guide. Investors should consult their own tax advisers regarding
specific questions as to the federal, state, local and foreign tax consequences
of ownership in either Fund.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Certain Information
Regarding Performance."
For purposes of quoting and comparing the performance of each Class of a
Fund to that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in
terms of total return and yield. Total return and yield quotations are computed
separately for each Class of shares of a Fund. Under the rules of the SEC
("Commission Rules"), funds advertising performance must include average annual
total return quotes calculated according to the following formula:
n
P(1+T) =ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a
hypothetical $1,000 payment made
at the beginning of the 1, 5 or
10 year periods at the end of
the 1, 5 or 10 year period (or
fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication. The Capital
Value Fund presents performance information for each Class of shares commencing
with the inception of its predecessor, the Dreyfus Capital Value Fund, Inc.
<PAGE>
(the "Dreyfus Capital Value Fund"). The Strategy Fund presents performance
information for each Class of shares commencing with the Strategy Fund's
commencement. Performance information for the period prior to August 1, 1991
reflects the performance of the Strategy Fund as a closed-end fund and does not
reflect payment of the underwriting discount paid in connection with the
initial public offering of the Strategy Fund's shares as a closed-end fund. In
addition, as an open-end fund, the Strategy Fund incurs certain additional
expenses as a result of the continuous offering and redemption of its shares.
Performance information for Class A and Class C shares of the Strategy Fund may
also reflect performance for time periods prior to the introduction of such
Class, and performance for such prior time periods will not reflect any fees
and expenses payable by such Class that were not borne by the Strategy Fund
prior to the introduction of such Class.
A Class' average annual total return figures calculated in accordance with
the foregoing formula assume that in the case of Class A of each Fund the
maximum sales load has been deducted from the hypothetical initial investment
at the time of purchase or in the case of Class B of the Capital Value Fund or
Class C of the Strategy Fund the maximum applicable CDSC has been paid upon
redemption at the end of the period. Total return or "T" in the formula above,
is computed by finding the average annual compounded rates of return over the
1, 5 and 10 year periods (or fractional portion thereof) presented that would
equate the initial amount invested to the ending redeemable value.
Performance information presented by a Fund with respect to Class A, Class
B (if applicable) and Class C is restated to reflect the maximum front end
sales load (with respect to Class A) or CDSC (with respect to Class B and Class
C) payable by such Class of that Fund at the time the performance information
is presented, but is based upon the distribution and service fees and other
expenses actually paid for the periods presented, rather than the distribution
and service fees and other expenses payable by the Class of that Fund at the
time the performance information is presented. Performance information with
respect to Class A of a Fund will reflect annual 12b-1 fees paid by Class A of
the Fund at the rate of .25 of 1% of the value of the average daily net assets
of Class A of the Fund plus certain additional expenses associated with
preparing, printing and distributing prospectuses. Performance information with
respect to Class B (if applicable) or Class C of a Fund will reflect an annual
distribution fee at the rate of .75 of 1% of the value of the average daily net
assets of Class B or Class C of the Fund, as the case may be, an annual service
fee at the rate of .25 of 1% of the value of the average daily net assets of
Class B or Class C of the Fund, as the case may be, and certain additional
incremental shareholder administrative expenses resulting from the deferred
sales charge arrangements.
Prior to January 15, 1993, the Dreyfus Capital Value Fund did not offer
Class B shares and, prior to August 24, 1995, the Dreyfus Capital Value Fund
did not offer Class C or Class R shares. Performance information with respect
to Class B or C of the Dreyfus Capital Value Fund for the periods prior to the
inception of those Classes does not reflect any distribution or service fees or
additional incremental shareholder administrative expenses resulting from the
deferred sales charge arrangements because such fees and expenses were not paid
during that period. Class B performance information for the period of the
Dreyfus Capital Value Fund's inception to the inception of Class B reflects the
<PAGE>
annual service and distribution fees paid by Class A, and therefore does not
reflect the higher distribution and service fees and additional incremental
shareholder administrative expenses payable by Class B because such higher fees
and expenses were not paid during that period. Capital Value Fund Class C
performance information for the period of the Dreyfus Capital Value Fund's
inception to the inception of Class C reflects the performance information for
Class B (which, prior to its inception, reflects the annual service and
distribution fees paid by Class A) and, therefore, with respect to the period
prior to the inception of Class B, does not reflect the higher distribution and
service fees and additional incremental shareholder administrative expenses
payable by Class C because such higher fees and expenses were not paid during
the period prior to the inception of Class B. Class R performance information
for the period of the Dreyfus Capital Value Fund's inception to the inception
of Class R reflects the performance information for Class A of the Capital
Value Fund.
Prior to August 1, 1995, the Strategy Fund did not offer Class C shares.
Performance information with respect to Class C of the Strategy Fund for the
period prior to July 15, 1992 does not reflect any distribution or service fees
or additional incremental shareholder administrative expenses resulting from
the deferred sales charge arrangements because such fees and expenses were not
paid during that period. Performance information with respect to Class C of the
Strategy Fund for the period from July 15, 1992 to August 1, 1995 reflects the
annual 12b-1 fees paid by Class A of the Strategy Fund, and therefore does not
reflect the higher distribution and service fees and additional incremental
shareholder administrative expenses payable by Class C because such higher fees
and expenses were not paid during that period. Performance information with
respect to Class C of the Strategy Fund for the period subsequent to the date
of Class C shares are first offered will reflect an annual distribution fee at
the rate of .75 of 1% of the value of the average daily net assets of Class C
of the Strategy Fund, an annual service fee at the rate of .25 of 1% of the
value of the average daily net assets of Class C of the Strategy Fund, and
certain additional incremental shareholder administrative expenses resulting
from the deferred sales charge arrangements. Performance information presented
by the Strategy Fund with respect to Class O is restated to reflect the maximum
front end sales load payable at the time the Fund last offered Class O shares.
The following tables set forth the average annual total return for Class A,
Class B, Class C and Class R shares of the Capital Value Fund for certain
periods of time each ending April 30, 1996, based upon the performance of
the Dreyfus Capital Value Fund, the Fund's predecessor. Investors should note
that information presented in the tables for Class B, Class C and Class R
shares prior to their inception is based on the historical expenses and
performance of a predecessor class and does not reflect the relative expenses
that an investor would incur as a holder of Class A, Class B, Class C or Class
R shares of the Capital Value Fund. Accordingly, the table should not be
utilized in evaluating whether Class A, Class B, Class C or Class R shares
would best suit an investor's needs. In evaluating the relative merits of such
shares, investors should refer to "The Funds' Expenses" and "Alternative
Purchase Methods" in the Funds' Prospectus.
<PAGE>
<TABLE>
Comstock Partners Capital Value Fund
<CAPTION>
Class A Class B<F3>
Total Return Average Annual Return Total Return Average Annual Return
at N.A.V. with LOAD at N.A.V. with LOAD at N.A.V. with CDSC at N.A.V with CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception (October 10, 1985) 147.03% 135.96% 8.94% 8.47% 140.15% 8.65%
10 Year 76.53% 68.63% 5.85% 5.36% 71.62% 5.55%
Policy Inception (April 28,
1987)<F2> 55.77% 48.72% 5.04% 4.50% 51.43% 4.71%
5 Year 2.66% -1.93% 0.53% -0.39% -0.20% -1.87% -0.04% -0.38%
1 Year -1.39% -5.86% -1.39% -5.86% -2.10% -5.87% -2.10% -5.87%
</TABLE>
<TABLE>
<CAPTION>
Class C<F3> Class R
Average Annual
Total Return Average Annual Return Total Return Return
at N.A.V. with CDSC at N.A.V. with CDSC at N.A.V at N.A.V.
<S> <C> <C> <C> <C> <C> <C>
Inception (October 10, 1985) 139.79% 8.64% 147.63% 8.97%
10 Year 71.36% 5.53% 76.97% 5.87%
Policy Inception (April 28, 1987) 51.21% 4.70% 56.15% 5.07%
5 Year -0.34% -0.07% 2.91% 0.58%
1 Year -2.24% -3.17% -2.24% -3.17% -1.15% -1.15%
____________________
<FN>
<F1> Performance information assumes dividend reinvestment.
<F2> On April 28, 1987, Comstock Partners, Inc., the Capital Value Fund's
Investment Adviser, became the Dreyfus Capital Value
Fund's Sub-Investment Adviser.
<F3> Class B shares of the Capital Value Fund were introduced on January 15,
1993 and Class C shares were introduced on August 24, 1995. Performance
information prior to January 15, 1993 does not reflect service and
distribution fees borne by Class B and C shares and certain other
expenses borne by Class B and C shares which are greater than those
borne by Class A shares and which, if reflected, would reduce the
performance quoted.
</TABLE>
The following tables set forth the average annual total returns for
Class O, Class A and Class C shares of the Strategy Fund for certain
periods of time each ending April 30, 1996.(1) Class O shares are no
longer issued by the fund except in connection with the reinvestment
of dividends on outstanding Class O shares. Investors should note that
information presented in the tables for Class A and Class C shares is
based upon historical expenses of the Strategy Fund which do not reflect
the relative expenses that an investor would incur as a holder of Class A
or Class C shares of the Strategy Fund. Accordingly, the table should not
be utilized in evaluating whether Class A or Class C shares would best suit
an investor's needs. In evaluating the relative merits of Class A and
Class C shares of the Strategy Fund, investors should refer to "The Funds'
Expenses" and "Alternative Purchase Methods" in the Funds' Prospectus.
<PAGE>
<TABLE>
Comstock Partners Strategy Fund
Average Annual Total Return
With Deduction of Applicable Sales Charges
<CAPTION>
Since
Commencement
One Year Three Years Five Years of Operations
-------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Class O<F2> . . . . . . . . . . . -1.96% 3.40% 5.07% 7.57%
Class A<F3><F4> . . . . . . . . . -2.22% 3.09% 4.83% 7.39%
Class C<F5><F6> . . . . . . . . . 0.99% 4.54% 5.70% 7.96%
</TABLE>
<TABLE>
Average Annual Total Return
Without Deduction of Applicable Sales Charges
<CAPTION>
Since
Commencement
One Year Three Years Five Years of Operations
-------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Class O . . . . . . . . . . . . . . . . . . . . . 2.66% 55.00% 67.04% 8.19%
Class A<F4> . . . . . . . . . . . . . . . . . . . 2.40% 4.69% 5.80% 8.02%
Class C<F6> . . . . . . . . . . . . . . . . . . . 1.96% 4.54% 5.70% 7.96%
____________________
<FN>
<F1> Performance information assumes dividend reinvestment. Performance
information for the period prior to August 1, 1991 reflects performance
of the Strategy Fund as a closed-end fund (assuming dividend reinvestment
pursuant to the Strategy Fund's Dividend Reinvestment Plan as then in
effect); as an open-end fund the Strategy Fund incurs certain additional
expenses as a result of the continuous offering and redemption of its
shares.
<F2> Performance information has been restated to reflect the maximum initial
sales charge payable on Class O shares when the Strategy Fund last
offered such shares.
<F3> Performance information has been restated to reflect the maximum initial
sales charge payable on Class A shares of the Strategy Fund.
<F4> Because Class A shares of the Strategy Fund were not actually introduced
until July 15, 1992, performance information for the period prior to
July 15, 1992 does not reflect service and distribution fees borne by
Class A shares which, if reflected, would reduce the performance quoted.
<F5> Performance information has been restated to reflect any applicable CDSC
with respect to Class C shares of the Strategy Fund in lieu of the
maximum initial sales charge payable on Class A shares.
<F6> Prior to August 1, 1995, the Strategy Fund did not offer Class C shares.
The performance information presented is based upon the performance
information for other Classes of the Strategy Fund, and does not reflect
service and distribution fees and certain other expenses borne by Class
C shares of the Strategy Fund which are greater than those borne by
Class A shares and which, if reflected, would reduce the performance
quoted.
</TABLE>
____________________
Each Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above
in order to compare more accurately the performance of the Fund with other
measures of investment return. For example, in comparing a Fund's total return
with data published by Lipper Analytical Services, Inc., or similar independent
services or financial publications, each Fund calculates its aggregate total
return for the specified periods of time by assuming the investment of $10,000
<PAGE>
in each Class of Fund shares at the Fund's commencement of operations (and
assuming the reinvestment of each dividend or other distribution pursuant to
the Strategy Fund's Dividend Reinvestment Plan for the period when the Strategy
Fund was a closed-end fund) and, thereafter, at net asset value on the
reinvestment date. Percentage increases are determined by subtracting the
initial value of the investment from the ending value and by dividing the
remainder by the beginning value.
Past performance is not predictive of future performance. All
advertisements containing performance data of any kind will include a legend
disclosing that such performance data represents past performance and that the
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
Advertisements and communications of a Fund may compare the performance of
that Fund's shares with that of other mutual funds, as reported by Lipper
Analytical Services, Inc. or similar independent services or financial
publications, and may also contrast the Fund's investment policies and
portfolio flexibility with other mutual funds. From time to time,
advertisements and other materials and communications of the Funds may cite
statistics to reflect the performance over time of a Fund's shares, utilizing
comparisons to indexes such as the Lehman Brothers Government Bond Index, the
Lehman Brothers Corporate Bond Index, the Lehman Brothers Government/Corporate
Bond Index, the Salomon Brothers High Grade Corporate Bond Index and the S&P
500 Index. From time to time, advertising materials for the Funds may refer to
the Dreyfus Corporation's standing in the financial community, to the role it
plays or has played in the mutual fund industry, and to statistical or other
information concerning trends relating to investment companies, as compiled by
industry associations such as the Investment Company Institute. The Funds'
advertising materials also may refer to the integration of the world's
securities markets, discuss the investment opportunities available worldwide
and mention the increasing importance of an investment strategy including
foreign investments. In addition, advertising materials for the Funds may
include the Investment Adviser's analysis of, or outlook for, the economy or
financial markets, compare the Investment Adviser's analysis or outlook with
the views of others in the financial community, and refer to the expertise of
the Investment Adviser's personnel and their reputation in the financial
community. From time to time advertising materials for the Funds also may refer
to Morningstar ratings and related analyses supporting the rating.
NET ASSET VALUE
Securities which are traded over-the-counter and on a stock exchange will
be valued according to the broadest and most representative market, and it is
expected that for many debt securities this ordinarily will be the
over-the-counter market. Notwithstanding the above, debt securities may be
valued on the basis of prices provided by an independent pricing service when
such prices are believed to reflect the fair market value of such securities.
The prices provided by a pricing service are determined without regard to bid
or last sale prices but take into account institutional size trading in similar
groups of securities and any developments related to specified securities.
