As filed with the Securities and Exchange Commission on August 26, 1998.
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. 13 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 / /
Amendment No. 19 / X /
COMSTOCK PARTNERS FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
993 Lenox Drive
Suite 106
Lawrenceville, NJ 08648
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (609) 896-2960
ROBERT C. RINGSTAD
COMSTOCK PARTNERS FUNDS, INC.
993 Lenox Drive
Suite 106
Lawrenceville, NJ 08648
(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:
immediately upon filing pursuant to Rule 485(b)
X on August 26, 1998 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.
2
<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
<TABLE>
<CAPTION>
N-1A Item No. Location Prospectus Caption
- ------------- -------- -------------------
<S> <C> <C>
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
Objectives 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 Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Summary; Additional Shareholder
Services; Dividends, Distributions and
Taxes; Organization and Capital Stock
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; Purchase of Fund Shares;
Redemption of Shares; Dividends,
Distributions and Taxes
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Statement of Additional
N-1A Item No. Location Information Caption
- ------------- -------- -----------------------
<S> <C> <C>
Part B
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 Management Arrangements
Securities
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 Portfolio Transactions
Item 18. Capital Stock and Other Securities Capital Stock; Service and Distribution
Plans
Item 19. Purchase, Redemption and Pricing of Purchase of Fund Shares; Redemption
Securities Being Offered 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
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>
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.
4
<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
COMSTOCK PARTNERS STRATEGY FUND
COMSTOCK PARTNERS CAPITAL VALUE FUND
PROSPECTUS AUGUST 28, 1998
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, 1998 (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. The Securities and
Exchange Commission maintains a Web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference, and
other information regarding the Company. The Statement of Additional Information
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 1-800-554-4611. Other shareholder inquiries with respect to the Funds
can be made by calling this number.
------------------
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.
- -------------------------------------------------------------------------------
<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."
2
<PAGE>
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 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. (the "Dreyfus Capital Value Fund"), from
April 30, 1987 until the Capital Value Fund's commencement of operations on July
25, 1996. 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
3
<PAGE>
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 Fund
shares (Class A, Class B, Class C and Class R shares) so that you may choose the
Class of shares of the Strategy 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
4
<PAGE>
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.
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 capital gain, if any, will
be distributed at least annually. The Capital Value Fund ordinarily pays
dividends from net investment income and distributes net capital gain, 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
capital gain 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."
5
<PAGE>
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 or by 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.
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.
6
<PAGE>
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 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."
7
<PAGE>
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 are based on the Fund's fiscal year ended April 30,
1998.
<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* 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees................................ .60% .60%
Administrative Fees**.......................... .25% .25%
12b-1 Fees***.................................. .25% 1.00%
Other Expenses****............................. .46% .45%
----- -----
Total Fund Operating Expenses............... 1.56% 2.30%
----- -----
----- -----
</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.................................. $ 60 $ 33
3 Years................................. $ 92 $ 72
5 Years................................. $126 $123
10 Years................................. $222 $264
</TABLE>
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return and no redemption:
<TABLE>
<CAPTION>
CLASS A CLASS C
------- -------
<S> <C> <C>
1 Year.................................. $ 60 $ 23
3 Years................................. $ 92 $ 72
5 Years................................. $126 $123
10 Years................................. $222 $264
</TABLE>
- ------------------------------
* 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.
** Includes administrative fees payable at the contractual level. During the
fiscal year ended April 30, 1998, the Strategy Fund's administrator waived
fees amounting to approximately .01% of the Strategy Fund's average daily
net assets.
*** Includes service and distribution fees payable pursuant to the Company's
Class A and Class C Service and Distribution Plans. See "Service and
Distribution Plans."
8
<PAGE>
**** "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.
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 or Class R
shares of the Capital Value Fund. The amounts listed are based on the fiscal
year ended April 30, 1998.
<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 Im-
posed on Redemptions (as a
percentage of the amount subject
to charge) None* 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**......................... .25% 1.00% 1.00% None
Other Expenses***.................... .59% .59% .54% .62%
----- ----- ----- -----
Total Fund Operating Expenses..... 1.59% 2.34% 2.29% 1.37%
----- ----- ----- -----
----- ----- ----- -----
</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 B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................ $ 60 $ 64 $ 33 $ 14
3 Years....................... $ 93 $103 $ 72 $ 43
5 Years....................... $128 $145 $123 $ 75
10 Years....................... $225 $231+ $263 $165
</TABLE>
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return and no redemption:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 Year........................ $ 60 $ 24 $ 23 $ 14
3 Years....................... $ 93 $ 73 $ 72 $ 43
5 Years....................... $128 $125 $123 $ 75
10 Years....................... $225 $231+ $263 $165
</TABLE>
- ------------------------------
* 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.
9
<PAGE>
** 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."
*** "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.
+ Ten-year figure assumes conversion of Class B shares to Class A shares at
end of sixth year following the date of purchase.
------------------------
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 tables 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.
10
<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
years ended April 30, 1996, April 30, 1997 and April 30, 1998 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 other auditors whose reports thereon
were unqualified.
11
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1998 APRIL 30, 1997
-------------------------------- ---------------------------------
CLASS O CLASS A CLASS C CLASS O CLASS A CLASS C
------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 7.77 $ 7.77 $ 7.74 $ 8.78 $ 8.78 $ 8.77
------- ------- -------- -------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income--net......................... 0.43 0.42 0.37 0.78 0.54 0.45
Realized and unrealized gain (loss) on
investments, put options purchased and
foreign currency transactions--net........... (1.54) (1.55) (1.54) (1.19) (0.96) (0.95)
------- ------- -------- -------- ------- --------
Total from investment operations............. (1.11) (1.13) (1.17) (0.41) (0.42) (0.50)
------- ------- -------- -------- ------- --------
LESS DIVIDENDS
Dividends from investment income--net.......... (0.60) (0.58) (0.51) (0.47) (0.46) (0.41)
Dividends from realized gains on foreign
currency transactions........................ -- -- -- (0.13) (0.13) (0.12)
Dividends from realized capital gains.......... -- -- -- -- -- --
------- ------- -------- -------- ------- --------
Total dividends................................ (0.60) (0.58) (0.51) (0.60) (0.59) (0.53)
------- ------- -------- -------- ------- --------
NET ASSET VALUE, END OF PERIOD................. $ 6.06 $ 6.06 $ 6.06 $ 7.77 $ 7.77 $ 7.74
------- ------- -------- -------- ------- --------
------- ------- -------- -------- ------- --------
Total investment return(1)..................... (14.88)% (15.11)% (15.61)% (4.85)% (5.10)% (5.94)%
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000's Omitted)...... $71,692 $17,871 $ 1,780 $134,719 $43,327 $13,020
Ratio of expenses to average net assets........ 1.31% 1.55% 2.29% 1.18% 1.43% 2.14%
Decrease reflected in above expense ratios due
to waiver of administrative fees............. 0.01% 0.01% 0.01% -- -- --
Ratio of net investment income to average net
assets....................................... 6.01% 5.79% 5.08% 6.80% 6.55% 5.81%
Portfolio turnover rate........................ 227% 227% 227% 126% 126% 126%
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1996 APRIL 30, 1995
--------------------------------- --------------------
CLASS O CLASS A CLASS C++ CLASS O CLASS A
-------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 9.10 $ 9.10 $ 9.00 $ 9.40 $ 9.41
-------- ------- ------ -------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income--net......................... 0.76 0.57 >0.37 0.66 0.52
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)
-------- ------- ------ -------- -------
Total from investment operations............. 0.23 0.21 0.15 0.22 0.18
-------- ------- ------ -------- -------
LESS DIVIDENDS
Dividends from investment income--net.......... (0.55) (0.53) (0.38) (0.52) (0.49)
Dividends from realized gains on foreign
currency transactions........................ -- -- -- -- --
Dividends from realized capital gains.......... -- -- -- -- --
-------- ------- ------ -------- -------
Total dividends................................ (0.55) (0.53) (0.38) (0.52) (0.49)
-------- ------- ------ -------- -------
NET ASSET VALUE, END OF PERIOD................. $ 8.78 $ 8.78 $ 8.77 $ 9.10 $ 9.10
-------- ------- ------ -------- -------
-------- ------- ------ -------- -------
Total investment return(1)..................... 2.66% 2.40% 1.96%(3) 2.39% 1.94%
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000's Omitted)...... $224,148 $53,652 $ 317 $329,624 $65,874
Ratio of expenses to average net assets........ 1.23% 1.48% 2.28%(4) 1.14% 1.46%
Decrease reflected in above expense ratios due
to waiver of administrative fees............. -- -- -- -- --
Ratio of net investment income to average net
assets....................................... 6.56% 6.33% 5.79%(4) 6.19% 5.83%
Portfolio turnover rate........................ 96% 96% 96% 100% 100%
<FN>
- ------------------------------
+ Class A shares were introduced on July 15, 1992.
++ Class C shares were introduced on August 1, 1995.
* Commencement of operations.
(1) 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.
(2) Total investment return is presented for the year ended April 30, 1993. For the period prior to July 15,
1992, total investment return does not reflect service and distribution fees because such fees were not
paid during that period.
(3) Total investment return is presented for the 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.
(4) Annualized.
</FN>
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
APRIL 30, 1994 APRIL 30, 1993 APRIL 30, 1992
--------------------- --------------------- --------------
CLASS O CLASS A CLASS O CLASS A+ CLASS O
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 9.27 $ 9.27 $ 9.56 $ 9.55 $ 9.48
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income--net................................... 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...................................... 0.15 0.22 (0.39) (0.28) 0.08
-------- -------- -------- -------- --------
Total from investment operations....................... 0.92 0.90 0.51 0.36 0.88
-------- -------- -------- -------- --------
LESS DIVIDENDS
Dividends from investment income--net.................... (0.77) (0.74) (0.75) (0.64) (0.76)
Dividends from realized gains on foreign currency
transactions........................................... (0.02) (0.02) (0.05) -- (0.04)
Dividends from realized capital gains.................... -- -- -- -- --
-------- -------- -------- -------- --------
Total dividends.......................................... (0.79) (0.76) (0.80) (0.64) (0.80)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD........................... $ 9.40 $ 9.41 $ 9.27 $ 9.27 $ 9.56
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return(1)............................... 10.13% 9.91% 5.70% 5.42%(2) 9.59%
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000's Omitted)................ $464,937 $ 91,454 $548,514 $ 23,492 $810,700
Ratio of expenses to average net assets.................. 1.07% 1.40% 1.06% 1.41%(4) 1.11%
Ratio of net investment income to average net assets..... 7.57% 6.85% 8.95% 8.74%(4) 8.03%
Portfolio turnover rate.................................. 31% 31% 56% 56% 89%
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE PERIOD
ENDED ENDED MAY 26, 1988*
APRIL 30, 1991 APRIL 30, 1990 TO APRIL 30, 1989
-------------- -------------- -----------------
CLASS O CLASS O CLASS O
---------- ---------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 10.07 $ 9.86 $ 9.34
---------- ---------- -----------
INCOME FROM INVESTMENT OPERATIONS
Investment income--net................................... 0.84 0.75 0.74
Realized and unrealized gain (loss) on investments, put
options purchased and foreign currency
transactions--net...................................... (0.09) 0.49 0.47
---------- ---------- -----------
Total from investment operations....................... 0.75 1.24 1.21
---------- ---------- -----------
LESS DIVIDENDS
Dividends from investment income--net.................... (0.84) (0.77) (0.67)
Dividends from realized gains on foreign currency
transactions........................................... -- -- --
Dividends from realized capital gains.................... (0.50) (0.26) (0.02)
---------- ---------- -----------
Total dividends.......................................... (1.34) (1.03) (0.69)
---------- ---------- -----------
NET ASSET VALUE, END OF PERIOD........................... $ 9.48 $ 10.07 $ 9.86
---------- ---------- -----------
---------- ---------- -----------
Total investment return(1)............................... 8.66% 13.10% 13.34%
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000's Omitted)................ $1,200,644 $1,273,600 $ 1,247,023
Ratio of expenses to average net assets.................. 0.93% 0.89% 0.89%(4)
Ratio of net investment income to average net assets..... 8.78% 7.16% 8.20%(4)
Portfolio turnover rate.................................. 16% 40% 38%
<FN>
- ------------------------------
+ Class A shares were introduced on July 15, 1992.
++ Class C shares were introduced on August 1, 1995.
* Commencement of operations.
(1) 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.
(2) Total investment return is presented for the year ended April 30, 1993. For the period prior to July 15, 1992, total
investment return does not reflect service and distribution fees because such fees were not paid during that period.
(3) Total investment return is presented for the 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.
(4) Annualized.
</FN>
</TABLE>
13
<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 Capital Value Fund outstanding throughout the periods presented, as
applicable, including information with respect to the Dreyfus Capital Value
Fund, the predecessor to the Capital Value Fund. The Capital Value Fund
commenced operations on July 25, 1996. Past results are not predictive of future
results. The financial information in the following table has been audited by
Ernst & Young LLP, whose report thereon is included in the Funds' Statement of
Additional Information.