<PAGE>
Securities not priced in this manner are valued at the mean of the most recent
bid and asked quotations, or when available, at the latest quoted sale price on
the date of valuation. When a Fund writes a call option, the amount of the
premium received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon the last
asked price. Options purchased by a 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 from two
or more dealers. Other investments, including futures contracts and related
options, 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. In valuing assets, prices denominated in foreign currencies are
converted to U.S. dollar equivalents at the exchange rates prevailing as of
11:30 a.m., New York time. Short-term debt securities having a value of 60 days
or less from the valuation date are valued on an amortized cost basis. The
values of other assets and securities for which no current quotations are
readily available are determined in good faith at fair value using methods
determined by the Board of Directors.
As stated in the Prospectus, each Fund's net asset value per share for each
Class of that Fund's common stock for the purpose of pricing purchase and
redemption orders is determined as of 15 minutes after the close of business on
the New York Stock Exchange (generally 4:00 p.m., New York time) on each
business day. As used in the Prospectus, "business day" refers to those days
when the Investment Adviser, Princeton, the Transfer Agent and the New York
Stock Exchange are all open for business, which is Monday through Friday,
except for holidays. As of the date of this Statement of Additional
Information, such holidays are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
CAPITAL STOCK
All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by series or class, except where voting by series or class
is required by law or where the matter involved affects only one series or
class (for example, matters pertaining to the service and distribution plan for
Class A shares of the Company shall be voted on only by holders of Class A
shares of the relevant Fund). Under the 1940 Act, the term "majority," when
referring to the approvals to be obtained from shareholders in connection with
general matters affecting a Fund, means the vote of the lesser of (i) 67% of
that Fund's shares represented at a meeting if the holders of more than 50% of
the outstanding shares are present in person or by proxy or (ii) more than 50%
of that Fund's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
Each share of a portfolio of the Company is entitled to such dividends and
distributions out of the assets belonging to that portfolio as are declared in
the discretion of the Company's Board of Directors. In determining the Fund's
net asset value, assets belonging to the Fund are credited with a proportionate
share of any general assets of the Company not belonging to the Fund and are
charged with the direct liabilities in respect of that Fund and with a share of
<PAGE>
the general liabilities of the Company. The general liabilities of the Company
are normally allocated in proportion to the relative net asset values of the
respective portfolios of the Company at the time of distribution.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid, non-assessable, fully transferable and redeemable
at the option of the holder.
Under the Company's Articles of Incorporation and Maryland law, directors
and officers of the Company are not liable to a Fund or its stockholders except
for (i) receipt of an improper personal benefit by a director or officer or
(ii) active and deliberate dishonesty of a director or officer that is material
to a cause of action in which a judgment is entered against such person. The
Company's Articles of Incorporation require that it indemnify its directors and
officers made party to any proceedings by reason of service in such capacities
unless it is proven that (i) the act or omission of a director or officer was
material to the matter giving rise to the proceeding and was committed in bad
faith or with active and deliberate dishonesty, (ii) a director or officer
received an improper personal benefit or (iii) in the case of a criminal
proceeding, a director or officer had reasonable cause to believe that his act
or omission was unlawful. These provisions are subject to the limitation under
the 1940 Act that no director or officer may be protected against liability to
the Company for willful misfeasance, bad faith, gross negligence or reckless
disregard for the duties of his office.
CUSTODIAN
The Bank of New York acts as the U.S. and international custodian for the
Capital Value Fund and U.S. custodian for the Strategy Fund. Brown Brothers
Harriman & Co. acts as the international custodian for the Strategy Fund. Under
their respective Custodian Agreements, The Bank of New York and Brown Brothers,
as the case may be, are authorized to establish accounts for foreign securities
owned by the relevant Fund to be held with foreign branches of United States
banks as well as with certain foreign banks and securities depositaries. The
custodians do not determine the investment policies of the Funds, nor decide
which securities the Funds will buy or sell.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc., a wholly owned subsidiary of the Sub-Investment
Adviser, is located at One American Express Plaza, Providence, Rhode Island
02903, and serves as the Funds' transfer and dividend disbursing agent. Under a
transfer agency agreement with the Company, on behalf of each of the Funds, the
Transfer Agent arranges for the maintenance of shareholders account records for
the Funds, the handling of certain communications between shareholders and the
Funds and the payment of dividends and distributions payable by the Funds. For
these services, the Transfer Agent receives a monthly fee computed on the basis
of the number of shareholder accounts it maintains for the Funds during the
month, and is reimbursed for certain out-of-pocket expenses. The Transfer Agent
has no part in determining the investment policies of either Fund or which
securities are to be purchased or sold by a Fund.
<PAGE>
EXPERTS
Ernst & Young LLP serves as the independent auditors for the Funds. The
financial statements of the Strategy Fund and the Dreyfus Capital Value Fund
(the predecessor to the Capital Fund) included in this Statement of Additional
Information have been so included in reliance upon the report of Ernst & Young
LLP, independent auditors, given on the authority of that firm as experts in
auditing and accounting.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information included in the Company's Registration Statement filed with
the SEC under the Securities Act of 1933 with respect to the securities offered
by the Prospectus. Certain portions of the Registration Statement have been
omitted from the Prospectus and this Statement of Additional Information
pursuant to the rules and regulations of the SEC. The Registration Statement
including the exhibits filed therewith may be examined at the office of the SEC
in Washington, D.C.
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respect by such
reference.
<PAGE>
Financial Statements
for the
Comstock Partners
Strategy Fund
<PAGE>
Comstock Partners Strategy Fund Schedule of Investments As of April 30, 1996
<TABLE>
<CAPTION>
S&P Moody's Face Amount/ Issue Value
Rating<F1> Rating<F1> Shares Held (Note 1a)
<S> <C> <C> <C> <C> <C>
Bonds
Corporate UNR UNR $3,850,000 Ashanti Capital, Ltd. $3,850,000
5.500% due 3/15/2003
Convertible Bonds - 4.1% UNR UNR 2,000,000 Bema Gold Corp. 3,560,000
7.500% due 2/28/2000
UNR UNR 1,500,000 Pegasus Gold Inc. 1,676,250
6.250% due 4/30/2002
UNR UNR 2,000,000 Pegasus Gold Inc. 2,235,000
6.250% due
4/30/2002 <F3>
----------
11,321,250
----------
U.S. Government Agency Federal National
Mortgage Association
Interest-Only
Stripped Securities:
Obligations - 3.2% AAA Aaa 28,438,275 Trust 267-2 8.500% 8,958,057
due 10/25/2024 ----------
U.S. Government United States
Treasury Notes:
Obligations - 45.2% UNR Aaa 5,005,000 7.875% due 7/31/1996 5,037,845
UNR Aaa 62,570,000 8.500% due 4/15/1997 64,202,686
UNR Aaa 54,155,000 8.875% due 11/15/1997 56,448,126
-----------
125,688,657
-----------
Foreign Government AAA UNR AUD 16,900,000 Commonwealth of 14,664,837
Australia 12.000% due
7/15/1999
Obligations - 26.1% UNR Aaa DEM 19,000,000 Republic of 14,251,859
Deutschland 9.000%
due 10/20/2000
New Zealand
Government:
AAA Aaa NZD 7,500,000 10.000% due 7/15/1997 5,198,722
AAA Aaa NZD 7,500,000 10.000% due 3/15/2002 5,429,834
BBB+ Baa1 SAR 65,960,850 Republic of South 12,584,767
Africa 13.000% due
8/31/2010
<PAGE>
South African Escom
Bonds:
BBB+ Baa3 SAR 29,679,400 11.000% due 6/01/2008 5,026,852
BBB+ Baa3 SAR 6,000,000 13.500% due 8/01/2020 1,167,701
UNR Aa1 SEK 88,600,000 Kingdom of Sweden 14,323,145
11.000% due 1/21/1999
----------
72,647,717
----------
Foreign Corporate European Investment
Bank:
Obligations - 5.0% AAA Aaa ITL 10,450,000,000 10.800% due 3/15/1999 7,083,863
AAA Aaa ITL 10,450,000,000 11.450% due 6,925,628
10/14/1997
----------
14,009,491
TOTAL INVESTMENTS IN BONDS (COST $234,457,467) 83.6% 232,625,172
Common Stocks
Chemical - 0.3% 65,000 PT Tri Polyta 812,500
Indonesia, ADR<F3> --------
Country Funds - 1.0% 5,000 Bankovni Investment 222,226
Fund <F5>
127,000 Fleming Russia 889,000
Securities
Fund <F5>
20,000 Harvardsky Dividend 313,096
Investment
Fund <F5>
77,600 Lazard Vietnam Fund, 824,500
Ltd. <F5>
9,665 Privatization 228,520
Investment Fund
5,000 Rentiersky Investment 173,642
Fund <F5>
---------
2,650,984
---------
Mining - 3.8% 108,100 Beatrix Mines, Ltd., 932,363
ADR<F3>
145,000 Driefontein 2,301,875
Consolidated, Ltd.,
ADR<F3>
315,000 East Rand Gold & 882,000
Uranium Company,
Ltd., ADR<F3>
<PAGE>
210,000 Elandsrand Gold 1,391,250
Mining, Ltd.,
ADR<F3>
113,000 Free State 1,235,938
Consolidated Gold
Mines, Ltd., ADR<F3>
300,000 Hartebeestfontein 1,080,000
Gold, ADR<F3>
295,000 Vaal Reefs 2,876,250
Exploration & Mining
Company, Ltd.,
ADR<F3>
----------
10,699,676
----------
Natural Gas - 0.6% 70,000 UGI Corp. 1,566,250
----------
Real Estate Investment 40,000 Equity Inns, Inc. 475,000
Trusts - 2.3% 56,200 Essex Property 1,159,125
Trust, Inc.
105,000 G & L Realty Corp. 1,365,000
45,936 HGI Realty, Inc. 941,688
69,000 RFS Hotel 1,190,250
Investors, Inc.
90,000 South West Property 1,226,250
Trust
----------
6,357,313
----------
Retail - 0.6% 45,000 Melville Corp. 1,749,375
----------
Telecommunications - 0.9% 45,000 BCE, Inc. 1,771,875
25,000 US West, Inc. 818,750
----------
2,590,625
TOTAL INVESTMENTS IN COMMON STOCKS (COST $22,691,959) - 9.5% 26,426,723
</TABLE>
<PAGE>
Comstock Partners Strategy Fund Schedule of Investments (concluded) As of
April 30, 1996
<TABLE>
<CAPTION>
S&P Moody's Face Amount/ Issue Value
Rating<F1> Rating<F1> Shares Held (Note 1a)
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock
Mining - 1.1% 55,000 Amax Gold, Inc. $3.75 $2,942,500
convertible pfd.
TOTAL INVESTMENT IN PREFERRED STOCK (COST $2,758,000) - 1.1% 2,942,500
Short-Term Securities<F2>
U.S. Government United States
Treasury Bills:
Obligations - 0.0% UNR Aaa $10,000 5.00% due 7/18/96 9,896
TOTAL INVESTMENT IN SHORT-TERM SECURITIES (COST $9,895) - 0.0% 9,896
Total investments (cost $259,917,321) - 94.2% 262,004,291
Put options purchased (cost $17,744,040) - 4.1% 1,293,969
Unrealized appreciation on foreign exchange contracts - 0.1% 163,363
Other assets less liabilities - 1.6% 4,655,453
------------
Net Assets - 100.0% $278,117,076
============
Put options purchased as of April 30, 1996 are as follows:
</TABLE>
<TABLE>
<CAPTION>
Number of Issue Expiration Value
Contracts Date/ Exercise (Note 1a)
Price
<S> <C> <C> <C> <C>
25 Nasdaq Index Jun. 96/550 $1,562
225 S&P 500 Index Jun. 96/450 2,813
665 S&P 500 Index Jun. 96/475 8,312
670 S&P 500 Index Jun. 96/500 12,562
715 S&P 500 Index Jun. 96/550 40,219
240 S&P 500 Index Sep. 96/550 60,000
170 S&P 500 Index Sep. 96/575 71,188
2,000 S&P 500 Index Sep. 96/600 1,350,000
135 S&P 500 Index Dec. 96/525 40,500
865 S&P 500 Index Dec. 96/550 400,062
230 S&P 500 Index Dec. 96/600 241,500
2,470 S&P 500 Index Jun. 97/600 3,982,875
580 S&P 500 Index Mar. 97/600 804,750
135 S&P Flex Index Dec. 96/525 38,813
2,795 S&P Flex Index Mar. 97/600 4,157,563
100 S&P Flex Index Jun. 97/550 81,250
-----------
Total Put Options $11,293,969
Purchased ===========
</TABLE>
Foreign exchange contracts as of April 30, 1996 are as follows:
<TABLE>
<CAPTION>
Expiration Currency Currency Value
Date Purchased Cost Sold (Note 1a)
<S> <C> <C> <C>
July 1996 U.S. Dollar $14,223,819 German Deutschemark $ 14,436,638
March 1997 U.S. Dollar 30,049,456 Hong Kong Dollar 30,000,000
----------- ------------
Total Foreign
Currency
Contracts $44,273,275 $ 44,436,638
=========== ============
<FN>
<F1> UNR - Unrated by Standard & Poor's or Moody's.
<F2> 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.
<F3> American Depositary Receipt (ADR).
<F4> This security is exempt from registration under Rule 144A of the
Securities Act of 1933. This security may be resold in transactions
exempt from registration normally to qualified institutional buyers. At
April 30, 1996, the market value of the security was $2,235,000 or 0.8%
of net assets.
<F5> Non-income producing.
</TABLE>
Ratings of issues shown have not been audited by Ernst & Young LLP.
See notes to financial statements.
<PAGE>
Comstock Partners Strategy Fund Statement of Assets and Liabilities As of
April 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investments at value (cost, $259,917,321) (Note 1a) . . . . . . . . . . . . . . . . . . . . $262,004,291
Put options purchased (cost, $17,744,040) (Note 1a) . . . . . . . . . . . . . . . . . . . . 11,293,969
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,524,774
Capital stock sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,495,784
Securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792,292
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,096 7,913,946
----------
Unrealized appreciation on foreign exchange contracts . . . . . . . . . . . . . . . . . . . 163,363
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,359
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,460,928
------------
Liabilities:
Payables:
Dividends to Shareholders (Note 1f) . . . . . . . . . . . . . . . . . . . . . . 1,575,418
Capital stock redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,131,667
Investment advisory fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . 139,338
Distributor fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,138
Administrative fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . 52,594 2,981,155
----------
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 362,697
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,343,852
------------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $278,117,076
============
Net Assets Consist of:
Class O Common Stock, $0.001 par value, 150,000,000 shares authorized . . . . . $233,843,144
Class A Common Stock, $0.001 par value, 150,000,000 shares authorized . . . . . 59,616,217
Class C Common Stock, $0.001 par value, 200,000,000 shares authorized . . . . . 327,389
Undistributed investment income - net . . . . . . . . . . . . . . . . . . . . . 7,472,754
Accumulated undistributed realized gain on foreign currency transactions - net . 5,554,446
Accumulated realized loss on investments - net . . . . . . . . . . . . . . . . . (24,397,812)
Unrealized depreciation on investments and put options purchased - net . . . . . (4,363,101)
Unrealized appreciation on foreign currency transactions - net . . . . . . . . . 64,039
------------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $278,117,076
============
Net Asset Value:
Class O Shares - Based on net assets of $224,147,506 and 25,519,901 shares outstanding . . $8.78
-----
Class A Shares - Based on net assets of $53,652,377 and 6,111,059 shares outstanding . . . $8.78
-----
Class C Shares - Based on net assets of $317,193 and 36,185 shares outstanding . . . . . . $8.77
-----
</TABLE>
See notes to financial statements.
<PAGE>
Comstock Partners Strategy Fund Statement of Operations for the Year Ended
April 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Investment Income (Note 1e):
Interest and discount earned (net of withholding tax of $33,611) . . . . . . . . . . . . . . . . . . . . $23,258,557
Dividends (net of withholding tax of $101,204) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,435,361
-----------
Total investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,693,918
-----------
Expenses:
Investment advisory fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,977,868
Administrative fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734,288
Shareholder servicing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551,870
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,115
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221,051
Distributor fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,135
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,511
Printing and shareholder reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,074
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,605
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,939
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,475
Service and distribution plan fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,992
-----------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,214,822
-----------
Investment Income - Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,479,096
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions (Notes 1b, 1c, 1e &
3):
Realized gain on investments - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,830,993
Realized loss on put options purchased - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,288,661)
Realized loss on futures transactions - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,430,306)
Realized gain on foreign currency transactions - net . . . . . . . . . . . . . . . . . . . . . . . . . . 5,554,446
Change in unrealized appreciation (depreciation) on investments - net . . . . . . . . . . . . . . . . . . (24,512,012)
Change in unrealized appreciation (depreciation) on put options purchased - net . . . . . . . . . . . . . 13,061,612
Change in unrealized appreciation (depreciation) on foreign currency transactions - net . . . . . . . . . (120,704)
-----------
Net Increase in Net Assets Resulting from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . $8,574,464
===========
</TABLE>
See notes to financial statements.
<PAGE>
Comstock Partners Strategy Fund Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
April 30, 1996 April 30, 1995
<S> <C> <C> <C>
Operations: Investment income - net . . . . . . . . . . . . . $21,479,096 $29,207,784
Realized gain on investments - net . . . . . . . 18,830,993 32,986,783
Realized loss on put options purchased - net . . (23,288,661) (7,930,990)
Realized gain (loss) on futures transactions - (2,430,306) 11,976,046
net . . . . . . . . . . . . . . . . . . . . . . .
Realized gain (loss) on foreign currency 5,554,446 (1,573,852)
transactions - net . . . . . . . . . . . . . . .
Change in unrealized appreciation (depreciation) (24,512,012) (34,460,316)
on investments - net . . . . . . . . . . . . . .
Change in unrealized appreciation (depreciation) 13,061,612 (21,228,136)
on put options purchased - net . . . . . . . . .
Change in unrealized appreciation (depreciation) (120,704) 224,710
on foreign currency transactions - net . . . . .
------------ ------------
Net increase in net assets resulting from 8,574,464 9,202,029
operations . . . . . . . . . . . . . . . . . . . ------------ ------------
Dividends and Investment income - net:
Distributions to
Shareholders:
Class O . . . . . . . . . . . . . . . . . . . . . (16,495,114) (22,343,442)
Class A . . . . . . . . . . . . . . . . . . . . . (3,453,678) (4,289,556)
Class C . . . . . . . . . . . . . . . . . . . . . (6,837) -
------------- -------------
Net decrease in net assets resulting from (19,955,629) (26,632,998)
dividends and distributions . . . . . . . . . . . ------------- -------------
Capital Stock Net decrease in net assets resulting from capital (105,999,799) (143,462,260)
Transactions (Note stock transactions . . . . . . . . . . . . . . .
4):
------------ -------------
Decrease in net assets . . . . . . . . . . . . . (117,380,964) (160,893,229)
Net Assets: Beginning of year . . . . . . . . . . . . . . . . 395,498,040 556,391,269
------------- -------------
End of year . . . . . . . . . . . . . . . . . . . $278,117,076 $395,498,040
============= =============
Undistributed net investment income . . . . . . . $7,472,754 $13,574,665
============= =============
</TABLE>
See notes to financial statements.
<PAGE>
Comstock Partners Strategy Fund Financial Highlights
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class O Class A Class C<F2> Class O Class A Class O Class A Class O Class A<F1> Class O
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
April 30, 1996 April 30, 1995 April 30, 1994 April 30, 1993 April 30, 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
year $9.10 $9.10 $9.00 $9.40 $9.41 $9.27 $9.27 $9.56 $9.55 $9.48
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income
from
investment
operations
Investment
income-
net 0.76 0.57 0.37 0.66 0.52 0.77 0.68 0.90 0.64 0.80
Realized
and
unrealized
gain
(loss)
on
investments,
put
options
purchased
and
foreign
currency
transactions
- -net (0.53) (0.36) (0.22) (0.44) (0.34) 0.15 0.22 (0.39) (0.28) 0.08
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
from
investment
oper-
ations 0.23 0.21 0.15 0.22 0.18 0.92 0.90 0.51 0.36 0.88
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less
dividends
Dividends
from
investment
income-
net (0.55) (0.53) (0.38) (0.52) (0.49) (0.77) (0.74) (0.75) (0.64) (0.76)
Dividends
from
realized
transaction
gains - - - - - (0.02) (0.02) (0.05) - (0.04)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
divi-
dends (0.55) (0.53) (0.38) (0.52) (0.49) (0.79) (0.76) (0.80) (0.64) (0.80)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net
asset
value,
end of
year $8.78 $8.78 $8.77 $9.10 $9.10 $9.40 $9.41 $9.27 $9.27 $9.56
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total
return
<F3> 2.66% 2.40% 1.96%<F5> 2.39% 1.94% 10.13% 9.91% 5.70% 5.42%<F4> 9.59%
======== ======== ============ ======== ======== ======== ======== ======== ============ ========
Ratios
/Supplementary
Data
Net assets,
end of
period
(000) $224,148 $53,652 $317 $329,624 $65,874 $464,937 $91,454 $548,514 $23,492 $810,700
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Ratio
of
expenses
to
average
net
assets
1.23% 1.48% 2.28%<F6> 1.14% 1.46% 1.07% 1.40% 1.06% 1.41<F6> 1.11%
======== ======== ============ ======== ======== ======== ======== ======== =========== ========
Ratio
of
expenses,
excluding
distribution
fees, to
average
net
assets 1.23% 1.23% 1.28%<F6> 1.14% 1.14% 1.07% 1.08% 1.06% 1.07%<F6> 1.11%
======== ======== ============ ======== ======== ======== ======== ======== ============ ========
Ratio
of
investment
income-
net to
average
net
assets 6.56% 6.33% 5.79%<F6> 6.19% 5.83% 7.57% 6.85% 8.95% 8.74%<F6> 8.03%
======== ======== ============ ======== ======== ======== ======== ======== ============ ========
Portfolio
turnover
rate 96% 96% 96% 100% 100% 31% 31% 56% 56% 89%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
<FN>
<F1> Class A shares were introduced on July 15, 1992.
<F2> Class C shares were introduced on August 1, 1995.
<F3> Total investment returns exclude the effects of sales load 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.
<F4> 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.
<F5> Total investment return is presented for the year ended April 30, 1996.
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.
<F6> Annualized.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS:
1. Significant Accounting Policies:
Comstock Partners Strategy Fund (the "Fund") is a separate, non-diversified
portfolio of Comstock Partners Funds, Inc. (the "Company"), an open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act"). The Fund's investment objective is to maximize total
return over the long-term investment horizon by investing primarily in a
portfolio of debt securities. The Company originally commenced operations in
May of 1988 as a closed-end investment company, with the Fund as its only
portfolio. At a special meeting of shareholders on June 14, 1991, holders of a
majority of the Company's outstanding shares voted to approve the conversion of
the Company to an open-end investment company. The Company converted to
open-end status on August 1, 1991. On July 15, 1992, a second class of shares
of the Fund, Class A ("Class A") was created and on August 1, 1995, a third
class of shares of the Fund, Class C ("Class C"), was created. On February 8,
1996, (i) the Company changed its name from Comstock Partners Strategy Fund,
Inc., to Comstock Partners Funds, Inc., (ii) the Fund, the Company's existing
portfolio, became a separate portfolio of the Company and (iii) the Comstock
Partners Capital Value Fund was organized as a new portfolio of the Company.
Class C shares are subject to a contingent deferred sales charge. Class O of
the Fund ("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
Amended and Restated Class A Service and Distribution Plan and the Amended and
Restated 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
Amended and Restated Class A Service and Distribution Plan and the Amended and
Restated Class C Service and Distribution Plan, respectively. Class O shares of
the Fund are no longer issued by the Company 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 Company, with
respect to 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
counterparty 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
<PAGE>
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.
(g) Reclassifications - During the year ended April 30, 1996, net realized
losses on foreign currency related transactions relating to prior years of
$7,618,586 were reclassified from accumulated net realized loss on foreign
currency transactions to undistributed net investment income relating to prior
years. Net capital gains relating to prior years of $6,792 were reclassified
from accumulated realized capital gains to undistributed investment income. Net
assets were not affected by the reclassifications.
2. Investment Advisory, Sub-Investment Advisory, Administration
Agreements and Transactions with Affiliates:
The Company, on behalf of 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
<PAGE>
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, on behalf of the Fund, 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 Company, on behalf of 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 Company, on behalf of 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) at an annual rate equal to 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 Amended and Restated
Class A Service and Distribution Plan, adopted pursuant to Rule 12b-1 under the
1940 Act, the Class A shares bear the cost of (a) payment by the Company, on
behalf of 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 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
Amended and Restated Class C Service 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 Company, on behalf of the Fund, to the Distributor for distributing the
Fund's Class C shares at an annual rate of .75%, payable monthly, of the value
of the Fund's average daily net assets attributable to Class C shares and
(b) payments by the Company, on behalf of the Fund, to 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 Company are officers and/or directors
of Comstock.
<PAGE>
3. Purchases and Sales of Investments:
Purchases and sales of investments, excluding short-term and U.S. Government
securities, for the year ended April 30, 1996 were $125,669,656 and
$214,291,968 respectively.
Realized and unrealized gains (losses) for the year ended April 30, 1996 were
as follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains (Losses) Gains (Losses)
<S> <C> <C>
Long-term investments . . . . . . . . . . . . . . . . . . $18,837,697 $2,086,969
Short-term investments . . . . . . . . . . . . . . . . . (6,704) 1
Put options purchased . . . . . . . . . . . . . . . . . . (23,288,661) (6,450,071)
Financial futures contracts . . . . . . . . . . . . . . . (2,430,306) -
Foreign currency transactions . . . . . . . . . . . . . . 5,554,446 64,039
------------ ------------
$ (1,333,528) $ (4,299,062)
============ ============
</TABLE>
As of April 30, 1996, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes;
accordingly, unrealized depreciation for Federal income tax purposes aggregated
$4,316,778 of which $9,719,757 related to appreciated securities and
$14,036,535 related to depreciated securities. In addition, at April 30, 1996,
the Fund had a capital loss carryforward of $24,703,925 ($3,407,129 expiring
April 30, 2000, $8,776,949 expiring April 30, 2001 and $12,519,847 expiring
April 30, 2004) 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 Year Dollar
Ended April 30, 1996 Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Shares issued to shareholders in reinvestment of dividends and distributions . . . . 273,782 $2,440,189
----------- ------------
Total issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,782 2,440,189
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,995,465) (98,585,628)
----------- -----------
Net decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,721,683) $(96,145,439)
=========== ============
</TABLE>
<TABLE>
<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>
<PAGE>
Transactions in shares of Class A capital stock were as follows:
<TABLE>
<CAPTION>
For the Year Dollar
Ended April 30, 1996 Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,245,317 $11,109,682
Shares issued to shareholders in reinvestment of dividends and distributions . . . . 119,302 1,062,696
---------- -----------
Total issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,364,619 12,172,378
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,495,609) (22,354,127)
---------- -----------
Net decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,130,990) $(10,181,749)
========== ============
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>
Transactions in shares of Class C capital stock were as follows:
<TABLE>
<CAPTION>
For the Year Dollar
Ended April 30, 1996<F1> Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,733 $367,799
Shares issued to shareholders in reinvestment of dividends and distributions . . . . 99 875
---------- ------------
Total issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,831 368,674
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,647) (41,285)
---------- ------------
Net increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,185 $327,389
========== ============
<FN>
<F1> Class C Shares were introduced on August 1, 1995.