14
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES
--------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
1987(1) 1988(1) 1989(1) 1990(1) 1991 1992 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.... $ 9.54 $ 12.84 $ 12.68 $ 14.42 $ 15.08 $ 12.97 $ 12.41
-------- -------- -------- -------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income--net(2)............... .07 .58 .90 .89 .73 .40 .24
Net realized and unrealized gain (loss)
on investments, put options purchased,
futures transactions, short sale
transactions and foreign currency
transactions(2)....................... 3.59 (.18) 1.60 .61 (.89) (.39) (.62)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations..... 3.66 .40 2.50 1.50 (.16) .01 (.38)
-------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment
income--net(2)........................ (.03) (.15) (.76) (.84) (.99) (.57) (.61)
Dividends from net realized gain on
investments(2)........................ (.33) (.41) -- -- (.96) -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions.................. (.36) (.56) (.76) (.84) (1.95) (.57) (.61)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 12.84 $ 12.68 $ 14.42 $ 15.08 $ 12.97 $ 12.41 $ 11.42
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Investment Return(3).............. 39.72% 3.29% 20.95% 10.53% (.70%) (.02%) (2.70%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average
net assets............................ 1.50% 1.24% 1.22% 1.20% 1.19% 1.19% 1.23%
Ratio of interest expense and dividends
on securities sold short to average
net assets............................ .15% .13% .03% .26% .49% .39% .45%
Ratio of net investment income to
average net assets.................... 2.25% 6.08% 6.93% 6.64% 5.58% 2.83% 1.94%
Decrease reflected in above expense
ratios due to expense
reimbursements........................ .29% -- -- -- -- -- --
Portfolio Turnover Rate................. 102% 56% 19% 63% 154% 344% 42%
Net Assets, end of period
(000's Omitted)....................... $139,796 $502,442 $607,192 $741,267 $755,450 $537,392 $412,316
<CAPTION>
CLASS A SHARES
--------------------------------------------------------------------------------
SEVEN MONTHS
ENDED YEAR ENDED YEAR ENDED
1994 1995 APRIL 30, 1996 APRIL 30, 1997 APRIL 30, 1998
-------- -------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.... $ 11.42 $ 11.88 $ 10.61 $ 10.54 $ 8.62
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS:
Investment income--net(2)............... .24 .36 .22 .59 .31(5)
Net realized and unrealized gain (loss)
on investments, put options purchased,
futures transactions, short sale
transactions and foreign currency
transactions(2)....................... .46 (1.37) .17 (1.92) (2.91)
-------- -------- -------- -------- --------
Total from Investment Operations..... .70 (1.01) .39 (1.33) (2.60)
-------- -------- -------- -------- --------
DISTRIBUTIONS:
Dividends from investment
income--net(2)........................ (.24) (.26) (.46) (.59) (.96)
Dividends from net realized gain on
investments(2)........................ -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions.................. (.24) (.26) (.46) (.59) (.96)
-------- -------- -------- -------- --------
Net asset value, end of period.......... $ 11.88 $ 10.61 $ 10.54 $ 8.62 $ 5.06
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Investment Return(3).............. 6.14% (8.58%) 3.81% (12.97%) (31.48%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average
net assets............................ 1.21% 1.24% .75%(4) 1.28% 1.35%
Ratio of interest expense and dividends
on securities sold short to average
net assets............................ .39% .45% .18%(4) .51% .24%
Ratio of net investment income to
average net assets.................... 2.06% 3.61% 2.13%(4) 6.16% 4.49%
Decrease reflected in above expense
ratios due to expense
reimbursements........................ -- -- -- -- --
Portfolio Turnover Rate................. 46% 55% 56% 399% 359%
Net Assets, end of period
(000's Omitted)....................... $402,708 $271,052 $241,472 $160,834 $ 64,452
</TABLE>
- ------------------
(1) Per share data restated to reflect a 100% stock dividend at the close of
business on February 16, 1990.
(2) Per share data for 1987 has been restated for comparative purposes.
(3) Total Investment Return excludes the effects of sales loads and assumes
reinvestment of dividends and distributions. Total Investment Returns for
periods less than one full year are not annualized.
(4) Not annualized.
(5) Based on average shares outstanding.
15
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES
---------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1993(1) 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period... $ 10.58 $ 11.32 $ 11.69
INVESTMENT OPERATIONS:
Investment income--net................. .03 .23 .31
Net realized and unrealized gain (loss)
on investments, put options
purchased, futures transactions,
short sale transactions and foreign
currency transactions................ .71 .38 (1.38)
----------- ----------- -----------
Total from Investment Operations.... .74 .61 (1.07)
----------- ----------- -----------
DISTRIBUTIONS:
Dividends from investment
income--net.......................... -- (.24) (.21)
Dividends from net realized gain on
investments.......................... -- -- --
----------- ----------- -----------
Total Distributions................. -- (.24) (.21)
----------- ----------- -----------
Net asset value, end of period......... $ 11.32 $ 11.69 $ 10.41
----------- ----------- -----------
----------- ----------- -----------
Total Investment Return(2)............. 6.99% 5.35% (9.27%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average
net assets........................... 1.49%(3) 1.99% 1.99%
Ratio of interest expense and dividends
on securities sold short to average
net assets........................... .31%(3) .40% .45%
Ratio of net investment income to
average net assets................... .83%(3) 1.39% 2.86%
Decrease reflected in above expense
ratios due to expense
reimbursements....................... -- -- --
Portfolio Turnover Rate................ 42% 46% 55%
Net Assets, end of period
(000's Omitted)...................... $ 30,378 $ 108,532 $ 87,847
<CAPTION>
CLASS B SHARES
---------------------------------------
SEVEN
MONTHS
ENDED YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30, APRIL 30,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period... $ 10.41 $ 10.38 $ 8.45
INVESTMENT OPERATIONS:
Investment income--net................. .18 .54 .25(4)
Net realized and unrealized gain (loss)
on investments, put options
purchased, futures transactions,
short sale transactions and foreign
currency transactions................ .16 (1.93) (2.85)
----------- ----------- -----------
Total from Investment Operations.... .34 (1.39) (2.60)
----------- ----------- -----------
DISTRIBUTIONS:
Dividends from investment
income--net.......................... (.37) (.54) (.86)
Dividends from net realized gain on
investments.......................... -- -- --
----------- ----------- -----------
Total Distributions................. (.37) (.54) (.86)
----------- ----------- -----------
Net asset value, end of period......... $ 10.38 $ 8.45 $ 4.99
----------- ----------- -----------
----------- ----------- -----------
Total Investment Return(2)............. 3.36% (13.69%) (32.01%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average
net assets........................... 1.18%(3) 2.03% 2.10%
Ratio of interest expense and dividends
on securities sold short to average
net assets........................... .19%(3) .50% .24%
Ratio of net investment income to
average net assets................... 1.70%(3) 5.52%
Decrease reflected in above expense
ratios due to expense
reimbursements....................... -- -- --
Portfolio Turnover Rate................ 56%(3) 399% 359%
Net Assets, end of period
(000's Omitted)...................... $ 81,786 $ 64,671 $ 26,235
</TABLE>
- ------------------
(1) From January 15, 1993 (commencement of initial offering) to September 30,
1993.
(2) Total Investment Return excludes the effects of sales loads and assumes
reinvestment of dividends and distributions. Total Investment Returns for
periods less than one full year are not annualized
(3) Not annualized.
(4) Based on average shares outstanding.
16
<PAGE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------
PERIOD ENDED SEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED YEAR ENDED
1995(1) APRIL 30, 1996 APRIL 30, 1997 APRIL 30, 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......... $ 10.64 $10.41 $10.24 $ 8.31
------- ------ ------ ------
INVESTMENT OPERATIONS:
Investment income--net........................ .02 .44 .57 .23(4)
Net realized and unrealized gain (loss) on
investments, put options purchased, futures
transactions, short sale transactions and
foreign currency transactions............... (.25) (.12) (1.91) (2.78)
------- ------ ------ ------
Total from Investment Operations.............. (.23) .32 (1.34) (2.55)
------- ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income--net......... -- (.49) (.59) (.96)
------- ------ ------ ------
Net asset value, end of period................ $ 10.41 $10.24 $ 8.31 $ 4.80
------- ------ ------ ------
------- ------ ------ ------
Total Investment Return (2)................... (2.26%) 3.30% (13.47%) (32.10%)
Ratios/Supplemental Data:
Ratio of operating expenses to average net
assets...................................... .26%(3) 1.28%(3) 2.07% 2.08%
Ratio of interest expense and dividends on
securities sold short to average net
assets...................................... .06%(3) .18%(3) .47% .21%
Ratio of net investment income to average net
assets...................................... .23%(3) 1.71%(3) 6.02% 3.70%
Portfolio Turnover Rate....................... 55% 56% 399% 359%
Net Assets, end of period (000's omitted)..... $ 1 $3,531 $7,271 $8,029
<CAPTION>
CLASS R
-------------------------------------------------------------------
PERIOD ENDED SEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED YEAR ENDED
1995(1) APRIL 30, 1996 APRIL 30, 1997 APRIL 30, 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......... $ 10.84 $10.62 $10.53 $ 8.62
------- ------ ------ ------
INVESTMENT OPERATIONS:
Investment income--net........................ .04 .30 .82(4) .33(4)
Net realized and unrealized gain (loss) on
investments, put options purchased, futures
transactions, short sale transactions and
foreign currency transactions............... (.26) .09 (2.13) (2.91)
------- ------ ------ ------
Total from Investment Operations.............. (.22) .39 (1.31) (2.58)
------- ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income--net......... -- (.48) (.60) (.99)
------- ------ ------ ------
Net asset value, end of period................ $ 10.62 $10.53 $ 8.62 $ 5.05
------- ------ ------ ------
------- ------ ------ ------
Total Investment Return (2)................... (2.03%) 3.97% (12.83%) (31.28%)
Ratios/Supplemental Data:
Ratio of operating expenses to average net
assets...................................... .14%(3) .61%(3) 1.19% 1.11%
Ratio of interest expense and dividends on
securities sold short to average net
assets...................................... .04%(3) .17%(3) .38% .26%
Ratio of net investment income to average net
assets...................................... .38%(3) 2.28%(3) 8.65% 4.73%
Portfolio Turnover Rate....................... 55% 56% 399% 359%
Net Assets, end of period (000's omitted)..... $ 1 $ 1 $ 117 $28
</TABLE>
- ------------------------------
(1) From August 22, 1995 (commencement of initial offering) to September 30,
1995.
(2) Total Investment Return excludes the effects of sales loads and assumes
reinvestment of dividends and distributions. Total Investment Returns for
periods less than one full year are not annualized.
(3) Not annualized.
(4) Based on average shares outstanding.
17
<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.
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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 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.
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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 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 993 Lenox Drive, Suite 106,
Lawrenceville, New Jersey 08648.
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
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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 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
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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 and other foreign securities. Foreign securities in which the Fund
may invest may be listed on foreign securities exchanges, traded in the
over-the-counter market or privately placed. The Fund may invest in governments
of, or companies whose principal activities are in, emerging markets.
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 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
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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, traded in the over-the-
counter market or privately placed. 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 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.
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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
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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. 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."
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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. However, each Fund intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of 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 or other regulated investment companies 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 of 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:
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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 liquid assets 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 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 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 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.
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In addition to the limitations set forth in the preceding paragraph
relating to the use of futures and options on futures, the Funds have adopted
certain additional policies relating to derivatives transactions. 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 would exceed 15% of the
Strategy Fund's total assets. For purposes of the foregoing policy, the Strategy
Fund's net exposure is measured by the market value of the relevant instruments,
after giving effect to any offsetting positions. 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 purchase put or call
options if, immediately after giving effect to such purchase, the value of put
and call options held by the Capital Value Fund would exceed 5% of the value of
its net assets. 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. Because the foregoing limitations apply
only at the time a Fund enters into a transaction, the value of a Fund's
holdings or its net exposure under the relevant instruments may be significantly
more or less than at the time of its initial investment.
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 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
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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--Derivatives 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."
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.
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
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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
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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.
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 liquid assets 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
com-
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monly 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
under "Other Investment Policies--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
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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 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
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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. 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
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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.
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
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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.
Investment Funds. Each Fund may invest in unaffiliated investment funds
which invest principally in securities in which that Fund is authorized to
invest, subject to the limitations imposed by the 1940 Act on certain of these
investments. These investment funds may be registered investment companies as
well as private investment funds which are designed to pursue specialized
investment opportunities such as private equity and emerging market investments.
Under the 1940 Act, a Fund may invest up to 10% of its total assets in the
shares of other investment companies and up to 5% of its total assets in any one
investment company, provided that the investment does not represent more than 3%
of the voting stock of the acquired investment company. These limitations would
not apply to investment funds which are "investment companies" as defined under
the 1940 Act. 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. A Fund's investment in certain investment funds will result in
special U.S. federal income tax consequences described below under "Dividends,
Distributions and Taxes."
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
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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 rates.
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 or no trading market or which are subject to
restrictions on resale to the public. Investments in securities which are
illiquid or "restricted" may involve added expense to a Fund should the Fund be
required to bear registration or other costs to dispose of 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 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
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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 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 investment
restrictions which, together with the fundamental investment restrictions
described in the Statement of Additional Information, 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
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(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 or elsewhere in this Prospectus
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. In
addition, in the event that a Fund's aggregate holdings of illiquid securities
exceed 15% of its net assets and are not expected to be reduced through
purchases of liquid securities in the ordinary course of business, the Fund will
take steps to reduce in an orderly fashion its holdings of illiquid securities.
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.
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, investing in illiquid securities, utilizing
certain other specialized instruments 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.
Investing in Foreign Securities. In making foreign investments, the Funds
will give appropriate consideration to the following factors, among others:
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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 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
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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 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
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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 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
42
<PAGE>
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 Objectives 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.
Year 2000 Risks. Like other mutual funds and financial and business
organizations worldwide, the Funds could be adversely affected if computer
43
<PAGE>
systems on which a Fund relies are unable to distinguish between the year 1900
and the year 2000 (typically, this is called the "Year 2000 Problem"). The Year
2000 Problem could have a negative impact on handling securities trades, pricing
and account services and could otherwise have a material adverse effect on a
Fund's business, operations and/or investments. The Funds' advisers have
commenced review of the Year 2000 Problem as it may affect each Fund, both
directly and through the systems of the Funds' other service providers, and are
taking steps reasonably designed to address any Year 2000 Problems. In light of
these remedial steps, the Funds' advisers expect that their systems and the
systems of the Funds' other service providers will be adapted to deal with the
Year 2000 Problem before the beginning of the year 2000. There can be no
assurance, however, that the systems of the advisers or the Funds' other service
providers will be successfully adapted to deal with the Year 2000 Problem, or
that interaction with other third-party computer systems which are not prepared
for the Year 2000 Problem will not impair their services at that time, or that
the Year 2000 Problem will not have an adverse effect on companies whose
securities are held by the Funds or on global markets or economies generally.
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.
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.
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<PAGE>
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 Investment Adviser was founded in October 1986 and 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. 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 provides
investment advisory services with respect to approximately $175 million in
assets as of July 31, 1998. 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 993 Lenox Drive, Suite 106, Lawrenceville, New Jersey
08648.
Under the terms of an 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, 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
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.
Charles L. Minter acts as the portfolio manager for each Fund. Mr. Minter
is a co-founder, and is also Chairman and Chief Executive Officer, of the
Investment Adviser. Mr. Minter joined Merrill, Lynch, Pierce, Fenner & Smith
Incorporated ("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. He has
been involved in the management of Comstock Partners
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<PAGE>
Strategy Fund since its inception and Comstock Partners Capital Value Fund
(including its predecessor, the Dreyfus Capital Value Fund) since April 30,
1987.
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 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 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.