</TABLE>
<PAGE>
5. Dividends:
In May and June 1996 the Company's Board of Directors declared ordinary income
dividends for Class O, Class A and Class C shares as follows:
<TABLE>
<CAPTION>
Class O Class A Class C Payable Date Record Date
Amount per share
<S> <C> <C> <C> <C> <C>
$0.05000 $0.04806 $0.04346 May 31, 1996 May 22, 1996
$0.05000 $0.04813 $0.04244 June 28, 1996 June 20, 1996
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors of Comstock Partners Funds, Inc.
and Shareholders of Comstock Partners Strategy Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Comstock Partners Strategy Fund (one of the
series constituting Comstock Partners Funds, Inc.) as of April 30, 1996, and
the related statements of operations and changes in net assets and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year ended
April 30, 1995 and financial highlights for each of the four years in the
period then ended were audited by other auditors whose report dated May 31,
1995 expressed an unqualified opinion on such financial statement and financial
highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
April 30, 1996, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1996 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Comstock Partners Strategy Fund at April 30, 1996, and the results of its
<PAGE>
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
New York, New York Ernst & Young LLP
June 5, 1996
<PAGE>
Financial Statements
for the Dreyfus Capital Value Fund
(the predecessor to the Comstock Partners Capital Value Fund)
<PAGE>
Statement of Investments
<TABLE>
<CAPTION> April 30, 1996
Common Stocks--18.9% Shares Value
- ---------------------------- -------------------------------------------- ----------- --------------
<S> <C> <C> <C>
Basic Industries--13.3%
Gold Mining: Ashanti Goldfields, G.D.R. . . . . . . . . . 329,500 $ 7,207,812
Driefontein Consolidated, A.D.R. . . . . . . 127,000 2,016,125
East Rand Gold & Uranium, A.D.R. . . . . . . 100,000 275,000
Elandsrand Gold Mining, A.D.R. . . . . . . . 251,100 1,663,538
Firstmiss Gold . . . . . . . . . . . .<F1> 124,200 3,819,150
Free State Consolidated Gold Mines, A.D.R. . 135,000 1,476,563
Golden Shamrock Mines . . . . . . . . .<F1> 440,000 419,105
Hartesbeesfontein Gold Mining, A.D.R. . . . . 433,000 1,602,100
Newmont Gold . . . . . . . . . . . . . . . . 23,000 1,334,000
Pegasus Gold . . . . . . . . . . . . .<F1> 342,300 4,877,775
Royal Oak Mines . . . . . . . . . . . .<F1> 1,559,900 6,434,587
Santa Fe Pacific Gold . . . . . . . . . . . . 344,082 5,118,220
TVX Gold . . . . . . . . . . . . . . <F1> 262,000 2,063,250
Vaal Reefs Exploration & Mining, A.D.R. . . . 347,500 3,388,125
Western Deep Levels, A.D.R. . . . . . . . . . 38,000 1,888,125
------------
Total Basic Industries . . . . . . . . . . 43,583,475
============
Restructuring--5.6%
Chemicals--.8% P.T. Tri Polyte Indonesia, A.D.R.. 197,000 2,462,500
-----------
Conglomerates--.7% Teledyne . . . . . . . . . . . 63,000 2,338,875
-----------
Electrical Equipment--.3% Hitachi, A.D.R. . . . . . . . . . 10,000 1,076,250
-----------
Energy--.6% Baker Hughes . . . . . . . . . .65,000 2,063,750
-----------
Food and Beverages--.4% Castle & Cooke . . . . . . 84,733 1,376,911
-----------
Holding Companies--.5% Horsham . . . . . . . . . 113,200 1,598,950
Miscellaneous--.8% Fleming Russian Securities Fund..<F1> 220,765 1,518,863
Lazard Vietnam Fund . . . . . <F1> 87,000 924,375
-----------
2,443,238
-----------
Retail--.9% Duty Free International . . . . . . . . . . . . . . . . 111,200 1,487,300
Hartmarx . . . . . . . . . . . . . . . . . . . . <F1> 260,000 1,430,000
-----------
2,917,300
-----------
Semiconductors--.6% Fujitsu . . . . . . . . . . . . . . . 27,000 277,609
NEC, A.D.R. . . . . . . . . . . . . . . . . . . . . 18,400 1,168,400
OKI Electric Industry . . . . . . . . . . . . . . . 32,000 252,856
Toshiba . . . . . . . . . . . . . . . . . . . . . . 37,000 286,729
------------
1,985,594
------------
Total Restructuring . . . . . . . . . . . . . 18,263,368
------------
TOTAL COMMON STOCKS
(cost $54,106,314) . . . . . . . . . . . . $ 61,846,843
============
</TABLE>
<PAGE>
Statement of Investments (continued)
<TABLE>
<CAPTION> April 30, 1996
Preferred Stocks-1% Shares Value
- ----------------------------------------------------------------------------------------- ------------- ----------------
<S> <C> <C> <C>
Conglomerates: Teledyne, Series E
(cost $31,339) . . . . . . . . . . . . . . . 2,130 $ 30,885
Contracts
Subject
Put Options--3.4% to Put
---------
Nasdaq 100 Index:
June '96 @ 550 . . . . . . . . . . . . . . . 14,500 $ 9,062
Standard & Poor's 500 Index Flex Options:
December '96 @ $525 . . . . . . . . . . . . . 32,500 95,469
March '97 @ $600 . . . . . . . . . . . . . . 167,000 2,463,250
Standard & Poor's 500 Index:
June '96 @ $450 . . . . . . . . . . . . . . . 23,500 1,469
June '96 @ $475 . . . . . . . . . . . . . . . 113,000 14,125
June '96 @ $500 . . . . . . . . . . . . . . . 73,000 11,406
June '96 @ $550 . . . . . . . . . . . . . . . 52,000 32,000
September '96 @ $550 . . . . . . . . . . . . 184,000 483,000
September '96 @ $575 . . . . . . . . . . . . 113,000 480,250
December '96 @ $525 . . . . . . . . . . . . . 32,500 103,594
December '96 @ $550 . . . . . . . . . . . . . 270,000 1,299,375
December '96 @ $600 . . . . . . . . . . . . . 151,000 1,661,000
June '97 @ $550 . . . . . . . . . . . . . . . 74,000 610,500
June '97 @ $600 . . . . . . . . . . . . . . . 231,000 3,724,875
TOTAL PUT OPTIONS -----------
(cost $23,352,608) . . . . . . . . . . . . . $10,989,875
============
Principal
Bonds and Notes--26.7% Amount
- ------------------------------------------------------------------------------------- -----------------------
Australian Securities:
Republic of Australia,
Bonds--25.7% 12%, 7/15/1999 . . . . . . . . . . <F2> $15,586,560 $17,198,210
Austrian Securities:
Republic of Austria,
4.50%, 2/12/2000 . . . . . . . . . <F3> 3,295,820 3,486,978
Danish Securities:
Kingdom of Denmark,
4.25%, 9/20/1999 . . . . . . . . . <F3> 12,057,878 12,696,945
<PAGE>
European Investment Bank:
11.45%, 10/14/1997 . . . . . . . . <F4> 7,780,980 8,066,931
10.80%, 3/15/1999 . . . . . . . . . <F4> 7,780,980 8,257,565
----------
16,324,496
----------
</TABLE>
<PAGE>
Statement of Investments (continued) April 30, 1996
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
<S> <C> <C>
Basic Industries--18.9%
Bonds (continued) German Securities:
Bundesrepublik Deutschland,
9%, 10/20/2000 . . . . . . . . . . <F5> $15,590,520 $17,946,248
Swedish Securities:
Republic of Sweden,
11%, 1/21/1999 . . . . . . . . . . <F6> 15,022,122 16,486,778
----------
84,139,655
----------
Notes--1.0% Federal National Mortgage Association:
Non-Callable Strips, (collateralized by
FNMA Strip, 10/1/2024) Cl. 267-2,
8.50%, 10/25/2024
(Interest Only Obligation) 10,115,901<F7> 3,186,509
------------
TOTAL BONDS AND NOTES
(COST $84,257,242) . . . . . . . . . . . . $ 87,326,164
============
Loan Participations--3.0%
Foreign Loan Participations: Vnesheconombank (Bank for Foreign Economic
Affairs of the USSR)
5/3/2025 . . . . . . . . . . . . . <F3, 10> $18,086,817 $ 7,325,161
5/3/2025 . . . . . . . . . . . . . <F5, 10> 5,875,824 2,607,397
------------
TOTAL LOAN PARTICIPATIONS $ 9,932,558
===========
(cost $6,703,509) . . . . . . . . . . . . . .
Short-Term Investment--47.3%
- ---------------------------------------------------------------------------------------------
U.S. Treasury Bills: 4.85% 5/2/96 . . . . . . . . . . . . . . . . $12,315,000 $ 12,313,276
4.82% 5/9/96 . . . . . . . . . . . <F8, 10> 33,772,000 33,736,202
4.75% 5/16/96 . . . . . . . . . . . . . <F8> 23,352,000 23,305,296
5.04% 5/30/96 . . . . . . . . . . . . . . . . 2,473,000 2,463,429
4.97% 7/5/96 . . . . . . . . . . . . . . . . 83,654,000 82,902,787
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $154,720,595) . . . . . . . . . . . . . $154,720,990
============
TOTAL INVESTMENTS (cost $323,171,607) . . . . . . . . . . . . . . . . . . . . . . . . . 99.4% $324,847,315
----- ============
CASH AND RECEIVABLES (NET) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6% $ 1,942,988
===== ============
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $326,790,303
===== ============
<PAGE>
Notes to Statement of Investments:
<FN>
<F1> Non-income producing.
<F2> Denominated in Australian Dollars.
<F3> Denominated in Swiss Francs.
<F4> Denominated in Italian Lira.
<F5> Denominated in German Marks.
<F6> Denominated in Swedish Krona.
<F7> Notional face amount.
<F8> Partially held by broker as collateral for
open short positions.
<F9> Partially held by the custodian in a
segregated account as collateral for
open financial futures positions.
<F10> Securities restricted as to public resale,
investments in restricted securities, with an
aggregate market value of $9,932,558,
represents approximately 3.0% of the
Fund's net assets:
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Acquisition Purchase Percentage of
Loan Participations: Date Price Net Assets Valuation<F*>
- ------------------------------------------------------------------------------ ----------------- --------------------- -------------
<S> <C> <C> <C> <C>
Vnesheconombank (Bank for Foreign Economic
Affairs of the USSR)
5/3/2025 . . . . . . . . . . . . . . . . . . . . 5/2/95 $.24 3.0% fair value
6/29/95
</TABLE>
[FN]
* The valuation of these securities has been determined in good faith
under the direction of the Board of Directors.
<TABLE>
<CAPTION>
Statement of Financial Futures April 30, 1996
- ------------------------------------------------------------------------------------------------------------------- ----------------
Market Value Unrealized
Number of Covered Appreciation
Contracts by Contracts Expiration at 4/30/96
------------ ------------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Futures Purchased:
$
Nikkei 225 . . . . . . . . . . . . . . . . . . . . 22 $ 2,435,950 June '96 $206,250
Financial Futures Sold Short:
Japanese Yen . . . . . . . . . . . . . . . . . . . 22 (2,635,325) June '96 13,200
Standard & Poor's 500 . . . . . . . . . . . . . . . 36 (11,988,000) December '96 17,100
Standard & Poor's 500 . . . . . . . . . . . . . . . 64 (21,516,800) March '97 25,850
--------
$262,400
========
</TABLE>
See notes to financial statements.
<PAGE>
Statement of Securities Sold Short
<TABLE>
<CAPTION>
Common Stock--23.8% Shares Value
<S> <C> <C> <C>
Auto Related--.6% Cooper Tire & Rubber . . . . . . . . . . . . 80,000 $ 1,960,000
------------
Beverages--1.3% Anheuser-Busch . . . . . . . . . . . . . . . 30,000 2,013,750
Seagram . . . . . . . . . . . . . . . . . . . 61,000 2,066,375
------------
4,080,125
------------
Chemicals--2.4% Air Products & Chemicals . . . . . . . . . . 20,000 1,142,500
Great Lakes Chemical . . . . . . . . . . . . 29,000 1,979,250
Lubrizol . . . . . . . . . . . . . . . . . . 70,000 2,030,000
Naico Chemical . . . . . . . . . . . . . . . 34,000 1,037,000
RPM . . . . . . . . . . . . . . . . . . . . . 100,000 1,537,500
-----------
7,726,250
Computers--.5% Compaq Computer . . . . . . . . . . . . . . . 32,000 1,492,000
-----------
Consumers--1.1% B.A.T. Industries, A.D.R. . . . . . . . . . . 23,100 356,606
Reebok International . . . . . . . . . . . . 53,900 1,563,100
Rubbermaid . . . . . . . . . . . . . . . . . 60,300 1,703,475
-----------
3,623,181
-----------
Cosmetics--.9% International Flavors & Fragrances . . . . . 40,000 1,965,000
Tambrands . . . . . . . . . . . . . . . . . . 21,000 1,005,375
-----------
2,970,375
-----------
Electrical Equipment--.3% Duracell International . . . . . . . . . . . 20,000 905,000
-----------
Environmental Control--.3% Browing-Ferris Industries . . . . . . . . . . 35,000 1,128,750
-----------
Finance--3.0% Alex Brown . . . . . . . . . . . . . . . . . 19,900 1,077,088
Bear Stearns . . . . . . . . . . . . . . . . 122,587 3,079,998
CMAC Investment . . . . . . . . . . . . . . . 15,000 840,000
Merrill Lynch . . . . . . . . . . . . . . . . 18,000 1,086,750
Paine Webber Group . . . . . . . . . . . . . 88,000 1,837,000
Schwab [Charles] . . . . . . . . . . . . . . 80,000 1,960,000
-----------
9,880,836
-----------
Food Processing--3.4% Dean Foods . . . . . . . . . . . . . . . . . 44,000 1,028,500
General Mills . . . . . . . . . . . . . . . . 35,000 1,942,500
Heinz (H.J.) . . . . . . . . . . . . . . . . 53,850 1,824,169
Kellogg . . . . . . . . . . . . . . . . . . . 37,200 2,655,150
Sara Lee . . . . . . . . . . . . . . . . . . 51,000 1,581,000
-----------
Unilever, N.V. . . . . . . . . . . . . . . . 14,500 1,979,250
-----------
Food Wholesale--.2% Sysco . . . . . . . . . . . . . . . . . . . . 25,000 11,010,569
-----------
803,125
<PAGE>
Common Stock--23.8% Shares Value
- -------------------------------------------------------------------------------------------- -------------- --------------
Forest Products & Paper--2.3% Boise Cascade . . . . . . . . . . . . . . . . 51,000 $ 2,371,500
Bowater . . . . . . . . . . . . . . . . . . . 50,000 2,000,000
International Paper . . . . . . . . . . . . . 50,000 1,993,750
Louisiana Pacific . . . . . . . . . . . . . . 40,000 1,005,000
-----------
7,370,250
-----------
Home Appliances--.5% Whirlpool . . . . . . . . . . . . . . . . . . 25,200 1,515,150
-----------
Machinery-Construction & Material--
.9% Caterpillar . . . . . . . . . . . . . . . . . 30,000 1,920,000
Ingersoll-Rand . . . . . . . . . . . . . . . 26,500 1,026,875
-----------
2,946,875
Metals--.9% ASARCO . . . . . . . . . . . . . . . . . . . 60,000 1,987,500
Aluminum Company of America . . . . . . . . . 16,000 998,000
-----------
2,985,500
-----------
Packing & Container--.6% Crown Cork & Seal 43,000 2,026,375
-----------
Publishing & Printing--.7% Dow Jones & Co 27,000 1,009,125
Houghton Mifflin 12,000 556,500
Reader's Digest Association, Cl.A. 20,000 820,000
-----------
2,385,625
-----------
Retail--1.5% Home Depot . . . . . . . . . . . . . . . . . 43,633 2,067,113
Penney (J.C.) . . . . . . . . . . . . . . . . 20,000 990,000
Wal-Mart Stores . . . . . . . . . . . . . . . 81,000 1,933,875
-----------
4,990,988
-----------
Technology--.5% Kulicke & Soffa Industries . . . . . . . . . 38,000 722,000
Novell . . . . . . . . . . . . . . . . . . . 5,000 72,500
Novellus Systems . . . . . . . . . . . . . . 14,000 759,500
-----------
1,554,000
-----------
Telecommunications--.7% Hong Kong Telecom, A.D.R. . . . . . . . . . . 114,000 2,166,000
-----------
Textiles--.6% V.F. . . . . . . . . . . . . . . . . . . . . 35,000 1,995,000
Transportation--.6% Federal Express . . . . . . . . . . . . . . . 26,000 2,099,500
-----------
TOTAL SECURITIES SOLD SHORT
(process $75,570,492) . . . . . . . . . . . . $77,615,474
===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities April 30, 1996
- ----------------------------------------------------------------------------------------- ------------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $323,171,607)--see statement $324,847,315
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,655,957
Receivable from broker for proceeds on securities sold short . . . . . 75,570,492
Dividends and interest receivable . . . . . . . . . . . . . . . . . . . 2,906,235
Receivable for subscriptions to Common Stock . . . . . . . . . . . . . 340,787
Receivable from broker for gains on securities sold short . . . . . . . 321,830
Net unrealized appreciation on forward currency exchange contracts--
Note 4(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293,158
Receivable for future variation margin--Note 4(a) . . . . . . . . . . . 30,126
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,719
-----------
406,008,619
===========
LIABILITIES:
Due to investment adviser . . . . . . . . . . . . . . . . . . . . . . . $ 121,544
Due to sub-investment adviser . . . . . . . . . . . . . . . . . . . . . 82,610
Due to Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . 120,875
Securities sold short, at value (proceeds $75,570,492)--see statement . 77,615,474
Payable for Common Stock redeemed . . . . . . . . . . . . . . . . . . . 908,800
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,013 79,218,316
------------ ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $326,790,303
============
REPRESENTED BY:
Paid-in capital $439,826,841
Accumulated undistributed investment income--net 7,141,282
Accumulated net realized (loss) on investments (120,306,438)
Accumulated net unrealized appreciation on investments, securities
sold short, and foreign currency transactions (including $262,400
net unrealized appreciation on financial futures) . . . . . . . . . 128,618
------------
NET ASSETS at value . . . . . . . . . . . . . . . . . . . . . . . . . . . $326,790,303
============
Shares of Common Stock outstanding:
Class A Shares
(100 million shares of $.01 par value authorized) 22,913,826
===========
Class B Shares
(100 million shares of $.01 par value authorized) 7,881,479
===========
Class C Shares
(100 million shares of $.01 par value authorized) 344,669
===========
Class R Shares
(100 million shares of $.01 par value authorized) 122
===========
NET ASSET VALUE per share:
Class A Shares
($241,471,817 divided by 22,913,826 shares) . . . . . . . . . . . . . . . . . $ 10.54
============
Class B Shares
($81,786,205 divided by 7,881,479 shares) . . . . . . . . . . . . . . . . . . $ 10.38
=============
Class C Shares
($3,530,994 divided by 344,669 shares) . . . . . . . . . . . . . . . . . . . $ 10.24
============
Class R Shares
($1,287 divided by 122,215 shares) . . . . . . . . . . . . . . . . . . . . . $ 10.53
============
</TABLE>
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Year Ended Seven Months Ended
September 30, 1995 April 30, 1996
---------------------- -------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest . . . . . . . . . . . . . . . . . . . . $ 20,726,708 $ 9,708,892
Cash dividends (net of %75,758 in 1995 and
$20,964 in 1996 foreign taxes withheld at
source) . . . . . . . . . . . . . . . . . . . 1,924,318 690,074
---------- -----------
Total Income . . . . . . . . . . . . . . . . . $22,651.026 $ 10,407,966
Expenses:
Investment advisory fee--Note 3(a) . . . . . . . 1,840,790 879,030
Sub-investment advisory fee--Note 3(a) . . . . . 1,365,789 602,595
Dividends on securities sold short . . . . . . . 1,861,794 580,873
Shareholder servicing costs--Note 3(c) . . . . . 1,659,621 795,623
Distribution fees--Note 3(b) . . . . . . . . . . 738,585 367,088
Prospectus and shareholders' reports . . . . . . 120,170 3,167
Custodian fees . . . . . . . . . . . . . . . . . 106,205 48,042
Professional fees . . . . . . . . . . . . . . . . 73,048 108,737
Registration fee . . . . . . . . . . . . . . . . 72,468 42,449
Interest expenses--Note 2 . . . . . . . . . . . . 59,145 45,028
Directors' fees and expenses--Note 3(d) . . . . . 49,789 36,174
Miscellaneous . . . . . . . . . . . . . . . . . . 22,130 24,988
---------
Total Expenses . . . . . . . . . . . . . . . . 7,969,534 3,528,794
---------- ----------
INVESTMENT INCOME--NET 14,681,492 6,879,172
---------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments--Note 4(a):
Long transactions (including options
transactions and foreign currency
transactions) . . . . . . . . . . . . . . . . $ 2,696,163 $ 27,541,930
Short sale transactions . . . . . . . . . . . . . (22,403,778) (3,510,946)
Net realized gain (loss) on forward currency
exchange contracts--Note 4(a):
Long transactions . . . . . . . . . . . . . . . . 118,547 86,001
Short transactions . . . . . . . . . . . . . . . -- (796,761)
Net realized (loss) on financial futures--Note 4(a):
Long transactions . . . . . . . . . . . . . . . . -- (1,238,406)
Short transactions . . . . . . . . . . . . . . . (7,893,569) (1,836,215)
----------- ----------
Net Realized Gain (Loss) . . . . . . . . . . . . . (27,482,637) 20,245,603
Net unrealized (depreciation) on investments,
securities sold short and foreign currency
transactions (including $1,427,125 in 1995
and $205,425 in 1996 net unrealized
appreciation on financial futures) . . . . . . (28,971,658) (15,354,865)
----------- ----------
<PAGE>
NET REALIZED AND UNRELATED GAIN (LOSS) ON
INVESTMENTS . . . . . . . . . . . . . . . . . (56,454,295) 4,890,738
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . . . . $(41,772,803) $ 11,769,910
============ =============
</TABLE>
See notes to financial statements.
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30, Seven Months
--------------------------- Ended
1994 1995 April 30, 1996
--------------------------- ----------------
<S> <C> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . $9,823,170 $14,681,492 $ 6,789,172
Net realized gain (loss) on investments . . . . . . . (9,217,163) (27,482,637) 20,245,603
Net unrealized appreciation (depreciation)
on investments, securities sold short
foreign currency transactions and financial
futures for the period . . . . . . . . . . . . . . 26,168,303 (28,971,658) (15,354,865)
----------- ----------- -----------
Net increase (Decrease) In Net Assets Resulting from
Operations . . . . . . . . . . . . . . . . . . . . 26,774,310 (41,772,803) 11,769,910
----------- ---------- ----------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares . . . . . . . . . . . . . . . . . . (8,633,848) (8,406,886) (10,905,352)
Class B shares . . . . . . . . . . . . . . . . . . (913,770) (1,940,644) (2,909,347)
Class C shares . . . . . . . . . . . . . . . . . . -- -- (29,071)
Class R shares . . . . . . . . . . . . . . . . . . -- -- (44)
------------ ------------ -----------
Total Dividends . . . . . . . . . . . . . . . . . (9,547,618) (10,347,530) (13,843,814)
------------ ------------ -----------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold:
Class A shares . . . . . . . . . . . . . . . . . . 116,664,797 39,533,363 27,095,651
Class B shares . . . . . . . . . . . . . . . . . . 85,400,651 26,973,391 18,392,593
Class C shares . . . . . . . . . . . . . . . . . . -- 1,000 3,593,718
Class R shares . . . . . . . . . . . . . . . . . . -- 1,000 270
Dividends reinvested:
Class A shares . . . . . . . . . . . . . . . . . . 4,857,514 5,143,774 6,964,456
Class B shares . . . . . . . . . . . . . . . . . . 489,988 990,338 1,653,446
Class C shares . . . . . . . . . . . . . . . . . . -- -- 29,071
Class R shares . . . . . . . . . . . . . . . . . . -- -- 44
Cost of shares redeemed:
Class A shares . . . . . . . . . . . . . . . . . . (147,154,408) (136,312,596) (61,921,614)
Class B shares . . . . . . . . . . . . . . . . . . (8,939,968) (36,549,208) (25,781,438)
Class C shares . . . . . . . . . . . . . . . . . . -- -- (62,459)
----------- ------------ -----------
Increase (Decrease) in Net Assets From Capital Stock
Transactions . . . . . . . . . . . . . . . . . . . . . . . . 51,318,574 (107,218,938) (30,036,262)
----------- ------------ -----------
Total Increase (Decrease) In Net Assets . . . . . 68,545,266 (152,339,271) (32,110,166)
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . 442,694,474 511,239,740 358,900,469
----------- ------------ -----------
<PAGE>
End of period (including undistributed
investment, income--net: $9,771,962 in
1994, $14,105,924 in 1995 and $7,141,282 in
1996) . . . . . . . . . . . . . . . . . . . . . . . $ 511,239,740 $ 358,900,469 $ 326,790,303
============ ============== =============
</TABLE>
<PAGE>
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
Shares
Class A Class B
Seven Months
Seven Months Ended
Ended April 30,
Year Ended September 30, April 30, Year Ended September 30, 1996
-------------------------------- ----------- -------------------------- -------------
1994 1995 1996 1994 1995 1996
---------------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . 9,919,385 3,569,389 2,562,332 7,342,835 2,464,126 1,768,677
Shares issued for dividends
reinvested . . . . . . . . . . . 411,308 466,343 688,868 41,951 91,024 165,676
Shares redeemed . . . . . . . . . (12,560,968) (12,382,551) (5,880,857) (783,960) (3,400,272) (2,491,504)
----------- ----------- ---------- -------- ---------- ----------
Net increase (Decrease) in
Shares Outstanding . . . . . . (2,230,275) (8,346,819) (2,629,657) 6,600,826 (845,122) (557,151)
=========== ========== ========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Shares
-------------------------------------------------------------------
Class C Class B
--------------------------------------------------------------------
Seven Months
Period Ended Seven Months Period Ended Ended
September 30, Ended April 30, September 30, April 30,
1995<F*> 1996 1995<F*> 1996
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS (continued)
Shares sold . . . . . . . . . . . . . . . . 94 347,688 92 26
Shares issued for dividends reinvested . . -- 2,948 -- 4
Shares redeemed . . . . . . . . . . . . . . -- (6,061) -- --
---- ------- ---- ----
Net increase
In Shares Outstanding . . . . . . . . . . 94 344,575 92 30
==== ======= ==== ===
</TABLE>
[FN]
<PAGE>
* From August 22, 1995 (commencement of initial offering) to September
30, 1995.
<PAGE>
Financial Highlights
Contained below is per share operating performance data for a share
of Common Stock outstanding, total investment return, ratios to average
net assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Class A Shares
Year Ended September 30, Seven Months
----------------------------------------------------------------------- Ended
1991 1992 1993 1994 1995 April 30, 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period . . . . . . . . . . . . $ 15.08 $ 12.97 $ 12.41 $ 11.42 $11.88 $ 10.61
-------- --------- ------- --------- ------- -------
Investment Operations:
Investment income--net . . . . .73 .40 .24 .24 .36 .22
Net realized and unrealized
gain (loss) on investments,
securities sold short,
foreign currency
transactions and financial
futures . . . . . . . . . . . (.89) (.39) (.62) .46 (1.37) .17
-------- --------- ------- --------- ------- -------
Total from investment
Operations . . . . . . . . (.16) .01 .38 .70 (1.01) .39
-------- --------- ------- --------- ------- -------
Distributions:
Dividends from investment
income--net . . . . . . . . . . (.99) (.57) (.61) (.24) (.26) (.46)
Dividends from net realized gain
on investments . . . . . . . . (.96) -- -- -- -- --
Total Distributions . . . . . (1.95) (.57) (.61) (.24) (.26) (.46)
Net asset value, end of period $ 12.97 $ 12.41 $11.42 $ 11.88 $10.61 $10.54
======== ========= ======= ========= ======= =======
TOTAL INVESTMENT RETURN<F(1)>
RATIOS/SUPPLEMENTAL DATA: (.70%) (0.2%) (2.70%) 6.14 % (8.58%) 3.81%<F(2)>
Ratio of operating expenses to
average net assets . . . . . . 1.19% 1.19% 1.23% 1.21 % 1.24% .75%<F(2)>
Ratio of interest expense and
dividends on securities sold
short to average net assets . .49% .39% .45% .39 % .45% .18%<F(2)>
Ratio of net investment income
to average net assets 5.58% 2.83% 1.94% 2.06 % 3.61% 2.136%<F(2)>
Portfolio Turnover Rate 154.07% 344.29% 41.78% 45.57 % 54.70% 55.69%<F(2)>
Average commission rate paid(3) -- -- -- -- -- $ .0531
Net Assets, end of period (000's
Omitted) $ 755,450 $537,392 $412,316 $402,708 $271,052 $ 241,472
<PAGE>
</TABLE>
____________________
[FN]
(1) Exclusive of sales load.
[FN]
(2) Not annualized.
[FN]
(3) For fiscal years beginning on or after October 1, 1995 the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
See notes to financial statements.
<PAGE>
Financial Highlights (continued)
Contained below is per share operating performance data for a share
of Common Stock outstanding total investment return, ratios to average net
assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Class B Shares
---------------------------------------------------------------------------
Seven Months
Year Ended September 30, Ended
----------------------------------------------------------------------------
1993<F(1)> 1994 1995 April 30, 1996
----------------- ---------- ------ ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period . . . . . $10.58 $11.32 $ 11.69 $ 10.41
--------- ------- -------- --------
Investment Operations:
Investment income--net . . . . . . . . . . . . .03 .23 .31 .18
Net realized and unrealized gain (loss) on
investments,
securities sold short, foreign currency
transactions and
financial futures . . . . . . . . . . . . . .71 .38 (1.38) .16
--------- ------- -------- ---------
Total from Investment Operations . . . . . . .74 .61 (1.07) .34
--------- ------- -------- ---------
Distributions:
Dividends from investment income--net . . . . . -- (.24) (.21) (.37)
--------- ------- -------- ---------
Net asset value, end of period . . . . . . . . $11.32 $11.69 $ 10.41 $ 10.38
========= ======= ========= ========
TOTAL INVESTMENT RETURN<F(2)> . . . . . . . . . . 6.99<F(3)> 5.35% (9.27%) 2.36%<F(3)>
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net
assets . . . . . . . . . . . . . . . . . . . . . 1.49%<F(3)> 1.99% 1.99% 1.18%
<PAGE>
Ratio of interest expense and dividends on
securities sold short to average net assets .31%<F(3)> .40% .45% .19%<F(3)>
Ratio of net investment income to average net
assets . . . . . . . . . . . . . . . . . . . . . .83%<F(3)> 1.39% 2.86% 1.70%
Portfolio Turnover Rate . . . . . . . . . . . . 41.78% 45.57% 54.70% 55.69%<F(3)>
Average commission rate paid(4) . . . . . . . . -- -- -- $ .0531
Net Assets, end of period (000's Omitted) . . . $30,378 $108,532 $ 87,847 $ 81,786
<PAGE>
</TABLE>
____________________
[FN]
(1) From January 15, 1993 (commencement of initial offering) to
September 30, 1993.