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 June 30, 1998, managed
or administered approximately $110 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 comprehen-
46
<PAGE>
sive 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 $350 billion in assets as of June 30, 1998, including
approximately $125 billion in proprietary mutual fund assets. As of June 30,
1998, various subsidiaries of Mellon provided non-investment services, such as
custodial or administration services, for more than $1.791 trillion in assets
including approximately $54 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 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
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<PAGE>
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, 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 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 re-
48
<PAGE>
quest. 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 is $750 for Dreyfus-sponsored Keogh Plans, IRAs,
(including regular IRAs, spousal IRAs for non-working spouse, Roth IRAs, IRAs
set up under SEP-IRAs and rollover IRAs) and 403(b)(7) plans with only one
participant, and $500 for Dreyfus-sponsored Education IRAs, with no minimum
subsequent purchases. 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. For Dreyfus retirement plan accounts, both
initial and subsequent investments should be sent to The Dreyfus Trust Company,
Custodian, P.O. Box
49
<PAGE>
6427, Providence, Rhode Island 02940-6427. Neither initial nor subsequent
investments should be made by third party check.
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)
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<PAGE>
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 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
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<PAGE>
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" 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 %* OF NET REALLOWANCE AS
OFFERING PRICE ASSET VALUE PER A % OF OFFERING
AMOUNT OF TRANSACTION PER 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 0
</TABLE>
- ------------------------------
*Rounded to the nearest one-hundredth percent.
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
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<PAGE>
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 A shares at net asset value. In addition, Class A
shares are offered at net 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.
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
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<PAGE>
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 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.
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<PAGE>
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 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 1-800-554-4611 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
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<PAGE>
operate for a given account only with respect to the Class of shares in that
account.
EXCHANGE PRIVILEGE
You may 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. 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.
You also may exchange your Strategy Fund or Capital Value Fund shares that
are subject to a CDSC for shares of Dreyfus Worldwide Dollar Money Market Fund,
Inc. 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. To use this
service, you should consult your Service Agent or call 1-800-554-4611 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.
To request an exchange, your Service Agent acting on your behalf must give
exchange instructions to the Transfer Agent in writing or by telephone. 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
by calling 1-800-554-4611. Except in the case of personal retirement plans, the
shares being exchanged must have a current value of at least $500; 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. The ability to issue exchange instructions by
telephone is given to all Fund shareholders automatically, unless you check the
applicable "No"
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<PAGE>
box on the Account Application indicating that you specifically refuse this
Privilege. The Telephone Exchange Privilege may be established for an existing
account by written request signed by all shareholders on the account, by a
separate signed Shareholder Services Form available by calling 1-800-554-4611,
or by oral request from any of the authorized signatories on the account by
calling 1-800-554-4611. If you previously have established the Telephone
Exchange Privilege, you may telephone exchange instructions (including over the
automated telephone system) by calling 1-800-554-4611 or, if you are calling
from overseas, call 516-794-5452. See "Redemption of Shares--Redemption
Procedures." 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 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
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<PAGE>
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
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
Comstock Partners Funds, Inc., P.O. Box 6587, Providence, Rhode Island
02940-6587. 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 an 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
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<PAGE>
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 by calling 1-800-554-4611. 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 6587, Providence,
Rhode Island 02940-6587, 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 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
1-800-554-4611. 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 Class A, Class B and Class C 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 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
1-800-554-4611. 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,
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<PAGE>
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.
DIVIDEND OPTIONS
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. 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 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 1-800-554-4611. You may cancel these
privileges by mailing written notification to Comstock Partners Funds, Inc.,
P.O. Box 6587, Providence, Rhode Island 02940-6587. 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
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obtained by calling 1-800-554-4611. 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.
No CDSC with respect to Class B shares of the Capital Value Fund will be
imposed on withdrawals made under the Automatic Withdrawal Plan, provided that
the amounts withdrawn under the plan do not exceed on an annual basis 12% of the
account value at the time the shareholder elects to participate in the Automatic
Withdrawal Plan. Withdrawals with respect to Class B shares under the Automatic
Withdrawal Plan that exceed on an annual basis 12% of the value of the
shareholder's account will be subject to a CDSC on the amounts exceeding 12% of
the initial account value. Class C shares withdrawn pursuant to the Automatic
Withdrawal Plan will be subject to any applicable CDSC. Purchases of additional
Class A shares where the sales load is imposed concurrently with withdrawals of
Class A shares generally are undesirable.
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 1-800-554-4611, for SEP-IRAs, 401(k) Salary Reduction
Plans and 403(b)(7) Plans, please call 1-800-322-7880.
LETTER OF INTENT -- CLASS A SHARES
By signing a Letter of Intent form available by calling 1-800-554-4611, 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
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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. Purchases pursuant to a Letter of Intent will be made at the then-
current net asset value plus the applicable sales load in effect at the time
such Letter of Intent was executed.
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.
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
distribu-
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tion. 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.
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,
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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 shareholder
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 basis for
calculating the payment of any such CDSC will be the method used in
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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, (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, and (e) redemptions pursuant to the Automatic
Withdrawal Plan, as described above. 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, or through the Telephone Redemption Privilege, which is granted
automatically unless you specifically refuse it by checking the applicable "No"
box on the Account Application. The Telephone Redemption Privilege may be
established for an existing account by a separate signed Shareholder Services
Form or by oral request from any of the authorized signatories on the account by
calling 1-800-554-4611. You also may redeem shares through the Wire Redemption
Privilege or the TeleTransfer Privilege, if you have checked the appropriate box
and supplied the necessary information on the Account Application or have filed
a Shareholder Services Form with the Transfer Agent. 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.
The Funds reserve the right to refuse any request made by wire on telephone,
including requests made shortly after a change of address, and may limit the
amount involved or the number of such requests. The Funds may modify or
terminate any redemption privilege at any time or charge a service fee upon
notice to shareholders. No such fee currently is contemplated. Shares held under
Keogh Plans, IRAs or other retirement
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plans, and shares for which certificates have been issued, are not eligible for
the Wire Redemption, Telephone Redemption or TeleTransfer Privilege.
The Telephone Redemption Privilege or Telephone Exchange Privilege
authorizes the Transfer Agent to act on telephone instructions (including over
The Touch automated telephone system) 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 times 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 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 6587,
Providence Rhode Island 02940-6587. 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.
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 1-800-554-4611.
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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, telephone or letter 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
1-800-554-4611 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.
TELEPHONE REDEMPTION PRIVILEGE
You may redeem shares of either Fund (maximum $150,000 per day) by
telephone through the Telephone Redemption Privilege, which is granted
automatically unless you refuse it by checking the applicable "No" box on the
Funds' Account Application. The Telephone Redemption Privilege may be
established for an existing account by a separate signed Shareholder Services
Form or by oral request from any of the authorized signatories on the account by
calling 1-800-554-4611. The redemption proceeds will be paid by check and mailed
to your address. You may telephone redemption instructions by calling
1-800-554-4611 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.
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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 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.
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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 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
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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 a 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 capital gain, if any, at least
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annually. The Capital Value Fund intends to pay dividends from net investment
income and distribute net capital gain, if any, at least annually. Each Fund,
however, may make distributions on a more 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 capital gain 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 and the Capital Value Fund have each qualified, and
elected, to be treated as a regulated investment company a ("RIC") under
subchapter M of 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. If, in any year, a Fund fails to
qualify as a RIC such Fund would incur regular corporate federal income tax on
its taxable income for that year and be subject to certain additional
distribution requirements upon requalification.
A Fund will be subject to a nondeductible 4% excise tax on the excess, if
any, of certain required distributions of ordinary income and capital gain net
income 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 reinvested in
additional shares. Distributions of net capital gain that are designated by a
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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, and such distributions
will not be eligible for the dividends received deduction. The maximum current
federal income tax rate imposed on individuals with respect to long-term capital
gain is generally 20%, whereas the maximum federal income tax rate imposed on
individuals with respect to ordinary income (and on short-term capital gain,
which is taxed at the same rates as ordinary income) is 39.6%. With respect to
corporate taxpayers, long-term capital gain is currently taxed at the same
federal income tax rates as ordinary income and short-term capital gain.
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 Internal Revenue Service (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.
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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 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, and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from dividends, 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
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to a shareholder may be credited against such shareholder's federal income tax
liability.
INVESTMENTS IN PASSIVE FOREIGN INVESTMENT COMPANIES
If a Fund purchases shares in 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 requirements,
that Fund would be required to include in income each year a portion of the
ordinary earnings and net capital gain of the QEF. Alternatively, a Fund can
elect to mark-to-market at the end of each taxable year its shares in a PFIC; in
this case, the Fund would recognize as ordinary income any increase in the value
of such shares, and as ordinary loss any decrease in such value to the extent it
did not exceed prior increases included in income. Under either election, a Fund
might be required to recognize in a year income in excess of its distributions
from PFICs and its proceeds from dispositions of PFIC stock during that year,
and such income would nevertheless be subject to the distribution requirement to
qualify as a RIC and to avoid the excise tax.
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.
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
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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 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 to 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 the Dreyfus Capital Value Fund, the Fund's predecessor, and performance
information for each Class of shares is presented commencing with the inception
of the Dreyfus Capital Value Fund.
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 charge 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
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and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would 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 Company's annual report to shareholders, which is available without
charge upon request, contains a discussion of the performance of the Strategy
Fund and the Capital Value Fund for the fiscal year ended April 30, 1998.
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
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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 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.
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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 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
The Company will send unaudited reports at least semi-annually, and annual
reports containing audited financial statements, to all of its shareholders.
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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.............. 2
The Funds' Expenses............. 8
Financial Highlights............ 11
Alternative Purchase Methods.... 18
The Company..................... 20
Investment Objectives and
Policies...................... 20
Investment Restrictions......... 37
Risk Factors.................... 39
Management Arrangements......... 44
Purchase of Fund Shares......... 48
Additional Shareholder
Services...................... 55
Redemption of Shares............ 62
Service and Distribution
Plans......................... 69
Dividends, Distributions and
Taxes......................... 70
Certain Information Regarding
Performance................... 74
Net Asset Value................. 76
Organization and Capital
Stock......................... 77
Reports to Shareholders......... 78
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
COMSTOCK PARTNERS FUNDS
COMSTOCK PARTNERS
STRATEGY FUND
COMSTOCK PARTNERS
CAPITAL VALUE FUND
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
107/503p0898
- ---------------------------------------------
- ---------------------------------------------
<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
COMSTOCK PARTNERS STRATEGY FUND
COMSTOCK PARTNERS CAPITAL VALUE FUND
993 Lenox Drive, Suite 106
Lawrenceville, New Jersey 08648
(609) 896-2960
---------------------------
August 28, 1998
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, 1998 (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- 554-4611.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
page
<S> <C>
Description of Bond and Commercial Paper Ratings........................................................................ 3
Additional Information Concerning Portfolio Activities.................................................................. 4
Investment Restrictions................................................................................................. 16
Management Arrangements................................................................................................. 18
Purchase of Fund Shares................................................................................................. 22
Redemption of Fund Shares............................................................................................... 23
Shareholder Services.................................................................................................... 24
Service and Distribution Plans ......................................................................................... 26
Portfolio Transactions ................................................................................................. 27
Additional Information Concerning Taxes................................................................................. 28
Performance Information................................................................................................. 30
Net Asset Value......................................................................................................... 34
Capital Stock........................................................................................................... 35
Custodian............................................................................................................... 36
Transfer Agent and Dividend Disbursing Agent............................................................................ 36
Experts................................................................................................................. 36
Other Information....................................................................................................... 36
Financial Statements.................................................................................................... 36
</TABLE>
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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.
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.
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<PAGE>
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.
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
liquid assets 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
payments (referred to as "variation margin") are made to and from the broker to
reflect changes in the value of the futures contract.
4
<PAGE>
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 segregated account liquid assets 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
"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.
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
5
<PAGE>
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 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 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 liquid assets 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.
6
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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.
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
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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 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
liquid assets 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 "Derivatives 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 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
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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 liquid
assets, 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 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 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 evaluates such investments on a
case-by-case basis.
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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 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.
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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 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
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
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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.
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
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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 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 liquid assets 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 331/3% 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
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 "Description of the Fund--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.
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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
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 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
14
<PAGE>
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.
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.
15
<PAGE>
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 331/3% 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 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
16
<PAGE>
specified price and 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 - Derivatives 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. Invest in interests in oil, gas or mineral exploration or
development programs.
3. 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.
4. Invest more than 15% of its net assets in illiquid securities.
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 in oil, gas or other mineral exploration development programs
or leases.
2. 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.
3. 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 than 15% of the value of the Fund's net assets would
be so invested.
4. Invest more than 15% of its net assets in illiquid securities.
---------------------------
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. 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. In the event that a Fund's aggregate
holdings of illiquid securities exceed 15% of its net assets and are not
expected to be
17
<PAGE>
reduced through purchases of liquid securities in the ordinary course of
business, the Fund will take steps to reduce in an orderly fashion its holdings
of illiquid securities.
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.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE POSITION(S) WITH COMPANY DURING PAST 5 YEARS
- ---------------------- ------------------------ -------------------
<S> <C> <C>
*Charles L. Minter Director, Chairman of the Board, Director, Chairman of the Board and
993 Lenox Drive, Suite 106 President, and Member of Executive Chief Executive Officer of Comstock
Lawrenceville, New Jersey 08648 Committee Partners, Inc. since November 1996,
56 years old and, prior thereto, Vice Chairman,
President and Secretary of Comstock
Partners, Inc.
M. Bruce Adelberg Director, Member of Consultant, MBA Research Group
MBA Research Audit Committee and Director of Carrols Corporation
33 Channel Lane (food services) and Carrols Holdings,
Salem, SC 29676 Inc.
61 years old
Sven B. Karlen, Jr. Director, Member of Audit General Partner of Grandview
Grandview Partners, L.P. Committee Partners, L.P. (investments)
Two International Place, 24th Floor
Boston, MA 02110
54 years old
Robert M. Smith Director, Member of Audit President, Smith Advisors, Ltd.
Smith Advisors, Ltd. Committee (investments), from January 1983 -
812 Coachway November 1995, President and
Annapolis, MD 21401 Director of Ansbacher (Dublin) Asset
68 years old Management Ltd.
*Robert C. Ringstad Vice President, Treasurer, Chief Vice President, Treasurer, Chief
993 Lenox Drive, Suite 106 Financial Officer and Assistant Financial Officer and Assistant
Lawrenceville, New Jersey 08648 Secretary Secretary of Comstock Partners, Inc.
68 years old since December 1994, and, prior
thereto, Vice President (Operations)
of Regent Investor Services from
January 1990 to November 1994.
<FN>
- ------------------
* Interested person as defined in the 1940 Act, because of affiliations with
Comstock Partners, Inc., the Investment Adviser.