[FN]
(2) Exclusive of sales load.
[FN]
(3) Not annualized.
[FN]
(4) For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
<PAGE>
Financial Highlights (continued)
Contained below is per share operating performance data for a share
of Common Stock outstanding, total investment return, ratios to average
net assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Class C Shares Class R Shares
-------------------------------------- --------------------------------
Seven Months Seven Months
Period Ended Ended Period Ended Ended
September 30, April 30, September 30, April 30,
1995<F(1)> 1996 1995<F(1)> 1996
----------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period . . . . . . $ 10.64 $10.41 $10.84 $10.62
-------- ------ ------ -------
Investment Operations:
Investment income--net . . . . . . . . . . . . . .02 .44 .04 .30
Net realized and unrealized gain (loss) on
investments, securities sold short, foreign
currency transactions and financial futures . (.25) (.12) (.26) .09
-------- ------ ------ -------
Total from Investment Operations . . . . . . . (.23) .32 (.22) .39
-------- ------ ------ -------
Distributions:
Dividends from investment income--net . . . . . . -- (.49) -- (.48)
======== ======= ====== ======
Net asset value, end of period . . . . . . . . . $ 10.41 $10.24 $10.62 $10.53
======== ======= ====== ======
TOTAL INVESTMENT RETURN<F(2)> . . . . . . . . . . (2.26%)<F(3)> 3.30%<F(2)> (2.03%)<F(2)> 3.97 %<F(3)>
RATIOS/SUPPLEMENT DATA:
Ratio of operating expenses to average net assets . .26%<F(3)> 1.28 %<F(3)> .149%<F(3)> .61%<F(3)>
Ratio of interest expense and dividends on
securities sold short to average net assets . . . .06%<F(3)> .18%<F(3)> .049%<F(3)> .17%<F(3)>
Ratio of net investment income to average net assets .23%<F(3)> 1.71%<F(3)> .38%<F(3)> 2.28%<F(3)>
Portfolio Turnover Rate . . . . . . . . . . . . . . 54.70% 55.69%<F(3)> 54.70% 55.69%<F(3)>
Average commission rate paid<F(4)> . . . . . . . . -- $.0531 -- $.0531
Net Assets, end of period (000s Omitted) . . . . . $ 1 $3,531 $ 1 $ 1
</TABLE>
____________________
[FN]
(1) From August 22, 1995 (commencement of initial offering) to
September 30, 1995.
[FN]
<PAGE>
(2) Exclusive of sales load.
[FN]
(3) Not annualized.
[FN]
(4) For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Capital Value Fund (A Premier Fund) (the "Fund") is
registered under the Investment Company Act of 1940 ("Act") as a
diversified open-end management investment company. The Fund's investment
objective is to maximize total return, consisting of capital appreciation
and current income. The Dreyfus Corporation ("Dreyfus") serves as the
Fund's investment adviser. Comstock Partners, Inc. ("Comstock Partners")
serves as the Fund's sub-investment adviser. Dreyfus is a direct
subsidiary of Mellon Bank, N.A.
On January 29, 1996 the Board of Directors of the Fund voted to
approve, and to submit for shareholder approval, an Agreement and Plan of
Reorganization (the "Reorganization") providing for the transfer of all or
substantially all of the Fund's assets, subject to liabilities,
attributable to the Fund's Class A, Class B, Class C and Class R shares in
a tax-free exchange for corresponding Class A, Class B, Class C and Class
R shares of common stock of Comstock Partners Capital Value Fund, a
portfolio of Comstock Partners Funds, Inc., and the assumption by Comstock
Partners Capital Value Fund of stated liabilities. A special meeting of
the Fund's shareholders to consider the Reorganization currency is
scheduled to be held on June 19, 1996. The Comstock Partners Capital Value
Fund is a newly formed portfolio of Comstock Partners Funds, Inc. Comstock
Partners, Inc., the Fund's sub-investment adviser, will serve as
investment adviser to the Comstock Partners Capital Value Fund, and The
Dreyfus Corporation, the Fund's Investment adviser, will serve as sub-
investment adviser and administrator to the Comstock Partners Capital
Value Fund. The Comstock Partners Capital Value Fund's investment
objective and policies are substantially identical to those of the Fund
and the Comstock Partners Capital Value Fund is intended to be operated in
a manner that is substantially similar to the current operation of the
Fund. In connection therewith, the Fund has changed its fiscal year end
from September 30 to April 30.
Premier Mutual Fund Services, Inc. (the "Distributor") acts as the
distributor of the Fund's shares. The Fund offers Class A, Class B, Class
C and Class R shares. Class A shares are subject to a sales charge imposed
at the time of purchase, Class B shares are subject to a contingent
deferred sales charge imposed at the time of redemption on redemptions
made within six years of purchase, Class C shares are subject to a
contingent deferred sales charge imposed at the time of redemption on
redemptions made within one year of purchase and Class R shares are sold
at net asset value per share only to institutional investors. Other
differences between the four Classes include the services offered to and
the expenses borne by each Class and certain voting rights.
(a) Portfolio valuation: Investments in securities (including
options and financial futures) are valued at the last sales price on the
securities exchange on which such securities are primarily traded or at
the last sales price on the national securities market. Securities not
listed on an exchange or the national securities market, or securities for
which there were no transactions, are valued at the average of the most
<PAGE>
recent bid and asked prices, except for open short positions, where the
asked price is used for valuation purposes. Bid price is used when no
asked price is available. Securities for which there are no such
valuations are valued at fair value as determined in good faith under the
direction of the Board of Directors. Investments denominated in foreign
currencies are translated to U.S. dollars at the prevailing rates of
exchange. Forward currency exchange contracts are valued at the forward
rate.
(b) Foreign currency transactions: The Fund does not isolate that
portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are included with
the net realized and unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized on securities transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities other
than investments in securities, resulting from changes in exchange rates.
Such gains and losses are included with net realized and unrealized gain
or loss on investments.
(c) Securities transactions and investment Income: Securities
transactions are recorded on a trade date basis. Realized gain and loss
from securities transactions are recorded on the identified cost basis.
Dividend income is recognized on the ex-dividend date and interest income,
including, where applicable, amortization of discount on investments, is
recognized on the accrual basis.
(d) Dividends to shareholders: Dividends are recorded on the ex-
dividend date. Dividends from investment income-net and dividends from net
realized capital gain are normally declared and paid annually, but the
Fund may make distributions on a more frequent basis to comply with the
distribution requirements of the Internal Revenue Code. To the extent that
net realized capital gain can be offset by capital loss carryovers, it is
the policy of the Fund not to distribute such gain.
(e) Federal income taxes: It is the policy of the Fund to continue
to qualify as a regulated investment company, if such qualification is in
the best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of
taxable income sufficient to relieve it from substantially all Federal
income and excise taxes.
The Fund has an unused capital loss carryover of approximately
$138,700,000 available for Federal income tax purposes to be applied
against future net securities profits, if any, realized subsequent to
April 30, 1996. If not applied, $9,100,000 of the carryover expires in
fiscal 1999, $29,800,000 expires in fiscal 2000, $17,800,000 expires in
<PAGE>
fiscal 2001, $56,700,000 expires in fiscal 20002, $9,200,000 expires in
fiscal 2003, and $16,100,000 expires in fiscal 2004.
NOTE 2--Bank Line of Credit:
In accordance with an agreement with a bank, the Fund may borrow up
to $10 million under a short-term unsecured line of credit. Interest on
borrowings is charged at rates which are related to Federal Funds rates in
effect from time to time. At April 30, 1996, there were no outstanding
borrowings under the line of credit.
The average daily amount of short-term debt outstanding during the
period ended April 30, 1996 and September 30, 1995, was approximately
$1,126,761 and $859,000, respectively, with a related weighted average
annualized interest rate of 6.87% and 6.89%, respectively. The maximum
amount borrowed at any time during the period ended April 30, 1996 and
September 30, 1995 was $10 million.
NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other
Transactions With Affiliates:
(a) Fees payable by the Fund pursuant to the provisions of an
Investment Advisory Agreement with Dreyfus and a Sub-investment Advisory
Agreement With Comstock Partners (together "Agreements") are payable
monthly, computed on the average daily value of the Fund's net assets at
the following annual rates:
<TABLE>
<CAPTION>
Average Net Assets Dreyfus Comstock Partners
<S> <C> <C>
0 up to $25 million . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 of 1% .15 of 1%
$25 up to $75 million . . . . . . . . . . . . . . . . . . . . . . . . . . .50 of 1% .25 of 1%
$75 up to $200 million . . . . . . . . . . . . . . . . . . . . . . . . . .45 of 1% .30 of 1%
$200 up to $300 million . . . . . . . . . . . . . . . . . . . . . . . . . .40 of 1% .35 of 1%
In excess of $300 million . . . . . . . . . . . . . . . . . . . . . . . . .375 of 1% .375 of 1%
</TABLE>
The Agreements further provide that the Fund may deduct from the fees
to be paid to Dreyfus and Comstock Partners, or Dreyfus and Comstock
Partners will bear such excess expense, to the extent required by state
law, should the Fund's aggregate expenses, exclusive of taxes, brokerage,
interest on borrowings (which, in the view of Stroock, Stroock & Lavan,
counsel to the Fund, also contemplates dividends and interest accrued on
securities sold short), and extraordinary expenses, exceed the expense
limitation of any state having jurisdiction over the Fund. The most
stringent state expense limitation applicable to the Fund presently
requires reimbursement in any full fiscal year that such expenses
(exclusive of distribution expenses and certain expenses as described
<PAGE>
above) exceed 2 1/2% of the first $30 million, 2% of the next $70 million
and 1 1/2% of the excess over $100 million of the average value of the
Fund's net assets in accordance with California "blue sky" regulations. No
expense reimbursement was required for the period ended April 30, 1996 and
the year ended September 30, 1995.
Dreyfus Service Corporation, a wholly owned subsidiary of Dreyfus,
retained $24,723 and $13,897 during the period ending April 30, 1996 and
September 30, 1995, respectively from commissions earned on sales of Fund
shares.
(b) Under the Distribution Plan adopted pursuant to Rule 12b-1 under
the Act, the Fund pays the Distributors for distributing the Fund's Class
B and Class C shares at an annual rate of .75 of 1% of the value of the
average daily net assets of Class B and Class C. During the period ended
April 30, 1996 and September 30, 1995, respectively, $361,278 and $738,584
was charged to the Fund for the Class B shares and $5,810 and $1 was
charged to the Fund for the Class C shares.
(c) Under the Shareholder Services Plan, the Fund pays the
Distributor, at an annual rate of .25 of 1% of the value of the average
daily net assets of Class A, Class B and Class C shares for the provision
of certain services. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and
services related to the maintenance of shareholder accounts. The
Distributor may make payments to Service Agents in respect to these
services. The Distributor determines the amount to be paid to Service
Agents. For the period ended April 30, 1996, $371,510, $120,426 and $1,937
were charged to Class A, Class B and Class C shares, respectively, by the
Distributor pursuant to the Shareholder Services Plan. For the year ended
September 30, 1995, $822,664 and $246,195 were charged to Class A & B
shares, respectively, and no amounts were charged to the Class C Shares,
by the Distributor pursuant to the Shareholder Service Plan.
Effective December 1, 1995, the Fund compensates Dreyfus Transfer,
Inc., a wholly owned subsidiary of the Manager, under a transfer agency
agreement for providing personnel and facilities to perform transfer
agency services for the Fund. Such compensation amounted to $94,974 for
the period from December 1, 1995 through April 30, 1996.
(d) Each director who is not an "affiliated person" as defined in
the Act receives from the Fund an annual fee of $4,500 and an attendance
fee of $500 per meeting. The Chairman of the Board receives an additional
25% of such compensation and each director emeritus receives 50% of such
compensation.
NOTE 4--Securities Transactions:
(a) The aggregate amount of purchases and sales of investment
securities and securities sold short, excluding short-term securities,
financial futures, options and transactions, and forward currency exchange
contracts during the period ended April 30, 1996 is summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
Purchases Sales
---------------- --------------
<S> <C> <C>
Long transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,643,105 $ 206,235,571
Short sales transactions . . . . . . . . . . . . . . . . . . . . . . . . 51,796,802 58,427,934
------------ -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $116,439,907 $ 264,663,505
============ =============
</TABLE>
The Fund is engaged in short-selling which obligates the Fund to
replace the security borrowed by purchasing the security at current market
value. The Fund would incur a loss if the price of the security increases
between the date of the short sale and the date on which the Fund replaces
the borrowed security. The Fund would realize a gain if the price of the
security declines between those dates. Until the Fund replaces the
borrowed security, the Fund will maintain daily, a segregated account with
the broker and/or custodian, of cash and/or U.S. Government securities
sufficient to cover its short position. Securities sold short at April
30, 1996 and their related market values and proceeds are set forth in the
Statement of Securities Sold Short.
The following summarizes open forward currency contracts at April 30,
1996:
<PAGE>
<TABLE>
<CAPTION>
Foreign
Currency U.S. Dollar Unrealized
Forward Currency Sale Contracts Amounts Proceeds Value Appreciation
- --------------------------------------------------------- -------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
German Deutschemarks, expiring 7/17/96 . . . . . . 30,575,000 $20,341,024 $20,047,866 $293,158
</TABLE>
The Fund enters into forward currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings. When executing forward currency exchange
contracts, the Fund is obligated to buy or sell a foreign currency at a
specified rate on a certain date in the future. With respect to sales of
forward currency exchange contracts, the Fund would incur a loss if the
value of the contract increases between the date the forward contract is
opened and the date the forward contract is closed. The Fund realizes a
gain if the value of the contract decreases between those dates. With
respect to purchases of forward currency exchange contracts, the Fund
would incur a loss if the value of the contract decreases between the date
the forward contract is opened and the date the forward contract is
closed. The Fund realizes a gain if the value of the contract increases
between those dates. The Fund is also exposed to credit risk associated
with counter party nonperformance on these forward currency exchange
contracts which is typically limited to the unrealized gains on such
contracts that are recognized in the Statement of Assets and Liabilities.
The Fund may invest in financial contracts in order to gain exposure
to or protect against changes in the market. The Fund is exposed to market
risk as a result of changes in the value of the underlying financial
instruments (see the Statement of Financial Futures). Investments in
financial futures require the Fund to "mark to market" on a daily basis,
which reflects the change in the market value of the contracts at the
close of each day's trading. Typically, variation margin payments are made
or received to reflect daily realized gains or losses. When the contracts
are closed, the Fund recognizes a realized gain or loss. These investments
require initial margin deposits with a custodian, which consist of cash or
cash equivalents, up to approximately 10% of the contract amount. The
amount of these deposits is determined by the exchange or Board of Trade
on which the contract is traded and is subject to change. Contracts open
at April 30, 1996 and their related unrealized market appreciation are set
forth in the Statement of Financial Futures.
The Fund may purchase put and call options, including restricted
options, which are not exchange traded, in order to gain exposure to or
protect against changes in the market. The Fund's exposure to a credit
risk associated with counter party nonperformance on these investments is
typically limited to the market value of such investments that are
disclosed in the Statement of Investments.
<PAGE>
The Fund may invest in fixed and floating rate loans arranged through
private negotiations between an issuer of Sovereign Debt Obligations and
one or more financial institutions. The Fund's investments in loans are
expected in most instances to be in the form of participations in loans
and assignments of all or a portion of loans from third parties. As a
result, the Fund may be subject to credit risk from the issued Sovereign
Debt Obligations and the third party. In addition, such loans may be less
liquid and may be subject to greater price volatility.
(b) At April 30, 1996, accumulated net unrealized appreciation on
investments was $186,283 consisting of $18,850,120 gross unrealized
appreciation and $18,663,837 gross unrealized depreciation.
At April 30, 1996, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Dreyfus Capital Value Fund (A Premier Fund)
We have audited the accompanying statement of assets and liabilities
of Dreyfus Capital Value Fund (A Premier Fund), including the statements
of investments, financial futures and securities sold short, as of April 30
1996, and the related statements of operations for the seven months ended
April 30, 1996 and for the year ended September 30, 1995, the statements
of changes in net assets for the seven months ended April 30, 1996 and for
each of the two years in the period ended September 30, 1995 and financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of April 30, 1996 by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statements presentation. We
believe that the audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Capital Value Fund (A Premier Fund) at April 30, 1996.
the results of operations for the seven months ended April 30, 1996 and
for the year ended September 30, 1995, the changes in its net assets for
the seven months ended April 30, 1996 and for each of the two years in the
period ended September 30, 1995, and the financial highlights for each of
the indicated periods, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
June 7, 1996<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Included in Part A of the Registration Statement:
Financial Highlights of the Comstock Partners Strategy Fund (the
"Strategy Fund") for the period beginning May 26, 1988 (commencement
of operations) and ending April 30, 1989, and for the years ended
April 30, 1990, April 30, 1991, April 30, 1992, April 30, 1993,
April 30, 1994, April 30, 1995 and April 30, 1996.
Financial Highlights of the Dreyfus Capital Value Fund, Inc. (the
predecessor to the Comstock Partners Capital Value Fund) for the
period beginning October 10, 1985 (commencement of operations) and
ending September 30, 1986, and for the years ended September 30,
1987, September 30, 1988, September 30, 1989, September 30, 1990,
September 30, 1991, September 30, 1992, September 30, 1993,
September 30, 1994 and September 30, 1995 and the seven months ended
April 30, 1996.
Included in Part B of the Registration Statement:
Schedule of Investments of the Strategy Fund as of April 30, 1996
Statement of Assets and Liabilities of the Strategy Fund as of
April 30, 1996
Statement of Operations of the Strategy Fund for the year ended
April 30, 1996
Statements of Changes in Net Assets of the Strategy Fund for the two
years ended April 30, 1995 and April 30, 1996
Financial Highlights of the Strategy Fund for the years ended April
30, 1992, April 30, 1993, April 30, 1994, April 30, 1995, and April
30, 1996
Notes to Financial Statements of the Strategy Fund
Independent Auditors' Report dated June 5, 1996
Schedules No. I through VII and other Financial Statements relating
to the Comstock Partners Strategy Fund, for which provision is made
in the applicable accounting regulations of the Securities and
Exchange Commission, are either omitted because they are not required
under the related instructions, they are inapplicable, or the
required information is presented in the financial statements or
notes which are included in Part B of the Registration Statement.
<PAGE>
Statement of Investments of the Dreyfus Capital Value Fund--April 30,
1996.
Statement of Financial Futures of the Dreyfus Capital Value Fund--
April 30, 1996.
Statement of Securities Sold Short of the Dreyfus Capital Value Fund-
-April 30, 1996.
Statement of Assets and Liabilities of the Dreyfus Capital Value
Fund--April 30, 1996.
Statement of Operations of the Dreyfus Capital Value Fund--April 30,
1996.
Statement of Changes in Net Assets of the Dreyfus Capital Value Fund-
-for each of the years ended September 30, 1994 and 1995 and for the
seven months ended April 30, 1996.
Notes to Financial Statements of the Dreyfus Capital Value Fund.
Report of Ernst & Young LLP, Independent Auditors, dated June 7,
1996.
All Schedules and other financial statement information relating to
the Dreyfus Capital Value Fund, the predecessor to the Comstock
Partners Capital Value Fund, for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission, are either omitted because they are not required under
the related instructions, they are inapplicable, or the required
information is presented in the financial statements or notes thereto
which are included in Part B of the Registration Statement.
<PAGE>
(b) Exhibits:
Exhibits
Number Description
-------- -----------
1(a) - - Registrant's Articles of Amendment and Restatement.*
1(b) - - Form of Registrant's Articles Supplementary.*
1(c) - - Form of Registrant's Articles
Supplementary.*
1(d) -- Form of Registrant's Articles of Amendment.*
1(e) -- Form of Registrant's Articles Supplementary.*
2 - - Registrant's By-Laws.*
3 - - None.
4(a) - - Form of Stock Certificate for Comstock Partners Strategy
Fund Class O shares of common stock.*
4(b) - - Form of Stock Certificate for Comstock Partners Strategy
Fund Class A shares of common stock.*
4(c) - - Form of Stock Certificate for Comstock Partners Strategy
Fund Class C shares of common stock.*
4(d) - - Form of Stock Certificate for Comstock Partners Capital
Value Fund Class A, B, C and R shares of common stock.*
5(a) - - Form of Amended Investment Advisory Agreement between
Registrant, on behalf of the Comstock Partners Strategy
Fund, and Comstock Partners, Inc.*
5(b) - - Form of Amended Sub-Investment Advisory Agreement between
Comstock Partners, Inc., on behalf of the Comstock Partners
Strategy Fund, and The Dreyfus Corporation.*
5(c) - - Form of Investment Advisory Agreement between Registrant,
on behalf of the Comstock Partners Capital Value Fund, and
Comstock Partners, Inc.*
5(d) - - Form of Sub-Investment Advisory Agreement between
Registrant, on behalf of Comstock Partners Capital Value
Fund, and The Dreyfus Corporation.*
6 - - Form of Distribution Agreement between Registrant and
Premier Mutual Fund Services, Inc.*
7 - - None.
8(a) - - Form of Custody Agreement between Registrant and The Bank
of New York.*
<PAGE>
8(b) - - Form of Custody Agreement between Registrant and Brown
Brothers Harriman & Co.*
9(a) - - Form of Amended Administration Agreement between Registrant
and Princeton Administrators, Inc.*
9(b) - - Amendment to Amended Administration Agreement between
Registrant and Princeton Administrators, L.P.*
10(a) - - Opinion and Consent of Venable, Baetjer and Howard, with
respect to validity of shares of the Comstock Partners
Strategy Fund.*
10(b) - - Opinion and Consent of Venable, Baetjer and Howard, with
respect to validity of shares of the Comstock Partners
Capital Value Fund.
11 - - Independent Auditors' Consent.
12 - - None.
13 - - None.
14 - - None.
15(a)- - Form of Amended and Restated Class A Service and
Distribution Plan.*
15(b) - - Form of Class B Service and Distribution Plan.*
15(c) - - Form of Amended and Restated Class C Service and
Distribution Plan.*
16(a) - - Calculation of Total Return with respect to the Comstock
Partners Strategy Fund.*
16(b) - - Calculation of Total Return with respect to the Comstock
Partners Capital Value Fund.*
18 - - Form of Amended and Restated Multiclass Plan.*
27 - - Financial Data Schedules.
Other Exhibits (a) Powers of Attorney for Messrs. Salvigsen, Minter,
Smith, Kelley, Karlen and Adelberg.*
-------------------
* Previously filed.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Not applicable
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
Number of Record
Holders at
Title of Class August 21, 1996
-------------- ----------------
Class A shares of Comstock
Partners Strategy Fund,
par value $.001 per share . . . . . . . . . . 1,150
Class O shares of Comstock
Partners Strategy Fund,
par value $.001 per share . . . . . . . . . . 7,181
Class C shares of Comstock
Partners Strategy Fund,
par value $.001 per share . . . . . . . . . . 20
Class A shares of Comstock
Partners Capital Value Fund,
par value $.001 per share . . . . . . . . . . 13,102
Class B shares of Comstock
Partners Capital Value Fund,
par value $.001 per share . . . . . . . . . . 4,049
Class C shares of Comstock
Partners Capital Value Fund,
par value $.001 per share. . . . . . . . . . . 109
Class R shares of Comstock
Partners Capital Value Fund,
par value $.001 per share. . . . . . . . . . . 4
Item 27. Indemnification
---------------
Reference is made to Article VII of Registrant's Articles of
Incorporation, Article VI of Registrant's By-laws, and subsections 1.10 and
1.11 of the Distribution Agreement between the Registrant and Premier Mutual
Fund Services, Inc.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant understands that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer of controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
-----------------------------------------------------
Reference is made to the Sections entitled "Management
Arrangements" in the Prospectus and the Statement of Additional Information
with respect to the Investment Adviser.
The following information is furnished with respect to the Sub-
Investment Adviser:
The Dreyfus Corporation ("Dreyfus"), and subsidiary companies, comprise a
financial service organization whose business consists primarily of providing
investment management services as the investment adviser, manager and
distributor for sponsored investment companies registered under the Investment
Company Act of 1940 and as an investment adviser to institutional and
individual accounts. Dreyfus also serves as sub-investment adviser to and/or
administrator of other investment companies. Dreyfus Service Corporation, a
wholly-owned subsidiary of Dreyfus, serves primarily as a registered
broker/dealer of shares of investment companies sponsored by Dreyfus and of
other investment companies for which Dreyfus acts as investment adviser, sub-
investment adviser or administrator. Dreyfus Management, Inc., another wholly-
owned subsidiary, provides investment management services to various pension
plans, institutions and individuals.
Officers and Directors of Sub-Investment Adviser
-------------------------------------------------
Name and Position
with Dreyfus Other Businesses
- ----------------- ----------------
MANDRESS L. BERMAN Real estate consultant and private investor
Director 29100 Northwestern Highway, Suite 370
Southfield, Michigan 48034;
Past Chairman of the Board of Trustees
of Skillman Foundation.
Member of The Board of Vintners Intl.
FRANK V. CAHOUET Chairman of the Board, President and
Director Chief Executive Officer:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258;
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Director:
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103;
Saint-Gobain Corporation
750 East Swedesford Road
Valley Forge, Pennsylvania 19482;
Teledyne, Inc.
1901 Avenue of the Stars
Los Angeles, California 90067
<PAGE>
ALVIN E. FRIEDMAN Senior Adviser to Dillon, Read & Co. Inc.
Director 535 Madison Avenue
New York, New York 10022;
Director and member of the Executive
Committee of Avnet, Inc.**
LAWRENCE M. GREENE Director:
Director Dreyfus America Fund
JULIAN M. SMERLING None
Director
HOWARD STEIN Chairman of the Board:
Chairman of the Board Dreyfus Acquisition Corporation*;
and Chief Executive The Dreyfus Consumer Credit Corporation*;
Officer Dreyfus Management, Inc.*;
Dreyfus Service Corporation*;
Chairman of the Board and Chief Executive Officer:
Major Trading Corporation*;
Director:
Avnet, Inc.**;
Dreyfus America Fund++++;
The Dreyfus Fund International
Limited+++++;
World Balanced Fund+++;
Dreyfus Partnership Management,Inc.*;
Dreyfus Personal Management, Inc.*;
Dreyfus Precious Metals, Inc.*;
Dreyfus Service Organization, Inc.*;
Seven Six Seven Agency, Inc.*;
Trustee:
Corporate Property Investors
New York, New York;
W. KEITH SMITH Chairman and Chief Executive Officer:
Vice Chairman of the The Boston Company
Board One Boston Place
Boston, Massachusetts 02108
Vice Chairman of the Board:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258;
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405
CHRISTOPHER M. CONDRON
President, Chief
Operating Officer and a
Director
<PAGE>
STEPHEN E. CANTER Director:
Vice Chairman and The Dreyfus Trust Company++
Chief Investment Formerly, Chairman and Chief Executive
Officer Officer:
Kleinwort Benson Investment
Management Americas Inc.*
LAWRENCE S. KASH Chairman, President and Chief
Vice Chairman- Executive Officer:
Distribution and a The Boston Company Advisors, Inc.
Director 53 State Street
Exchange Place
Boston, Massachusetts 02109
Executive Vice President and Director:
Dreyfus Service Organization, Inc.*;
Director:
The Dreyfus Consumer Credit Corporation*;
The Dreyfus Trust Company++'
Dreyfus Service Corporation*;
President:
The Boston Company
One Boston Place
Boston, Massachusetts 02108;
Laurel Capital Advisors
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258;
Boston Group Holdings, Inc.