</TABLE>
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.
18
<PAGE>
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, 1998. For the fiscal
year ended April 30, 1998, the aggregate amount of fees and expenses received by
each Director from the Company were as follows:
<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* EXPENSES RETIREMENT MEMBER*
- -------------------- ------------ -------------- --------------- -------------
<S> <C> <C> <C> <C>
Charles L. Minter 0 0 0 0
M. Bruce Adelberg $20,000 0 0 $20,000
Sven B. Karlen, Jr. $20,000 0 0 $20,000
E. W. Kelley $20,000 0 0 $20,000
Robert M. Smith $20,000 0 0 $20,000
<FN>
- ------------------
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $5,625 for the Company.
</TABLE>
As of August 3, 1998, 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 and PaineWebber, respectively, were the record owners of 14.7544%
and 5.691% of the outstanding Class A shares and 21.8656% and 7.287% of the
outstanding Class B shares of the Capital Value Fund; Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Donaldson Lufkin Jenrette, respectively, were
the record owners of 32.9895% and 13.563% of the outstanding Class C shares of
the Capital Value Fund; and Freeman Welwood & Co., Inc., Westcliff Capital
Management and Dreyfus Trust Co. Custodian FBO Vance C. Brown, respectively,
were the record owners of 7.0568%, 43.1546% and 47.9009% of the outstanding
Class R shares of the Capital Value Fund.
As of August 3, 1998, 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 and PaineWebber, respectively, were the record owners of 40.1615%
and 5.304% of the outstanding Class A shares of the Strategy Fund; Merrill
Lynch, Pierce, Fenner & Smith Incorporated and J.C. Bradford & Co.,
respectively, were the record owners of 82.2503% and 7.222% of the outstanding
Class C shares of the Strategy Fund; and Merrill Lynch, Pierce, Fenner & Smith
Incorporated was the record owner of 52.5749% of the outstanding Class O shares
of the Strategy Fund.
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 August 30, 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 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 August 30, 1997
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,
19
<PAGE>
unless earlier terminated as described below, the Strategy Fund Investment
Advisory Agreement will remain in effect until August 30, 1997 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.
The investment advisory fees paid by the Strategy Fund to the Investment
Adviser for the fiscal years ended April 30, 1996, April 30, 1997 and April 30,
1998 amounted to $1,977,868, $1,429,864 and $817,706, respectively. The
investment advisory fees paid by the Capital Value Fund to the Investment
Adviser for the period from July 26, 1996 through April 30, 1997 and for the
fiscal year ended April 30, 1998 amounted to $823,026 and $616,951,
respectively.
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 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 August 30, 1997 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.
20
<PAGE>
For the fiscal years ended April 30, 1996, April 30, 1997 and April 30,
1998 the Sub-Investment Adviser received fees from the Investment Adviser with
respect to the Strategy Fund in the amounts of $494,467, $357,466 and $204,426,
respectively, from the Investment Adviser. For the period from July 26, 1996
through April 30, 1997 and for the fiscal year ended April 30, 1998 the
Sub-Investment Adviser received fees from the Capital Value Fund for
sub-investment advisory and administration services in the amount of $946,711
and $539,832, respectively.
ADMINISTRATOR
Under the terms of the Administration Agreement between Princeton
Administrators, L.P. ("Princeton") and the Strategy Fund (the "Administration
Agreement"), 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.
Effective November 20, 1997, Princeton agreed to voluntarily reduce through
December 31, 1998 the minimum fee to $125,000 per annum. For the fiscal years
ended April 30, 1996, April 30, 1997 and April 30, 1998 Princeton received fees
pursuant to the contractual arrangements then in effect amounting to $734,288,
$551,621 and $331,640 pursuant to the Administration Agreement, respectively,
from the Strategy Fund. In the absence of the waiver by Princeton of $18,826 in
fees during the fiscal year ended April 30, 1998, Princeton would have been
entitled to fees amounting to $350,466 for the period.
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.
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
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 meeting. Princeton agreed to adhere to the
standard of care which applies to 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
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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."
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." Investors should be aware that if they have selected the
TeleTransfer Privilege, any request for a wire redemption will be effected as a
TeleTransfer transaction through the Automated Clearing House ("ACH") system
unless more prompt transmittal specifically is requested. Redemption proceeds
will be on deposit in the investor's account at an ACH member bank ordinarily
two business days after receipt of the redemption request.
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 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
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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, telephone, or letter 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."
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.
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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 1-800-554-4611.
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.
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 (including over The Touch automated telephone system) 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.
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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. The minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including regular
IRAs, spousal IRAs for non-working spouse, Roth IRAs, IRAs set up under a
Simplified Employee Pension Plan ("SEP-IRAs") and rollover IRAs) and 403(b)(7)
plans with only one participant, and $500 for Dreyfus-sponsored Education IRAs,
with no minimum subsequent purchases.
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 1-800-554-4611. 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. 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.
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.
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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
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
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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 years ended April 30, 1996, April 30, 1997 and April 30,
1998 the Strategy Fund's Class A shares bore expenses of $147,948, $123,138 and
$74,213, respectively, pursuant to the Class A Service and Distribution Plan
(formerly known as the "Account Maintenance Plan"). For the period from July 25,
1996 through April 30, 1997 and for the fiscal year ended April 30, 1998 the
Capital Value Fund's Class A shares bore expenses of $503,530 and $259,124,
respectively, pursuant to the Class A Service and Distribution Plan.
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.
For the period from July 25, 1996 through April 30, 1997 and for the fiscal
year ended April 30, 1998 the Capital Value Fund's Class B shares bore expenses
of $556,548 and $311,125, respectively, pursuant to the Class B Service and
Distribution Plan and $185,516 and $103,708, respectively, were charged for
shareholder servicing for the Capital Value Fund's Class B shares. For the
period from July 25, 1996 through April 30, 1997 and for the fiscal year ended
April 30, 1998 the Capital Value Fund's Class C shares bore expenses of $40,688
and $67,840, respectively, pursuant to the Class C Service and Distribution Plan
and $13,563 and $22,613, respectively, were charged for shareholder servicing
for the Capital Value Fund's Class C shares. For the period from August 1, 1995
through April 30, 1996 and for the fiscal years ended April 30, 1997 and April
30, 1998 the Strategy Fund's Class C shares bore expenses of $814, $85,733 and
$36,233, respectively, pursuant to the Class C Service and Distribution Plan and
$272, $28,578 and $12,078, respectively, were charged for shareholder servicing
for the Strategy Fund's Class C shares.
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 fiscal years ended
April 30, 1997 and April 30, 1998 was 126% and 227%, respectively. The Capital
Value Fund's portfolio turnover rate for the period beginning July 25, 1996 and
ending April 30, 1997 and for the fiscal year ended April 30, 1998 was 399% and
359%, respectively.
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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
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 and the Capital Value Fund have each qualified, and
elected, 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; and (b) 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 RICs 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 or the securities of other RICs).
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
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capital gain" (i.e., the excess of a Fund's long-term capital gain 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 gain. Each Fund expects to designate amounts
retained as undistributed net capital gain 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 gain, their proportionate 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 year: (a)
at least 98% of its ordinary income for such year, (b) at least 98% of its
capital gain net 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, and (c) 100% of undistributed ordinary income and
capital gain net income from the preceding calendar year (if any) pursuant to
the calculations on (a) and (b). 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.
INCOME PRIOR TO RECEIPT OF CASH
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.
FOREIGN WITHHOLDING TAXES
A Fund may be subject to certain taxes imposed by foreign countries with
respect to its income and capital gain. 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 federal income tax
attributable to his 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 generally applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund that qualifies as foreign source income. However, the limitation would
not be applied separately for certain individuals whose foreign source income
during the taxable year consists entirely of "qualified passive income" and
whose creditable foreign taxes paid or accrued during the taxable year do not
exceed $300. In addition, the foreign tax credit is allowed to offset only 90%
of the revised alternative minimum tax imposed on corporations and individuals.
Further, in certain circumstances, a shareholder that (i) has held shares of a
Fund for less than a specified minimum period during which it is not protected
from risk of loss or (ii) is obligated to make payments related to the
dividends, will not be allowed a foreign tax credit for foreign taxes deemed
imposed on dividends paid on such shares. The Fund must also meet this holding
29
<PAGE>
period requirement with respect to its foreign securities in order to flow
through "creditable" taxes. 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.
DERIVATIVES 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 hedge investment
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a RIC and minimize the imposition of income and excise taxes.
As indicated in the Prospectus, description 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:
P(1+T)n=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.
A Class' average annual total return figures calculated in accordance with
the foregoing formula assume that in the case of Class A shares the maximum
sales load has been deducted from the hypothetical initial investment at the
time of purchase, and in the case of Class B or Class C shares 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
30
<PAGE>
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.
Each Fund presents performance information for each of its Classes since
the commencement of investment operations, rather than since the date each Class
was introduced. For the Capital Value Fund, performance is presented since the
commencement of investment operations of the Dreyfus Capital Value Fund, Inc.
(the "Dreyfus Capital Value Fund"), the predecessor of the Capital Value Fund.
Performance information for each Class of each Fund introduced after the
commencement of investment operations therefore includes the performance history
of a predecessor Class or Classes. The historical operating expenses of the
predecessor Class or Classes, including distribution and service fees and other
operating expenses, are not restated to reflect the ongoing expenses of the
Class whose performance is being shown. However, sales loads of the predecessor
Class or Classes are restated, when presenting performance inclusive of sales
loads, to reflect the current applicable sales load for the Class whose
performance is being shown and not the sales charges paid on the predecessor
class. This means that in presenting the performance of Class A shares
inclusive of sales loads, the current maximum front-end sales load for Class A
shares is reflected, and in presenting the performance of Class B or Class C
shares inclusive of sales loads, the current applicable CDSC is reflected.
Capital Value Fund - Certain Differences in the Historical Operating
Expenses of Predecessor Classes. Prior to January 15, 1993, the Dreyfus Capital
Value Fund (the Capital Value Fund's predecessor) 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. Because Class B shares of the Dreyfus Capital Value
Fund were not actually introduced until January 15, 1993, the total return for
Class B shares for the period prior to their introduction reflects the annual
service and distribution fees and other expenses actually 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. Because
Class C shares of the Dreyfus Capital Value Fund were not actually introduced
until August 22, 1995, Class C performance information for the period prior to
their introduction reflects the annual service and distribution fees and other
expenses for Class B (which, prior to its introduction, reflects the annual
service and distribution fees and other expenses borne by Class A) and,
therefore, with respect to the period prior to the introduction of Class B, does
not reflect the higher distribution and service fees and additional incremental
shareholder administrative expenses payable by Class C. Class R performance
information for the period prior to the introduction of Class R shares reflects
the annual service and distribution fees and other expenses borne by Class A.
Strategy Fund - Certain Differences in the Historical Operating Expenses of
Predecessor Classes. Prior to August 1, 1995, the Strategy Fund did not offer
Class C shares. Performance information for Class C for the period from July 15,
1992 to August 1, 1995 reflects the annual 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 C
because such higher fees and expenses were not paid during that period.
Performance information presented by the Strategy Fund for Class O is restated
to reflect the maximum front end sales load payable at the time the Fund last
offered Class O shares, and not the underwriting discount paid in connection
with the initial offering of the Strategy Fund's shares as a closed-end fund.
Performance information for all Classes 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.
The following tables set forth the aggregate and 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, 1998, and include 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 OPERATING
EXPENSES AND PERFORMANCE OF A PREDECESSOR CLASS AND DOES NOT REFLECT THE
RELATIVE EXPENSES THAT AN INVESTOR WOULD INCUR AS A HOLDER OF 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.
31
<PAGE>
COMSTOCK PARTNERS CAPITAL VALUE FUND (1)
<TABLE>
<CAPTION>
CLASS A CLASS B(3)
TOTAL AGGREGATE RETURN AVERAGE ANNUAL RETURN TOTAL AGGREGATE 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) 47.31% 40.70% 3.13% 2.76% 40.93% 2.77%
Policy Inception
(April 28, 1987)(2) -7.11% %-11.28% -0.67% -1.08% -11.13% -1.07%
10 Year -19.38% -23.01% -2.13% -2.58% -22.87% -2.56%
5 Year -42.16% -44.77% -10.37% -11.20% -44.43% -45.28% -11.09% -11.36%
1 Year -31.48% -34.59% -31.48% -34.59% -32.01% -34.37% -32.01% -34.37%
</TABLE>
<TABLE>
<CAPTION>
CLASS C(4) CLASS R(5)
TOTAL
AGGREGATE AVERAGE ANNUAL
TOTAL AGGREGATE RETURN AVERAGE ANNUAL RETURN 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) 40.89% 2.77% 48.35% 3.19%
Policy Inception
(April 28, 1987) -11.16% -1.07% -6.45% -0.60%
10 Year -22.89% -2.57% -18.81% -2.06%
5 Year -44.45% -11.09% -41.75% -10.24%
1 Year -32.10% -32.68% -32.10% -32.68% -31.28% -31.28%
<FN>
- ------------------
(1) Performance information assumes dividend reinvestment.
(2) On April 28, 1987, Comstock Partners, Inc., the Capital Value
Fund's Investment Adviser, became the Dreyfus Capital Value Fund's
Sub-Investment Adviser.
(3) Because Class B shares were not introduced until January 15, 1993,
the total return for Class B shares for the period prior to their
introduction is based upon the performance of Class A shares from
the commencement of investment operations through January 15,
1993. As a result, total return for Class B shares prior to this
date does not reflect the higher level of service and distribution
fees and certain administrative expenses borne by Class B shares
which, if reflected, would reduce the total return presented.
(4) Because Class C shares were not introduced until August 22, 1995,
the total return for Class C shares for the period prior to their
introduction is based upon the performance of Class A shares from
the commencement of investment operations through January 15, 1993
and Class B shares from January 15, 1993 through August 22, 1995.
As a result, total return for Class C shares for the period prior
to January 15, 1993 does not reflect the higher level of service
and distribution fees and certain administrative expenses borne by
Class C shares which, if reflected, would reduce the total return
presented.
(5) Because Class R shares were not introduced until August 22, 1995,
the total return for Class R shares for the period prior to their
introduction is based on the performance of Class A shares.
</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, 1998. 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 OPERATING 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.