Executive Vice President
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258;
Boston Safe Deposit & Trust
One Boston Place
Boston, Massachusetts 02108
<PAGE>
PHILIP L. TOIA Chairman of the Board and Trust Investment Officer:
Vice President- The Dreyfus Trust Company+++;
Operations and Chairman of the Board and Chief Operating Officer:
Administration Major Trading Corporation*;
Chairman and Director
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, Rhode Island 02903
Director:
The Dreyfus Precious Metals, Inc.*;
Dreyfus Service Corporation*;
Seven Six Seven Agency, Inc.*;
President and Director:
Dreyfus Acquisition Corporation*;
The Dreyfus Consumer Credit Corporation*;
Dreyfus-Lincoln, Inc.*;
Dreyfus Management, Inc.*;
Dreyfus Personal Management, Inc.*;
Dreyfus Partnership Management, Inc.+;
Dreyfus Service Organization*;
The Truepenny Corporation*;
Formerly, Senior Vice President:
The Chase Manhattan Bank, N.A. and
The Chase Manhattan Capital Markets Corporation
One Chase Manhattan Plaza
New York, New York 10081
WILLIAM T. SANDALLS, JR. Director:
Senior Vice President Dreyfus Partnership Management, Inc.*;
and Chief Financial Seven Six Seven Agency, Inc.*;
Officer President and Director:
Lion Management, Inc.*;
Executive Vice President and Director:
Dreyfus Service Organization, Inc.*;
Vice President, Chief Financial Officer and Director:
Dreyfus Acquisition Corporation*;
Vice President and Director:
The Dreyfus Consumer Credit Corporation*;
The Truepenny Corporation*;
<PAGE>
Treasurer, Financial Officer and Director:
The Dreyfus Trust Company++;
Treasurer and Director:
Dreyfus Management, Inc.*;
Dreyfus Personal Management, Inc.*;
Dreyfus Service Corporation*;
Major Trading Corporation*;
Formerly, President and Director:
Sandalls & Co., Inc.
BARBARA E. CASEY President:
Vice President-Dreyfus Dreyfus Retirement Services Division;
Retirement Services Executive Vice President:
Boston Safe Deposit & Trust Co.
One Boston Place
Boston, Massachusetts 02108;
DIANE M. COFFEY None
Vice President-Corporate
Communications
ELIE M. GENADRY President:
Vice President- Institutional Services Division of
Institutional Sales Dreyfus*;
Broker-Dealer Division of Dreyfus
Service Corporation*;
Group Retirement Plans Division of
Dreyfus Service Corporation;
Executive Vice President:
Dreyfus Service Corporation*;
Dreyfus Service Organization, Inc.***;
Vice President:
The Dreyfus Trust Company++;
<PAGE>
JEFFREY N. NACHMAN None
Vice President-Mutual
Fund Accounting
WILLIAM F. GLAVIN, JR. Senior Vice President:
Vice President-Corporate The Boston Company Advisors, Inc.
Development 53 State Street
Exchange Place
Boston, Massachusetts 02109
Executive Vice President:
Dreyfus Service Corporation*;
ANDREW S. WASSER Vice President:
Vice President- Mellon Bank Corporation
Information Services One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
ELVIRA OSLAPAS Assistant Secretary:
Assistant Secretary Dreyfus Service Corporation*;
Dreyfus Management, Inc.*;
Dreyfus Acquisition Corporation, Inc.*;
The Truepenny Corporation+;
MAURICE BENDRIHEM Treasurer:
Controller Dreyfus Partnership Management, Inc.*;
Dreyfus Precious Metals, Inc.*;
Dreyfus Service Organization, Inc.*;
Seven Six Seven Agency, Inc.*;
The Truepenny Corporation*;
Controller:
Dreyfus Acquisition Corporation*;
Dreyfus Service Corporation*;
Dreyfus Trust Company++;
The Dreyfus Consumer Credit
Corporation*;
Formerly, Vice President-Financial
Planning, Administration and Tax:
Showtime/The Movie Channel, Inc.
1633 Broadway
New York, New York 10019
<PAGE>
MARK N. JACOBS Vice President, Secretary and Director:
Vice President, Lion Management, Inc.*;
General Counsel Secretary:
and Secretary The Dreyfus Consumer Credit Corporation*;
Dreyfus Management, Inc.*;
Assistant Secretary:
Dreyfus Service Organization, Inc.*;
Major Trading Corporation*;
The Truepenny Corporation*
PATRICE M. KOZLOWSKI
Vice President-Corporate
Communications
MARY BETH LEIBIG
Vice President-Human
Resources
JEFFREY N. NACHMAN
Vice President-Mutual
Fund Accounting
ANDREW S. WASSER
Vice President-
Information Systems
ELVIRA OSLAPAS
Assistant Secretary
* The address of the business so indicated is 200 Park Avenue, New
York, New York 10166.
** The address of the business so indicated is 80 Cutter Mill Road,
Great Neck, New York 11021.
*** The address of the business so indicated is 45 Broadway, New York,
New York 10006.
**** The address of the business so indicated is Five Triad Center, Salt
Lake City, Utah 84180.
+ The address of the business so indicated is Atrium Building, 80
Route 4 East, Paramus, New Jersey 07652.
++ The address of the business so indicated is 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144.
+++ The address of the business so indicated is One Rockefeller Plaza,
New York, New York 10020.
++++ The address of the business so indicated is 2 Boulevard Royal,
Luxembourg.
+++++ The address of the business so indicated is Nassau, Bahama Islands.
Item 29. Principal Underwriters
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or exclusive
distributor:
<PAGE>
1) Dreyfus A Bonds Plus, Inc.
2) Dreyfus Appreciation Fund, Inc.
3) Dreyfus Asset Allocation Fund, Inc.
4) Dreyfus Balanced Fund, Inc.
5) Dreyfus BASIC Money Market Fund, Inc.
6) Dreyfus BASIC Municipal Fund, Inc.
7) Dreyfus BASIC U.S. Government Money Market Fund
8) Dreyfus California Intermediate Municipal Bond Fund
9) Dreyfus California Tax Exempt Bond Fund, Inc.
10) Dreyfus California Tax Exempt Money Market Fund
11) Premier Strategic Growth Fund
12) Dreyfus Cash Management
13) Dreyfus Cash Management Plus, Inc.
14) Dreyfus Connecticut Intermediate Municipal Bond Fund
15) Dreyfus Connecticut Municipal Money Market Fund, Inc.
16) The Dreyfus Convertible Securities Fund, Inc.
17) Dreyfus Edison Electric Index Fund, Inc.
18) Dreyfus Florida Intermediate Municipal Bond Fund
19) Dreyfus Florida Municipal Money Market Fund
20) Dreyfus Focus Funds, Inc.
21) The Dreyfus Fund Incorporated
22) Dreyfus Global Bond Fund, Inc.
23) Dreyfus Global Growth Fund
24) Premier Global Investing, Inc.
25) Dreyfus GNMA Fund, Inc.
26) Dreyfus Government Cash Management
27) Dreyfus Growth and Income Fund
28) Dreyfus Growth Opportunity Fund, Inc.
29) Dreyfus Institutional Money Market Fund
30) Dreyfus Institutional Short Term Treasury Fund
31) Dreyfus Insured Municipal Bond Fund, Inc.
32) Dreyfus Intermediate Municipal Bond Fund, Inc.
33) Dreyfus International Equity Fund, Inc.
34) Dreyfus Growth and Value Fund, Inc.
35) The Dreyfus/Laurel Funds, Inc.
36) The Dreyfus/Laurel Funds Trust
37) The Dreyfus/Laurel Tax-Free Municipal Funds
38) The Dreyfus/Laurel Investment Series
39) Dreyfus Basic GNMA Fund
40) Dreyfus Life and Annuity Index Fund, Inc.
41) Dreyfus Liquid Assets, Inc.
42) Dreyfus Massachusetts Intermediate Municipal Bond Fund
43) Dreyfus Massachusetts Municipal Money Market Fund
44) Dreyfus Massachusetts Tax Exempt Bond Fund
45) Dreyfus Michigan Municipal Money Market Fund, Inc.
46) Dreyfus Money Market Instruments, Inc.
47) Dreyfus Municipal Bond Fund, Inc.
48) Dreyfus Municipal Cash Management Plus
49) Dreyfus Municipal Money Market Fund, Inc.
50) Dreyfus New Jersey Intermediate Municipal Bond Fund
51) Dreyfus New Jersey Municipal Bond Fund, Inc.
52) Dreyfus New Jersey Municipal Money Market Fund, Inc.
53) Dreyfus New Leaders Fund, Inc.
54) Dreyfus New York Insured Tax Exempt Bond Fund
55) Dreyfus New York Municipal Cash Management
56) Dreyfus New York Tax Exempt Bond Fund, Inc.
57) Dreyfus New York Tax Exempt Intermediate Bond Fund
<PAGE>
58) Dreyfus New York Tax Exempt Money Market Fund
59) Dreyfus Ohio Municipal Money Market Fund, Inc.
60) Dreyfus 100% U.S. Treasury Intermediate Term Fund
61) Dreyfus 100% U.S. Treasury Long Term Fund
62) Dreyfus 100% U.S. Treasury Money Market Fund
63) Dreyfus 100% U.S. Treasury Short Term Fund
64) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
65) Dreyfus Pennsylvania Municipal Money Market Fund
66) Dreyfus Short-Intermediate Government Fund
67) Dreyfus Short-Intermediate Municipal Bond Fund
68) Dreyfus Short-Term Income Fund, Inc.
69) The Dreyfus Socially Responsible Growth Fund, Inc.
70) Dreyfus Strategic Growth, L.P.
71) Dreyfus Strategic Income
72) Dreyfus Strategic Investing
73) Dreyfus Tax Exempt Cash Management
74) Dreyfus Treasury Cash Management
75) Dreyfus Treasury Prime Cash Management
76) Dreyfus Variable Investment Fund
77) Dreyfus-Wilshire Target Funds, Inc.
78) Dreyfus Worldwide Dollar Money Market Fund, Inc.
79) General California Municipal Bond Fund, Inc.
80) General California Municipal Money Market Fund
81) General Government Securities Money Market Fund, Inc.
82) General Money Market Fund, Inc.
83) General Municipal Bond Fund, Inc.
84) General Municipal Money Market Fund, Inc.
85) General New York Municipal Bond Fund, Inc.
86) General New York Municipal Money Market Fund
87) Pacific Funds Trust --
Pacifica Prime Money Market Fund
Pacifica Treasury Money Market Fund
88) Peoples Index Fund, Inc.
89) Peoples S&P MidCap Index Fund, Inc.
90) Premier Insured Municipal Bond Fund
91) Premier California Municipal Bond Fund
92) Premier GNMA Fund
93) Premier Growth Fund, Inc.
94) Premier Municipal Bond Fund
95) Premier New York Municipal Bond Fund
96) Premier State Municipal Bond Fund
97) Premier Capital Growth Fund, Inc.
(b)
Positions and offices Positions and
Name and principal with Premier Mutual Fund offices with
business address Services, Inc. Registrant
- ------------------ ------------------------ -----------------
Marie E. Connolly* Director, President, None
Chief Operating Officer
and Compliance Officer
Joseph F. Tower, III* Senior Vice President, None
Treasurer and Chief
Financial Officer
<PAGE>
John E. Pelletier* Senior Vice President, None
General Counsel,
Secretary and Clerk
Frederick C. Dey** Senior Vice President None
Eric B. Fischman** Vice President, None
Associate General Counsel
Paul Prescott* Assistant Vice President None
Elizabeth Bachman** Assistant Vice President None
Mary Nelson* Assistant Treasurer None
John J. Pyburn** Assistant Treasurer None
Jean M. O'Leary* Assistant Secretary and None
Assistant Clerk
John W. Gomez* Director None
William J. Nutt* Director None
* Principal business address is One Exchange Place, Boston, Massachusetts
02109.
** Principal business address is 200 Park Avenue, New York, New York 10166.
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
will be maintained at the offices of:
Comstock Partners Funds, Inc., 10 Exchange Place, Suite 2010, Jersey City,
New Jersey 07302-3913; Princeton Administrators, L.P., 800 Scudders Mill
Road, Plainsboro, New Jersey 08536; The Bank of New York, 101 Barclay
Street, New York, New York 10286; Dreyfus Transfer, Inc., One American
Express Plaza, Providence, Rhode Island 02903.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment
containing financial statements of the Comstock Partners Capital
Fund as of a reasonably current date, which need not be
<PAGE>
certified, within four to six months from the date of
commencement of investment operations for the Comstock Partners
Capital Value Fund.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
(d) Registrant hereby undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of one or
more of Registrant's directors when requested in writing to do
so by the holders of at least 10% of Registrant's outstanding
shares of common stock and, in connection with such meeting, to
assist in communications with other shareholders in this regard,
as provided under Section 16(c) of the Investment Company Act of
1940, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant has certified that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485-(b) under the Securities Act of 1933 and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Jersey City and State of
New Jersey on the 28th day of August, 1996.
COMSTOCK PARTNERS FUNDS, INC.
By/s/ Robert C. Ringstad
----------------------
Robert C. Ringstad
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
Signature Title Date
- ---------- ----- ----
*/s/ Stanley D. Salvigsen
- -------------------------
Stanley D. Salvigsen Chairman of the August 28, 1996
Board (principal
executive officer)
and Director
/s/ Robert C. Ringstad Treasurer (principal August 28, 1996
- ------------------------- financial and
Robert C. Ringstad accounting officer)
*/s/ Charles L. Minter Director August 28, 1996
- -------------------------
Charles L. Minter
*/s/ M. Bruce Adelberg Director August 28, 1996
- ------------------------
M. Bruce Adelberg
*/s/ Sven B. Karlen, Jr. Director August 28, 1996
- ------------------------
Sven B. Karlen, Jr.
<PAGE>
*/s/ Robert M. Smith Director August 28, 1996
- ------------------------
Robert M. Smith
*/s/ E.W. Kelley Director August 28, 1996
- -------------------------
E. W. Kelley
*By/s/ Robert C. Ringstad August 28, 1996
----------------------
Robert C. Ringstad
Attorney-in-Fact
<PAGE>
Comstock Partners Funds, Inc.
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- -------- ----------------------
11.1 Consent of Ernst & Young LLP
11.2 Consent of Deloitte & Touche LLP
27 Financial Data Schedules
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Experts" and to the use of our reports on the financial
statements of Dreyfus Capital Value Fund, Inc. (A Premier Fund) dated June 7,
1996 and Comstock Partners Strategy Fund dated June 5, 1996 included in this
Registration Statement (Form N-1A No. 33-40771) of Comstock Partners Funds,
Inc.
ERNST & YOUNG LLP
New York, New York
August 23, 1996
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
Comstock Partners Strategy Fund, Inc.
We consent to the reference to us under the heading Financial Highlights, which
is part of the Post-Effective Amendment No. 10 to Registration Statement No.
33-40771 of Comstock Partners Funds, Inc. on Form N-1A dated August 28, 1996.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
August 27, 1996
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