32
<PAGE>
COMSTOCK PARTNERS STRATEGY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH DEDUCTION OF APPLICABLE SALES CHARGES(1)
<TABLE>
<CAPTION>
SINCE
COMMENCEMENT
ONE YEAR THREE YEARS FIVE YEARS OF OPERATIONS
-------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Class O (2)........................................... -18.71% -7.39% -2.19% 3.77%
Class A (3)(4)........................................ -18.93% -7.64% -2.46% 3.59%
Class C (5)(6)........................................ -16.38% -6.80% -1.94% 3.88%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
WITHOUT DEDUCTION OF APPLICABLE SALES CHARGES(1)
<TABLE>
<CAPTION>
SINCE
COMMENCEMENT
ONE YEAR THREE YEARS FIVE YEARS OF OPERATIONS
-------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Class O............................................... -14.88% -5.96% -1.28% 4.25%
Class A (4)........................................... -15.11% -6.21% -1.56% 4.08%
Class C (6)........................................... -15.61% -6.80% -1.94% 3.88%
<FN>
- ------------------
(1) 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.
(2) 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.
(3) Performance information has been restated to reflect the maximum initial
sales charge payable on Class A shares of the Strategy Fund.
(4) 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.
(5) 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.
(6) Because Class C shares were not introduced until August 1, 1995, the total
return for Class C shares for the period prior to their introduction is
based on the performance of Class O shares from the Fund's inception
through July 15, 1992 and Class A shares from July 15, 1992 through August
1, 1995. As a result, total return for Class C shares for the period prior
to August 1, 1995 does not reflect the higher level of service and
distribution fees and certain administrative expenses borne by Class C
shares which, if reflected, would reduce the total return presented.
---------------------------
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 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.
33
<PAGE>
The Funds may from time to time include discussions or illustrations of the
potential investment goals of a prospective investor (including materials that
describe general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting, questionnaires designed to
help create a personal financial profile, worksheets used to project savings
needs based on assumed rates of inflation and hypothetical rates of return and
action plans offering investment alternatives), investment management
techniques, policies or investment suitability of a Fund (such as value
investing, market timing, dollar cost averaging, asset allocation, constant
ratio transfer, automatic account rebalancing, the advantages and disadvantages
of investing in tax-deferred and taxable investments), economic and political
conditions and the relationship between sectors of the economy and the economy
as a whole, the effects of inflation and historical performance of various asset
classes, including but not limited to, stocks, bonds and Treasury bills. From
time to time advertisements, sales literature, communications to shareholders or
other materials may summarize the substance of information contained in
shareholder reports (including the investment composition of a Fund), as well as
the views of the Funds' Investment Adviser and/or the Sub-Investment Adviser as
to current market, economy, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to a Fund. In addition, selected indices may be used
to illustrate historic performance of select asset classes. The Funds may also
include in advertisements, sales literature, communications to shareholders or
other materials, charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to, stocks, bonds, treasury bills and shares of a Fund. In addition,
advertisements, shareholder communications or other materials may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and investment alternative to certificates of deposit and other
financial instruments. Such advertisements or communicators may include symbols,
headlines or other material which highlight or summarize the information
discussed in more detail therein. Materials may include lists of representative
clients of the Investment Adviser. Materials may refer to the CUSIP numbers of
the various classes of the Funds and may illustrate how to find the listings of
the Funds in newspapers and periodicals.
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.
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
34
<PAGE>
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 maturity 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
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.
35
<PAGE>
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. For the fiscal year ended
April 30, 1998, the Fund paid the Transfer Agent $159,704 with respect to the
Capital Value Fund and $162,671 with respect to the Strategy Fund.
EXPERTS
Ernst & Young LLP serves as the independent auditors for the Funds. The
financial statements of the Funds 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.
FINANCIAL STATEMENTS
The financial statements and notes thereto for the Funds are included on
the following pages.
36
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc.
Strategy Fund Schedule of Investments As of April 30, 1998
</TABLE>
<TABLE>
<CAPTION>
S&P MOODY'S SHARES HELD/ VALUE
RATING* RATING* FACE AMOUNT ISSUE (NOTE 1A)
<S> <C> <C> <C> <C> <C> <C>
BONDS
U.S. Government United States Treasury Bonds:
Obligations -- $ 17,700,000
85.9% AAA Aaa 6.375% due 8/15/2027 $18,684,120
-----------
United States Treasury Notes:
AAA Aaa 33,305,000 8.875% due 11/15/1998 33,908,653
AAA Aaa 25,210,000 8.875% due 2/15/1999 25,856,006
-----------
59,764,659
-----------
Corporate
Convertible Bonds 1,750,000
- -- 1.9% UNR UNR Ashanti Capital, Ltd. 5.500% due 3/15/2003 1,370,833
UNR UNR 500,000 TVX Gold, Inc. 5.000% due 3/28/2002 402,500
-----------
1,773,333
-----------
Foreign Corporate
Obligations -- CAD 1,500,000
0.6% UNR UNR William Resources, Inc. 8.000% due 1/23/2002 (c) 325,129
1,000,000 William Resources, Inc. 8.000% due 1/23/2002
(a)(c) 216,753
-----------
541,882
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN BONDS (cost $82,869,223) -- 88.4% 80,763,994
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS
Country Funds -- 37,000
1.2% Fleming Russia Securities Fund (b) 652,125
77,600 Lazard Vietnam Fund, Ltd. (b) 155,200
250,000 Vietnam Enterprise Investment Fund, Ltd., Class C
(a)(b) 256,250
-----------
1,063,575
-----------
Mining -- 3.9% 201,017 Bema Gold Corporation (b) 502,543
100,000 Free State Consolidated Gold Mines, Ltd., ADR 568,750
64,593 Gold Fields, Ltd., ADR (b) 482,833
24,000 Greenstone Resources, Ltd. (b) 147,000
100,000 Harmony Gold Mining, Ltd., ADR (b) 559,375
218,074 Randfontein Estates Gold Mining Company
Witwatersrand, Ltd., ADR 676,029
265,000 Vista Gold Corporation (b) 82,812
18,800 Western Deep Levels, Ltd., ADR 528,750
103,332 William Resources, Inc. 25,649
-----------
3,573,741
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS (cost $6,799,799) -- 5.1% 4,637,316
- ---------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS
Mining -- 0.7% 13,000 Amax Gold, Inc. $3.75 convertible pfd. 622,375
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PREFERRED STOCKS (cost $654,160) -- 0.7% 622,375
- ---------------------------------------------------------------------------------------------------------------------------------
Total investments (cost $90,323,182) -- 94.2% 86,023,685
Put options purchased (cost $10,386,764) -- 4.2%+ 3,878,444
Other assets less liabilities -- 1.6% 1,441,299
-----------
Net Assets -- 100.0% $91,343,428
-----------
-----------
</TABLE>
See notes to financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc.
Strategy Fund Schedule of Investments (concluded) As of April 30, 1998
+ Put options purchased as of April 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION DATE/ VALUE
CONTRACTS ISSUE EXERCISE PRICE (NOTE 1A)
<S> <C> <C> <C>
425 S&P 500 Index Jun. 98/725 $ 2,656
560 S&P 500 Index Jun. 98/800 21,000
450 S&P 500 Index Dec. 98/850 523,125
191 S&P 500 Index Dec. 98/900 305,600
300 S&P 500 Index Dec. 98/950 697,500
530 S&P 500 Index Dec. 98/1025 1,941,125
50 S&P Flex Index Jun. 98/700 938
470 S&P Flex Index Jun. 98/800 23,500
880 S&P Flex Index Sep. 98/800 363,000
-----------
Total put options purchased
(cost $10,386,764) $ 3,878,444
-----------
-----------
</TABLE>
* Ratings shown have not been audited by Ernst & Young LLP.
ADR -- American Depositary Receipt.
UNR -- Unrated by Standard & Poor's or Moody's.
CAD -- Canadian Dollars.
(a) Security exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
April 30, 1998 these securities amounted to $473,003, or 0.52% of net
assets.
(b) Non-income producing.
(c) Subsequent to April 30, 1998, the issuer received approval from debenture h
olders to restructure the terms of these securities. As part of the
restructuring, the May 20, 1998 and November 20, 1998 interest payments
will be forgiven and the Fund will resume accruing interest on November
21, 1998. This event has resulted in a decline in the market value of these
securities.
See notes to financial statements.
38
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc.
Capital Value Fund Schedule of Investments As of April 30, 1998
<TABLE>
<CAPTION>
SHARES
S&P MOODY'S HELD/ VALUE
RATING* RATING* FACE AMOUNT ISSUE (NOTE 1A)
<S> <C> <C> <C> <C> <C>
BONDS
U.S. Government United States Treasury Bonds:
Obligations --
21.1% AAA Aaa $19,750,000 6.375% due 8/15/2027 $20,848,100
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN BONDS (cost $20,644,435) -- 21.1% 20,848,100
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS
Country Funds --
1.5% 60,765 Fleming Russia Securities Fund (a) 1,070,983
87,000 Lazard Vietnam Fund, Ltd. (a) 174,000
Vietnam Enterprise Investment Fund, Ltd., Class C
250,000 (a)(b) 256,250
------------
1,501,233
------------
Mining -- 6.9% 58,926 Ashanti Goldfields, GDR 581,894
241,000 Bema Gold Corporation (a) 602,500
100,000 Free State Consolidated Gold Mines, Ltd., ADR 568,750
25,000 Getchell Gold (a) 615,625
114,426 Gold Fields, Ltd., ADR (a) 855,334
29,000 Greenstone Resources, Ltd. (a) 177,625
120,000 Harmony Gold Mining Ltd., ADR (a) 671,250
18,000 Newmont Mining 579,375
201,412 Randfontein Estates Gold Mining Company
Witwatersrand, Ltd., ADR 624,377
200,000 TVX Gold (a) 812,500
335,000 Vista Gold Corporation (a) 104,688
19,700 Western Deep Levels, Ltd., ADR 554,063
115,000 William Resources, Inc. 28,547
------------
6,776,528
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN COMMON STOCKS (cost $13,983,361) -- 8.4% 8,277,761
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT - TERM
SECURITIES (C)
U.S. Government United States Treasury Bills:
Obligations --
63.7% AAA Aaa $1,292,000 5.01% due 5/28/98 1,287,582
AAA Aaa 13,055,000 4.97% due 6/25/98 (d)(e) 12,960,612
AAA Aaa 3,050,000 4.97% due 7/2/98 3,024,563
AAA Aaa 46,086,000 4.92% due 7/23/98 45,571,680
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES (cost $62,829,958) -- 63.7% 62,844,437
- ---------------------------------------------------------------------------------------------------------------------------------
Total investments (cost $97,457,754) -- 93.2% 91,970,298
Put options purchased (cost $12,721,763) -- 3.6%+ 3,589,012
Variation margin on open futures contracts -- (0.4%)++ (380,800)
Other assets less liabilities -- 3.6% 3,565,334
------------
Net Assets -- 100.0% $98,743,844
------------
------------
</TABLE>
See notes to financial statements.
39
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc.
Capital Value Fund Schedule of Investments (concluded) As of April 30, 1998
+ Put options purchased as of April 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION DATE/ VALUE
CONTRACTS ISSUE EXERCISE PRICE (NOTE 1A)
<S> <C> <C> <C>
340 S&P 500 Index Jun. 98/725 $ 2,125
450 S&P 500 Index Jun. 98/800 16,875
960 S&P 500 Index Jun. 98/825 42,000
500 S&P 500 Index Dec. 98/850 581,250
227 S&P 500 Index Dec. 98/900 363,200
585 S&P 500 Index Dec. 98/1025 2,142,562
570 S&P Flex Index Jun. 98/800 28,500
1,000 S&P Flex Index Sep. 98/800 412,500
-----------
Total Put Options Purchased
(cost $12,721,763) $ 3,589,012
-----------
-----------
</TABLE>
++ Open futures contracts as of April 30, 1998 are as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF VALUE APPRECIATION
CONTRACTS ISSUE EXPIRATION DATE (NOTE 1A) (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
FUTURES PURCHASED: 27 S&P 500 Index Jun. 98 $ 7,554,600 $ 833,675
FUTURES SOLD: 95 S&P 500 Index Jun. 98 (26,581,000) (796,200)
---------
$ 37,475
---------
---------
</TABLE>
* Ratings shown have not been audited by Ernst & Young LLP.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
(a) Non-income producing.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
April 30, 1998 these securities amounted to $256,250, or 0.26% of net
assets.
(c) 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.
(d) Partially held by broker as collateral for open short positions.
(e) Partially held by the custodian in a segregated account as collateral for
open futures positions.
See notes to financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc.
Capital Value Fund Statement of Securities Sold Short As of April 30, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES ISSUE (NOTE 1A)
<S> <C> <C> <C>
Automotive -- 0.6% 30,000 Pep Boys Manny Moe & Jack $ 652,500
------------
Foreign Index -- 0.9% 92,900 WEBS-Hong Kong 923,194
------------
Manufacturing -- 9.7% 9,500 Altera 384,750
17,600 Best Foods 965,800
26,500 Compaq Computer 743,656
12,500 Harnischfeger Industries 353,125
9,200 Intel 743,475
16,300 International Flavors & Fragrance 797,681
23,500 Ionics 1,047,219
40,000 Komag 620,000
31,000 Micron Electronics 432,063
14,500 NIKE, Cl. B 692,375
24,200 OEA 461,312
27,200 St. Jude Medical 963,900
23,000 Seagate Technology 613,812
21,700 3Com 743,225
------------
9,562,393
------------
Services -- 3.9% 31,000 Cabletron Systems 410,750
31,600 Circus Circus Enterprises 570,775
27,300 Foundation Health Systems 789,994
24,300 Hilton Hotels 776,081
37,000 Itron 566,562
26,000 Vencor 705,250
------------
3,819,412
------------
Wholesale Trade -- 0.8% 13,800 Motorola 767,625
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES SOLD SHORT (proceeds $19,247,668) -- 15.9% $15,725,124
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
41
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc. Statements of Assets and Liabilities
As of April 30, 1998
<TABLE>
<CAPTION>
STRATEGY CAPITAL
FUND VALUE FUND
------------ ------------
<S> <C> <C>
ASSETS:
Investments at value (cost $90,323,182 and
$97,457,754, respectively) (Note 1a)................ $ 86,023,685 $ 91,970,298
Put options purchased (cost $10,386,764 and
$12,721,763, respectively) (Note 1a)................ 3,878,444 3,589,012
Cash................................................ 1,667 180,935
Receivable from brokers for proceeds on securities
sold short.......................................... -- 19,247,668
Receivables:
Interest........................................ 2,138,106 336,413
Capital stock sold.............................. 607,436 47,639
Securities sold................................. -- 359,988
Dividends....................................... 12,188 3,978
Other assets........................................ 9,275 32,112
------------ ------------
Total assets.................................... 92,670,801 115,768,043
------------ ------------
LIABILITIES:
Payables:
Short sales (proceeds $19,247,668).............. -- 15,725,124
Dividends to shareholders (Note 1f)............. 750,023 --
Capital stock redeemed.......................... 244,641 615,466
Investment advisory fees (Note 2)............... 45,672 33,082
Sub-investment advisory fees (Note 2)........... -- 28,947
Administrative fees (Note 2).................... 19,182 --
Service and Distribution Plan fees (Note 2)..... 5,230 42,345
Due to Dreyfus Transfer, Inc. (Note 2).......... 87,308 50,142
Variation margin on open futures contracts...... -- 380,800
Accrued expenses and other liabilities.............. 175,317 148,293
------------ ------------
Total liabilities............................... 1,327,373 17,024,199
------------ ------------
NET ASSETS.......................................... $ 91,343,428 $ 98,743,844
------------ ------------
------------ ------------
NET ASSETS CONSIST OF:
Paid in capital................................. $168,227,757 $346,390,444
Undistributed net investment income............. 2,928,407 3,999,755
Accumulated net realized loss on investments,
put options purchased, futures, short sale
transactions and foreign currency
transactions.................................. (69,004,834) (240,586,396)
Net unrealized appreciation on short sale
transactions.................................. -- 3,522,544
Net unrealized depreciation on investments, put
options purchased and
futures transactions.......................... (10,807,817) (14,582,732)
Net unrealized appreciation (depreciation) on
foreign currency transactions................. (85) 229
------------ ------------
NET ASSETS.......................................... $ 91,343,428 $ 98,743,844
------------ ------------
------------ ------------
SHARES OF COMMON STOCK OUTSTANDING:
Class O shares:
150 million of $0.001 par value authorized.... 11,826,651 --
------------ ------------
------------ ------------
Class A shares:
200 million of $0.001 par value authorized.... 2,948,540 --
------------ ------------
------------ ------------
125 million of $0.001 par value authorized.... -- 12,740,341
------------ ------------
------------ ------------
Class B shares:
125 million of $0.001 par value authorized.... -- 5,256,078
------------ ------------
------------ ------------
Class C shares:
200 million of $0.001 par value authorized.... 293,887 --
------------ ------------
------------ ------------
125 million of $0.001 par value authorized.... -- 1,671,352
------------ ------------
------------ ------------
Class R shares:
125 million of $0.001 par value authorized.... -- 5,467
------------ ------------
------------ ------------
NET ASSET VALUE PER SHARE:
Class O shares:
$71,691,734 / 11,826,651 shares............... $ 6.06 --
------------ ------------
------------ ------------
Class A shares:
$17,871,169 / 2,948,540 shares and $64,452,401
/ 12,740,341 shares, respectively........... $ 6.06 $ 5.06
------------ ------------
------------ ------------
Class B shares:
$26,234,909 / 5,256,078 shares................ -- $ 4.99
------------ ------------
------------ ------------
Class C shares:
$1,780,525 / 293,887 shares and $8,028,945 /
1,671,352 shares, respectively................ $ 6.06 $ 4.80
------------ ------------
------------ ------------
Class R shares:
$27,589 / 5,467 shares........................ -- $ 5.05
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc. Statements of Operations for the Year Ended
April 30, 1998
<TABLE>
<CAPTION>
STRATEGY CAPITAL
FUND VALUE FUND
<S> <C> <C>
------------ ------------
INVESTMENT INCOME (NOTE 1E):
Interest and discount earned (net of withholding tax
of $3,185 and $48,786, respectively).............. $ 9,702,378 $ 9,168,466
Dividends (net of withholding tax of $5,788 and $0,
respectively)..................................... 278,507 203,293
------------ ------------
Total investment income......................... 9,980,885 9,371,759
------------ ------------
EXPENSES:
Investment advisory fees (Note 2)................... 817,706 616,951
Administrative fees (Note 2)........................ 350,466 --
Dividends on securities sold short.................. -- 367,604
Transfer agent fees (Note 2)........................ 372,674 277,177
Sub-investment advisory fees (Note 2)............... -- 539,832
Service and Distribution Plan fees (Note 2)......... 122,524 764,411
Professional fees................................... 114,999 58,109
Printing and shareholder reports.................... 6,703 55,707
Registration fees................................... 19,668 53,895
Insurance........................................... 28,367 15,082
Directors' fees and expenses........................ 42,394 43,231
Custodian fees...................................... 46,425 35,187
Other operating expenses............................ 359 --
------------ ------------
Total expenses.................................. 1,922,285 2,827,186
Waiver of administrative fees (Note 2).......... (18,826) --
------------ ------------
Net expenses.................................... 1,903,459 2,827,186
------------ ------------
NET INVESTMENT INCOME............................... 8,077,426 6,544,573
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTES 1B, 1C, 1E & 3):
Net realized loss on investments, put options
purchased and futures transactions................ (27,577,080) (62,173,921)
Net realized loss on short sale transactions........ -- (12,832,985)
Net realized gain (loss) on foreign currency
transactions...................................... (740,328) 527,134
Change in net unrealized appreciation (depreciation)
on investments, put options purchased and
futures transactions.............................. (1,114,320) 9,251,284
Change in net unrealized depreciation on short sale
transactions...................................... -- (2,948,168)
Change in net unrealized appreciation on foreign
currency transactions............................. 3,070 33,277
------------ ------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $(21,351,232) $(61,598,806)
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
43
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc. Statements of Changes in Net Assets
<TABLE>
<CAPTION>
STRATEGY FUND CAPITAL VALUE FUND
----------------------------------- ------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1998 APRIL 30, 1997 APRIL 30, 1998 APRIL 30, 1997
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
OPERATIONS: Net investment income.......... $ 8,077,426 $ 15,958,909 $ 6,544,573 $ 16,844,056
Net realized loss on
investments, put options
purchased and futures
transactions................. (27,577,080) (16,069,197) (62,173,921) (23,936,012)
Net realized loss on short sale
transactions................. -- -- (12,832,985) (15,283,826)
Net realized gain (loss) on
foreign currency
transactions................. (740,328) (6,194,936) 527,134 1,219,208
Change in net unrealized
appreciation (depreciation)
on investments, put options
purchased and futures
transactions................. (1,114,320) (5,330,396) 9,251,284 (26,007,617)
Change in net unrealized
appreciation (depreciation)
on short sale transactions... -- -- (2,948,168) 8,515,695
Change in net unrealized
appreciation (depreciation)
on foreign currency
transactions................. 3,070 (67,194) 33,277 (33,048)
---------------- ---------------- ---------------- ----------------
Net decrease in net assets
resulting from operations.... (21,351,232) (11,702,814) (61,598,806) (38,681,544)
---------------- ---------------- ---------------- ----------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS: Net investment income
Class O shares............... (8,610,093) (9,509,711) -- --
Class A shares............... (2,388,760) (2,663,922) (12,466,331) (11,184,613)
Class B shares............... -- -- (4,682,782) (4,074,703)
Class C shares............... (318,865) (629,042) (1,564,172) (351,412)
Class R shares............... -- -- (3,942) (1,757)
Realized gains on foreign
currency transactions
Class O shares............... -- (3,149,588) -- --
Class A shares............... -- (757,462) -- --
Class C shares............... -- (133,166) -- --
---------------- ---------------- ---------------- ----------------
Net decrease in net assets
resulting from dividends and
distributions................ (11,317,718) (16,842,891) (18,717,227) (15,612,485)
---------------- ---------------- ---------------- ----------------
CAPITAL STOCK
TRANSACTIONS: Net proceeds from shares sold:
Class A shares............... 8,461,712 18,898,271 89,446,461 80,556,216
Class B shares............... -- -- 7,876,880 27,051,810
Class C shares............... 2,009,142 23,119,248 13,818,333 8,482,514
Class R shares............... -- -- 6,595 124,254
Dividends and distributions
reinvested:
Class O shares............... 1,697,713 2,306,043 -- --
Class A shares............... 819,637 1,072,115 8,919,796 7,737,035
Class B shares............... -- -- 3,073,203 2,459,697
Class C shares............... 75,612 136,605 530,907 130,312
Class R shares............... -- -- 3,840 1,757
Cost of shares redeemed:
Class O shares............... (40,070,923) (70,907,354) -- --
Class A shares............... (27,719,716) (24,374,508) (140,910,685) (130,659,314)
Class B shares............... -- -- (28,090,811) (31,821,065)
Class C shares............... (12,326,541) (8,756,049) (8,437,377) (3,667,272)
Class R shares............... -- -- (69,483) --
---------------- ---------------- ---------------- ----------------
Net decrease in net assets
resulting from capital stock
transactions................. (67,053,364) (58,505,629) (53,832,341) (39,604,056)
---------------- ---------------- ---------------- ----------------
Decrease in net assets......... (99,722,314) (87,051,334) (134,148,374) (93,898,085)
NET ASSETS: Beginning of year.............. 191,065,742 278,117,076 232,892,218 326,790,303
---------------- ---------------- ---------------- ----------------
End of year.................... $ 91,343,428 $191,065,742 $ 98,743,844 $232,892,218
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Undistributed net investment
income....................... $ 2,928,407 $ 10,656,233 $ 3,999,755 $ 8,372,853
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
</TABLE>
See notes to financial statements.
44
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc. Statements of Changes in Net Assets
(concluded)
<TABLE>
<CAPTION>
STRATEGY FUND CAPITAL VALUE FUND
----------------------------------- ------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1998 APRIL 30, 1997 APRIL 30, 1998 APRIL 30, 1997
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
CAPITAL STOCK
TRANSACTIONS: Shares sold:
Class A shares............... 1,196,510 2,270,514 13,723,148 8,386,923
Class B shares............... -- -- 1,254,106 2,817,342
Class C shares............... 275,260 2,704,967 2,123,191 916,595
Class R shares............... -- -- 1,138 13,254
Shares issued for dividends and
distributions reinvested:
Class O shares............... 243,622 277,417 -- --
Class A shares............... 118,404 128,972 1,554,110 848,331
Class B shares............... -- -- 541,057 274,214
Class C shares............... 10,533 16,697 95,751 14,775
Class R shares............... -- -- 672 193
Shares redeemed:
Class O shares............... (5,756,722) (8,457,567) -- --
Class A shares............... (3,945,162) (2,931,757) (21,201,003) (13,484,994)
Class B shares............... -- -- (4,189,733) (3,322,387)
Class C shares............... (1,673,545) (1,076,210) (1,423,063) (400,566)
Class R shares............... -- -- (9,912) --
---------------- ---------------- ---------------- ----------------
Net decrease in shares
outstanding.................. (9,531,100) (7,066,967) (7,530,538) (3,936,320)
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
</TABLE>
See notes to financial statements.
45
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc. Strategy Fund Financial Highlights
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1998 APRIL 30, 1997
--------------------------------- -------------------------------
CLASS O CLASS A CLASS C CLASS O CLASS A CLASS C
------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................... $ 7.77 $ 7.77 $ 7.74 $ 8.78 $ 8.78 $ 8.77
------- ------- ------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (1)........... 0.43 0.42 0.37 0.78 0.54 0.45
Net realized and unrealized gain
(loss) on investments, put options
purchased, futures transactions and
foreign currency transactions...... (1.54) (1.55) (1.54) (1.19) (0.96) (0.95)
------- ------- ------- -------- ------- -------
Total from investment
operations....................... (1.11) (1.13) (1.17) (0.41) (0.42) (0.50)
------- ------- ------- -------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income............................. (0.60) (0.58) (0.51) (0.47) (0.46) (0.41)
Dividends from realized gains on
foreign currency transactions...... -- -- -- (0.13) (0.13) (0.12)
------- ------- ------- -------- ------- -------
Total dividends and
distributions.................... (0.60) (0.58) (0.51) (0.60) (0.59) (0.53)
------- ------- ------- -------- ------- -------
NET ASSET VALUE, END OF YEAR........ $ 6.06 $ 6.06 $ 6.06 $ 7.77 $ 7.77 $ 7.74
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Total investment return (2)......... (14.88)% (15.11)% (15.61)% (4.85)% (5.10)% (5.94)%
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of year (000
omitted)........................... $71,692 $17,871 $ 1,780 $134,719 $43,327 $13,020
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Ratio of expenses to average net
assets............................. 1.31% 1.55% 2.29% 1.18% 1.43% 2.14%
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Decrease reflected in above expense
ratios due to waiver of
administrative fees................ 0.01% 0.01% 0.01% -- -- --
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Ratio of net investment income to
average net assets................. 6.01% 5.79% 5.08% 6.80% 6.55% 5.81%
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Portfolio turnover rate............. 227% 227% 227% 126% 126% 126%
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
<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+ CLASS O CLASS A CLASS O CLASS A
------- ------- -------- ------- -------- ------- -------
<S> <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
------- ------- ------- -------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (1)........... 0.76 0.57 0.37 0.66 0.52 0.77 0.68
Net realized and unrealized gain
(loss) on investments, put options
purchased, futures transactions and
foreign currency transactions...... (0.53) (0.36) (0.22 ) (0.44) (0.34) 0.15 0.22
------- ------- ------- -------- ------- -------- -------
Total from investment
operations....................... 0.23 0.21 0.15 0.22 0.18 0.92 0.90
------- ------- ------- -------- ------- -------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income............................. (0.55) (0.53) (0.38) (0.52) (0.49) (0.77) (0.74)
Dividends from realized gains on
foreign currency transactions...... -- -- -- -- -- (0.02) (0.02)
------- ------- ------- -------- ------- -------- -------
Total dividends and
distributions.................... (0.55) (0.53) (0.38) (0.52) (0.49) (0.79) (0.76)
------- ------- ------- -------- ------- -------- -------
NET ASSET VALUE, END OF YEAR........ $ 8.78 $ 8.78 $ 8.77 $ 9.10 $ 9.10 $ 9.40 $ 9.41
------- ------- ------- -------- ------- -------- -------
------- ------- ------- -------- ------- -------- -------
Total investment return (2)......... 2.66% 2.40% 1.96%(3) 2.39% 1.94% 10.13% 9.91%
------- ------- ------- -------- ------- -------- -------
------- ------- ------- -------- ------- -------- -------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of year (000
omitted)........................... $224,148 $53,652 $ 317 $329,624 $65,874 $464,937 $91,454
-------- ------- ------- -------- ------- -------- -------
-------- ------- ------- -------- ------- -------- -------
Ratio of expenses to average net
assets............................. 1.23% 1.48% 2.28%(4) 1.14% 1.46% 1.07% 1.40%
-------- ------- ------- -------- ------- -------- -------
-------- ------- ------- -------- ------- -------- -------
Decrease reflected in above expense
ratios due to waiver of
administrative fees................ -- -- -- -- -- -- --
-------- ------- ------- -------- ------- -------- -------
-------- ------- ------- -------- ------- -------- -------
Ratio of net investment income to
average net assets................. 6.56% 6.33% 5.79%(4) 6.19% 5.83% 7.57% 6.85%
-------- ------- ------- -------- ------- -------- -------
-------- ------- ------- -------- ------- -------- -------
Portfolio turnover rate............. 96% 96% 96% 100% 100% 31% 31%
-------- ------- ------- -------- ------- -------- -------
-------- ------- ------- -------- ------- -------- -------
+ Class C shares were introduced on August 1, 1995. Except as indicated
below, information is presented for the period from August 1, 1995 to
April 30, 1996.
(1) Based on average shares outstanding.
(2) Total investment returns exclude the effects of sales loads and assume
reinvestment of dividends and distributions. Total investment returns for
periods of less than one full year are not annualized.
(3) 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.
(4) Annualized.
</TABLE>
See notes to financial statements.
46
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc. Capital Value Fund Financial Highlights
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
APRIL 30, 1998
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS R
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 8.62 $ 8.45 $ 8.31 $ 8.62
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 0.31(1) 0.25(1) 0.23(1) 0.33(1)
Net realized and unrealized gain
(loss) on investments, put options
purchased, futures transactions,
short sale transactions and foreign
currency transactions.............. (2.91) (2.85) (2.78) (2.91)
-------- -------- -------- --------
Total from investment
operations....................... (2.60) (2.60) (2.55) (2.58)
-------- -------- -------- --------
LESS DIVIDENDS
Dividends from net investment
income............................. (0.96) (0.86) (0.96) (0.99)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD...... $ 5.06 $ 4.99 $ 4.80 $ 5.05
-------- -------- -------- --------
Total investment return (2)......... (31.48)% (32.01)% (32.10)% (31.28)%
-------- -------- -------- --------
-------- -------- -------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000
omitted)........................... $ 64,452 $ 26,235 $ 8,029 $ 28
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of operating expenses to
average net assets................. 1.35% 2.10% 2.08% 1.11%
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of interest expense and
dividends on securities sold short
to average net assets.............. 0.24% 0.24% 0.21% 0.26%
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of net investment income to
average net assets................. 4.49% 3.74% 3.70% 4.73%
-------- -------- -------- --------
-------- -------- -------- --------
Portfolio turnover rate............. 359% 359% 359% 359%
-------- -------- -------- --------
-------- -------- -------- --------
<CAPTION>
FOR THE YEAR ENDED
APRIL 30, 1998
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS R
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 10.54 $ 10.38 $ 10.24 $ 10.53
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 0.59 0.54 0.57 0.82(1)
Net realized and unrealized gain
(loss) on investments, put options
purchased, futures transactions,
short sale transactions and foreign
currency transactions.............. (1.92) (1.93) (1.91) (2.13)
-------- -------- -------- --------
Total from investment
operations....................... (1.33) (1.39) (1.34) (1.31)
-------- -------- -------- --------
LESS DIVIDENDS
Dividends from net investment
income............................. (0.59) (0.54) (0.59) (0.60)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD...... $ 8.62 $ 8.45 $ 8.31 $ 8.62
-------- -------- -------- --------
Total investment return (2)......... (12.97)% (13.69)% (13.47)% (12.83)%
-------- -------- -------- --------
-------- -------- -------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000
omitted)........................... $160,834 $ 64,671 $ 7,271 $ 117
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of operating expenses to
average net assets................. 1.28% 2.03% 2.07% 1.19%
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of interest expense and
dividends on securities sold short
to average net assets.............. 0.51% 0.50% 0.47% 0.38%
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of net investment income to
average net assets................. 6.16% 5.52% 6.02% 8.65%
-------- -------- -------- --------
-------- -------- -------- --------
Portfolio turnover rate............. 399% 399% 399% 399%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to financial statements.
47
<PAGE>
- --------------------------------------------------------------------------------
Comstock Partners Funds, Inc. Capital Value Fund Financial Highlights
(concluded)
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
FOR THE SEVEN
MONTHS ENDED FOR THE YEAR ENDED
APRIL 30, 1996 SEPTEMBER 30, 1995
----------------------------------------------- ---------------------------------------------
CLASS A CLASS B CLASS C CLASS R CLASS A CLASS B CLASS C+ CLASS R
-------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.........................$ 10.61 $ 10.41 $ 10.41 $ 10.62 $ 11.88 $ 11.69 $ 10.64 $ 10.84
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........... 0.22 0.18 0.44 0.30 0.36 0.31 0.02 0.04
Net realized and unrealized gain
(loss) on investments, put
options purchased, futures
transactions, short sale
transactions and foreign
currency transactions.......... 0.17 0.16 (0.12) 0.09 (1.37) (1.38) (0.25) (0.26)
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations................... 0.39 0.34 0.32 0.39 (1.01) (1.07) (0.23) (0.22)
-------- -------- -------- -------- -------- -------- -------- --------
LESS DIVIDENDS
Dividends from net investment
income......................... (0.46) (0.37) (0.49) (0.48) (0.26) (0.21) -- --
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD.........................$ 10.54 $ 10.38 $ 10.24 $ 10.53 $ 10.61 $ 10.41 $ 10.41 $ 10.62
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total investment return (2)..... 3.81% 3.36% 3.30% 3.97% (8.58)% (9.27)% (2.26)% (2.03)%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000
omitted).......................$241,472 $ 81,786 $ 3,531 $ 1 $271,052 $ 87,847 $ 1 $ 1
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Ratio of operating expenses to
average net assets............. 0.75%(3) 1.18%(3) 1.28%(3) 0.61%(3) 1.24% 1.99% 0.26%(3) 0.14%(3)
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Ratio of interest expense and
dividends on securities sold
short to average net assets.... 0.18%(3) 0.19%(3) 0.18%(3) 0.17%(3) 0.45% 0.45% 0.06%(3) 0.04%(3)
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Ratio of net investment income
to average net assets.......... 2.13%(3) 1.70%(3) 1.71%(3) 2.28%(3) 3.61% 2.86% 0.23%(3) 0.38%(3)
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Portfolio turnover rate......... 56%(3) 56%(3) 56%(3) 56%(3) 55% 55% 55% 55%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
--------------------- ---------------------
CLASS A CLASS B CLASS A CLASS B+
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 11.42 $ 11.32 $ 12.41 $ 10.58
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........... 0.24 0.23 0.24 0.03
Net realized and unrealized gain
(loss) on investments, put
options purchased, futures
transactions, short sale
transactions and foreign
currency transactions.......... 0.46 0.38 (0.62) 0.71
-------- -------- -------- --------
Total from investment
operations................... 0.70 0.61 (0.38) 0.74
-------- -------- -------- --------
LESS DIVIDENDS
Dividends from net investment
income......................... (0.24) (0.24) (0.61) --
-------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD......................... $ 11.88 $ 11.69 $ 11.42 $ 11.32
-------- -------- -------- --------
-------- -------- -------- --------
Total investment return (2)..... 6.14% 5.35% (2.70)% 6.99%
-------- -------- -------- --------
-------- -------- -------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period (000
omitted)....................... $402,708 $108,532 $412,316 $ 30,378
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of operating expenses to
average net assets............. 1.21% 1.99% 1.23% 1.49%(3)
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of interest expense and
dividends on securities sold
short to average net assets.... 0.39% 0.40% 0.45% 0.31%(3)
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of net investment income
to average net assets.......... 2.06% 1.39% 1.94% 0.83%(3)
-------- -------- -------- --------
-------- -------- -------- --------
Portfolio turnover rate......... 46% 46% 42% 42%
-------- -------- -------- --------
-------- -------- -------- --------
+ Class B shares were introduced on January 15, 1993; Class C shares and
Class R shares were introduced on August 22, 1995.
(1) Based on average shares outstanding.
(2) Total investment returns exclude the effects of sales loads and assume
reinvestment of dividends and distributions. Total investment returns for
periods of less than one full year are not annualized.
(3) Not annualized.
</TABLE>
See notes to financial statements.
48
<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS:
1. SIGNIFICANT ACCOUNTING POLICIES:
Comstock Partners Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940 (the "1940 Act") as 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"). The Company accounts separately for the assets,
liabilities and operations of each Fund. The Strategy Fund is a non-diversified
portfolio with an investment objective to maximize total return over the
long-term investment horizon by investing primarily in a portfolio of debt
securities. The Capital Value Fund is a diversified portfolio with an investment
objective to maximize total return, consisting of capital appreciation and
current income. The Company originally commenced operations in May of 1988 as a
closed-end investment company, with the Strategy 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 Strategy Fund,
Class A, was created and, on August 1, 1995, a third class of shares of the
Strategy Fund, 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 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, Inc. in exchange for shares in the
Capital Value Fund. The Capital Value Fund offers Class A, Class B, Class C, and
Class R shares.
Premier Mutual Fund Services, Inc. (the "Distributor") acts as distributor of
the Funds' shares. Each Class O, Class A and Class C share of the Strategy Fund
and each Class A, Class B, Class C, and Class R share of the Capital Value Fund
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 of the Funds bear fees and expenses on an
ongoing basis pursuant to the Funds' Class A, Class B, and Class C Service and
Distribution Plans, respectively, and Class B and Class 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.
Class A shares of each Fund are subject to a sales charge imposed at the time of
purchase and in certain cases, contingent deferred sales charges. 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 of
each Fund are subject to a contingent deferred sales charge imposed at the time
of redemption on redemptions made within one year of purchase. Class R shares
are sold at net asset value per share only to institutional investors. Class O
shares are no longer issued by the Company except in connection with the
reinvestment of dividends and distributions on outstanding Class O shares.
The following is a summary of significant accounting policies followed by the
Company:
Strategy Fund and Capital Value 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, 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 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 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. Options written are valued at the last asked price.
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 Funds may engage in various
portfolio strategies to seek to generate income or gains or as a hedge 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.
Options -- The Funds are authorized to write and purchase call and put options.
When a Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received). Written and
purchased options are non-income producing investments.
Forward foreign exchange contracts -- The Funds are authorized to enter into
forward foreign exchange contracts to seek to generate income or gains or as a
hedge against either specific transactions or portfolio positions. Such
contracts are not entered on the Funds' records. However, the effect on
operations is recorded from the date the Fund enters into such contracts.
Financial futures contracts -- The Funds 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 year. Foreign currency transaction gains (losses) are the
result of settling (realized) or valuing (unrealized) assets or liabilities
expressed in foreign currencies into U.S. dollars. Realized and unrealized gains
or losses from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes -- It is the policy of the Company 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,
dividends and capital gains at various rates.
49
<PAGE>
(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
Funds are accrued on the ex-dividend date. During the year ended April 30, 1998,
the Capital Value Fund and the Strategy Fund reclassified $7,799,556 and
$4,487,534, respectively, between accumulated net realized losses and
undistributed net investment income. These reclassifications were the result of
permanent book to tax differences, primarily from foreign currency transactions
and passive foreign investment companies. The results of operations and net
assets were not affected by these reclassifications.
(g) Expenses -- Expenses directly attributable to each Fund are charged to that
Fund's operations; expenses which are applicable to both Funds are allocated
among them on a pro rata basis.
(h) Use of estimates -- The Funds' financial statements are prepared in
accordance with generally accepted accounting principles which may require the
use of estimates and assumptions. Actual results could differ from these
estimates.
2. INVESTMENT ADVISORY, SUB-INVESTMENT ADVISORY, ADMINISTRATION AGREEMENTS AND
TRANSACTIONS WITH AFFILIATES:
(a) The Company, on behalf of the Funds, has engaged Comstock Partners, Inc.
(the "Investment Adviser") to provide professional investment management for
each Fund. 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 has responsibility for investment decisions for, and the day-to-day
management of, that portfolio. For its services, the Investment Adviser receives
from the Company, on behalf of the Capital Value Fund, a monthly fee at the
following annual rates: .40% of the first $300 million of the Capital Value
Fund's average daily net assets, .45% of the Capital Value Fund's average daily
net assets between $300 million and $750 million, .50% of the Capital Value
Fund's average daily net assets between $750 million and $1 billion and .55% of
the Capital Value Fund's average daily net assets in excess of $1 billion.
The Investment Adviser has engaged The Dreyfus Corporation (the "Sub-Investment
Adviser") 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 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 receives an annual fee computed daily and paid monthly by the Company at
the following annual rates: .35% of the first $300 million of the Capital Value
Fund's average daily net assets, .30% of the Capital Value Fund's average daily
net assets between $300 million and $750 million, .25% of the Capital Value
Fund's average daily net assets between $750 million and $1 billion and .20% of
the Capital Value Fund's average daily net assets in excess of $1 billion.
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.
Effective November 20, 1997, Princeton agreed to voluntarily reduce through
December 31, 1998 the minimum fee to $125,000 per annum.
The Company compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the
Sub-Investment Adviser, under a transfer agency agreement for providing
personnel and facilities to perform transfer agency services for the Funds. For
the year ended April 30, 1998, such compensation amounted to $159,704 for the
Capital Value Fund and $162,671 for the Strategy Fund.
(b) 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 (a securities dealer, financial institution or other
industry professional) 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. During the
year ended April 30, 1998, $259,124 and $74,213 were charged to the Class A
shares of the Capital Value Fund and the Strategy Fund, respectively.
Service and Distribution Plans -- Class B Shares 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 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 such Fund. During the year ended April
30, 1998, $311,125 and $67,840 were charged for distributing Capital Value
Fund's Class B and Class C shares, respectively, and $103,708 and $22,613 were
charged for shareholder servicing for Capital Value Fund's Class B and Class C
shares, respectively. For the same period, $36,233 and $12,078 were charged for
distributing and shareholder servicing, respectively, for Strategy Fund's Class
C shares.
(c) Certain officers and/or directors of the Company are officers and/or
directors of the Investment Adviser. Each director who is not an "affiliated
person" as defined in the 1940 Act receives from the Company an annual fee of
$20,000 per year.
50
<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, 1998 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
Strategy Fund:...................................... $ 53,979,702 $107,729,917
-------------- --------------
-------------- --------------
Capital Value Fund:
Long transactions................................. $158,225,773 $207,932,928
Short sale transactions........................... 131,386,108 74,397,307
-------------- --------------
$289,611,881 $282,330,235
-------------- --------------
-------------- --------------
</TABLE>
The Capital Value Fund engages 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 a broker and/or custodian,
of cash and/or U.S. Government securities sufficient to cover its short
position. Securities sold short at April 30, 1998 and their related market
values and proceeds are set forth in the Statement of Securities Sold Short.
Realized and unrealized gains (losses) as of April 30, 1998 were as follows:
Strategy Fund:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
GAINS (LOSSES) LOSSES
-------------- --------------
<S> <C> <C>
Long-term investments............................... $ (5,666,520) $ (4,299,497)
Short-term investments.............................. 498 --
Put options purchased............................... (23,526,435) (6,508,320)
Financial futures contracts......................... 1,615,377 --
Foreign currency transactions....................... (740,328) (85)
-------------- --------------
$(28,317,408) $(10,807,902)
-------------- --------------
-------------- --------------
</TABLE>
Capital Value Fund:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
GAINS (LOSSES) GAINS (LOSSES)
-------------- --------------
<S> <C> <C>
Long-term investments............................... $(18,506,793) $ (5,501,935)
Short sale transactions............................. (12,832,985) 3,522,544
Short-term investments.............................. 3,263 14,479
Put options purchased............................... (18,915,590) (9,132,751)
Financial futures contracts......................... (24,754,801) 37,475
Foreign currency transactions....................... 527,134 229
-------------- --------------
$(74,479,772) $(11,059,959)
-------------- --------------
-------------- --------------
</TABLE>
As of April 30, 1998, the cost of investments of the Capital Value Fund for
Federal income tax purposes was substantially the same as the cost for financial
reporting purposes. The cost of investments for the Strategy Fund for federal
income tax purposes was $101,515,568. The following summarizes the net
unrealized appreciation (depreciation) on investments, put options purchased,
futures transactions and short sale transactions for Federal income tax purposes
for each Fund at April 30, 1998:
<TABLE>
<CAPTION>
GROSS GROSS
APPRECIATION DEPRECIATION NET
------------ ------------ ------------
<S> <C> <C> <C>
Strategy Fund............................ $ 223,156 $(11,836,595) $(11,613,439)
Capital Value Fund....................... $ 5,689,303 $(16,749,491) $(11,060,188)
</TABLE>
The following summarizes the capital loss carryforwards of each Fund at April
30,1998:
<TABLE>
<CAPTION>
EXPIRING IN FISCAL YEAR STRATEGY FUND CAPITAL VALUE FUND
- ------------------------- ---------------- ------------------
<S> <C> <C>
1999 -- $ 9,100,000
2000 $ 3,400,000 29,800,000
2001 8,800,000 17,800,000
2002 -- 56,700,000
2003 -- 9,200,000
2004 12,500,000 15,800,000
2005 14,900,000 14,200,000
2006 14,100,000 57,400,000
---------------- ------------------
Total $ 53,700,000 $210,000,000
---------------- ------------------
---------------- ------------------
</TABLE>
4. SUBSEQUENT EVENT:
In May 1998 the Company's Board of Directors declared ordinary income dividends
for the Strategy Fund as follows:
<TABLE>
<CAPTION>
AMOUNT PER SHARE
- -------------------------------------
<S> <C> <C> <C> <C>
CLASS O CLASS A CLASS C PAYABLE DATE RECORD DATE
- --------- ---------- ---------- ------------------ ----------------
$0.05000 $0.04873 $0.04476 05/29/98 05/19/98
</TABLE>
51
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Comstock Partners Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments and statement of securities sold short,
of Comstock Partners Funds, Inc. (comprising, respectively, Comstock Partners
Strategy Fund and Comstock Partners Capital Value Fund) as of April 30, 1998,
and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended and financial highlights, with respect to Comstock Partners Strategy
Fund, for each of the three years in the period then ended and with respect to
Comstock Partners Capital Value Fund, for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights, with respect to Comstock Partners Strategy
Fund, for each of the two years in the period ended April 30, 1995 were audited
by other auditors whose opinion dated May 31,1995 expressed an unqualified
opinion on such financial highlights.
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 and financial highlights. Our procedures included confirmation of
securities owned as of April 30, 1998 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above and audited by us present fairly, in all material respects, the financial
position of each of the Funds constituting Comstock Partners Funds, Inc. at
April 30,1998, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
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 15, 1998
52
<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, April
30, 1996, April 30, 1997 and April 30, 1998.
Financial Highlights of the Dreyfus Capital Value Fund, Inc.
(the predecessor to the Comstock Partners Capital Value Fund
(the "Capital Value Fund")), 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, the seven
months ended April 30, 1996 and for the years ended April 30,
1997 and April 30, 1998.
Included in Part B of the Registration Statement:
Schedule of Investments of the Strategy Fund as of April 30,
1998.
Schedule of Investments of the Capital Value Fund as of April
30, 1998.
Statement of Securities Sold Short of the Capital Value Fund
as of April 30, 1998.
Statements of Assets and Liabilities of the Strategy Fund and
the Capital Value Fund as of April 30, 1998.
Statements of Operations of the Strategy Fund and the Capital
Value Fund for the year ended April 30, 1998.
Statements of Changes in Net Assets of the Strategy Fund and
the Capital Value Fund for the two years ended April 30, 1997
and April 30, 1998.
Financial Highlights of the Strategy Fund for the years ended
April 30, 1994, April 30, 1995, April 30, 1996, April 30, 1997
and April 30, 1998.
<PAGE>
Financial Highlights of the Capital Value Fund for the years
ended September 30, 1993, September 30, 1994, September 30,
1995, for the seven months ended April 30, 1996 and for the
years ended April 30, 1997 and April 30, 1998.
Notes to Financial Statements of Comstock Partners Funds, Inc.
Independent Auditors' Report dated June 15, 1998
Schedules No. I through VII and other Financial Statements
relating to the Comstock Partners Strategy Fund and 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 which are included in Part B of
the Registration Statement.
<PAGE>
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
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) - - Investment Advisory Agreement between Registrant, on behalf
of the Comstock Partners Strategy Fund, and Comstock Partners,
Inc.*
5(b) - - Sub-Investment Advisory Agreement between Comstock
Partners, Inc., on behalf of the Comstock Partners Strategy Fund,
and The Dreyfus Corporation.*
5(c) - - Investment Advisory Agreement between Registrant, on behalf
of the Comstock Partners Capital Value Fund, and Comstock
Partners, Inc.*
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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.*
8(a)(1) - - Form of Foreign Custody Manager Agreement between
Registrant, on behalf of Comstock Partners Capital Value Fund,
and The Bank of New York.
8(b) - - Form of Custody Agreement between Registrant and Brown
Brothers Harriman & Co.*
8(b)(1) - - Form of Foreign Custody Manager Delegation Agreement
between Registrant, on behalf of Comstock Partners Strategy
Fund, 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 - - Opinion and Consent of Venable, Baetjer and Howard, with
respect to validity of shares of the Comstock Partners Funds.*
11 - - Independent Auditor's 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.*
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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. Smith, Karlen and
Adelberg.*
<FN>
- ---------------------
* Previously filed.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Holders at
Title of Class August 3, 1998
-------------- --------------
<S> <C>
Class A shares of Comstock
Partners Strategy Fund,
par value $.001 per share.......................................... 593
Class O shares of Comstock
Partners Strategy Fund,
par value $.001 per share.......................................... 5128
Class C shares of Comstock
Partners Strategy Fund,
par value $.001 per share.......................................... 34
Class A shares of Comstock
Partners Capital Value Fund,
par value $.001 per share.......................................... 7578
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Class B shares of Comstock
Partners Capital Value Fund,
par value $.001 per share.......................................... 2239
Class C shares of Comstock
Partners Capital Value Fund,
par value $.001 per share.......................................... 436
Class R shares of Comstock
Partners Capital Value Fund,
par value $.001 per share.......................................... 5
</TABLE>
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.
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
<PAGE>
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 Investment Advisors, Inc.,
another wholly-owned subsidiary, provides investment management services to
various pension plans, institutions and individuals.
Officers and Directors of Sub-Investment Adviser
<TABLE>
<CAPTION>
Name and Position
with Dreyfus Other Businesses
- ----------------- ----------------
<S> <C>
W. KEITH SMITH Senior Vice Chairman:
Chairman of the Board Mellon Bank, N.A.*;
President and Director:
The Bridgewater Land Co., Inc.**;
Mellon Preferred Capital Corporation**;
TBC Securities Co., Inc.**;
Wellington-Medford II Properties, Inc.**;
Chairman, President and Chief Executive Officer:
Shearson Summit Euromanagement, Inc.*;
Shearson Summit EuroPartners, Inc.*;
Shearson Summit Management, Inc.*;
Shearson Summit Partners, Inc.*;
Shearson Venture Capital, Inc.*;
Chairman and Chief Executive Officer:
The Boston Company, Inc.**;
Boston Safe Deposit and Trust Company**;
Boston Group Holdings, Inc.**;
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405;
The Boston Company Asset Management, Inc.**;
Mellon Europe Limited
London, England;
Mellon Global Investing Corp.*;
Mellon Accounting Services, Inc.*;
MGIC-UK Ltd.;
Mellon Capital Management Corporation***;
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Chairman:
Mellon Financial Company*;
Buck Consultants, Inc.
1 Pennsylvania Plaza, 29th Floor
New York, New York 10019;
Director and Vice Chairman:
Mellon Financial Services Corporation*;
Mellon Bank Corporation*;
W. KEITH SMITH Trustee:
(continued) Laurel Capital Advisors, LLP*;
Mellon Equity Associates, LLP*;
Mellon Bond Associates, LLP*;
Past Director:
Access Capital Strategies Corp.
124 Mount Auburn Street
Suite 200 North
Cambridge, MA 02138;
Past Trustee:
Franklin Portfolio Associates Trust
2 International Place, 22nd Floor
Boston, MA 02110
MANDELL L. BERMAN Real estate consultant and private investor
Director 29100 Northwestern Highway, Suite 370
Southfield, Michigan 48034
BURTON C. BORGELT Director:
Director Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405;
DeVlieg-Bullard, Inc.
1 Gorham Island
Westport, Connecticut 06880;
Mellon Bank Corporation*;
Mellon Bank, N.A.*
FRANK V. CAHOUET Chairman of the Board, President and
Director Chief Executive Officer:
Mellon Bank Corporation*;
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Director:
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103;
Saint-Gobain Corporation
750 East Swedesford Road
Valley Forge, Pennsylvania 19482;
Alleghany Teledyne, Inc.
1901 Avenue of the Stars
Los Angeles, California 90067;
FRANK V. CAHOUET Past Chairman, President and Chief Executive Officer:
(continued) Mellon Bank, N.A.*
STEPHEN E. CANTER Chairman and President:
Vice Chairman, Dreyfus Investment Advisors, Inc.****;
Chief Investment Officer,
and a Director Director:
The Dreyfus Trust Company+
CHRISTOPHER M. CONDRON President and Chief Operating Officer:
President, Chief Executive Mellon Bank, N.A.*;
Officer, Chief Operating Officer
and a Director President and Director:
Boston Safe Advisors, Inc.**;
Vice-Chairman and Director:
Mellon Bank Corporation*;
The Boston Company, Inc.**;
Director:
Certus Asset Advisors Corporation++
Mellon Capital Management Corporation***;
Boston Safe Deposit and Trust Company**;
Past President and Director:
The Boston Company Financial Services, Inc.**;
Past President:
The Boston Company Financial Strategies,
Inc.**;
Boston Safe Deposit and Trust Company**;
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Past Director:
Mellon Preferred Capital Corporation**;
Access Capital Strategies Corp.
124 Mount Auburn Street
Suite 200 North
Cambridge, MA 02138;
Past Chairman, President, and Chief Executive Officer:
The Boston Company Asset Management, Inc.**;
CHRISTOPHER M. CONDRON Past Partner Representative:
(continued) Pareto Partners
271 Regent Street
London, England W1R 8PP;
Past Trustee:
Franklin Portfolio Associates Trust
2 International Place, 22nd Floor
Boston, MA 02710;
Mellon Bond Associates, LLP*;
Mellon Equity Associates, LLP*
LAWRENCE S. KASH Executive Vice President:
Vice Chairman-Distribution Mellon Bank, N.A.*;
and a Director
Chairman, President and Director:
The Dreyfus Consumer Credit Corporation****;
Trustee, President and Chief Executive Officer:
Laurel Capital Advisors, LLP*;
Director:
Dreyfus Investment Advisors, Inc.****;
Seven Six Seven Agency, Inc.****;
President and Director:
Dreyfus Service Corporation+;
Dreyfus Precious metals, Inc.+;
Dreyfus Service Organization, Inc.****;
The Boston Company, Inc.**;
Boston Group Holdings, Inc.**;
Chairman and Chief Executive Officer:
Dreyfus Brokerage Services, Inc.
401 North Maple Avenue
Beverly Hills, CA 90210;
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Chairman, President and Chief Executive Officer:
The Dreyfus Trust Company+;
The Boston Company Advisors, Inc.
Wilmington, DE
J. DAVID OFFICER Director:
Vice Chairman and a Director Dreyfus Financial Services Corporation *****;
Dreyfus Investment Services Corporation*****;
Mellon Trust of Florida
2875 Northeast 191st Street
North Miami Beach, Florida 33180;
Mellon Preferred Capital Corporation**;
Boston Group Holdings, Inc.**;
Mellon Trust of New York
1301 Avenue of the Americas - 41st Floor
New York, New York 10019;
Mellon Trust of California
400 South Hope Street
Los Angeles, California 90071-2806;
Executive Vice President:
Dreyfus Service Corporation****;
Mellon Bank, N.A.*;
Vice Chairman and Director:
The Boston Company, Inc.**;
President and Director:
RECO, Inc.**;
The Boston Company Financial Services, Inc.**;
Boston Safe Deposit and Trust Company**
RICHARD F. SYRON Chairman of the Board and Chief Executive Officer:
Director American Stock Exchange
86 Trinity Place
New York, New York 10006;
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Director:
John Hancock Mutual Life Insurance
Company
John Hancock Place, Box 111
Boston, Massachusetts 02117;
Thermo Electron Corporation
81 Wyman Street, Box 9046
Waltham, Massachusetts 02254-9046
American Business Conference
1730 K Street, NW, Suite 120
Washington, DC 20006;
Trustee:
Boston College - Board of Trustees
140 Commonwealth Ave.
Chestnut Hill, Massachusetts 02167-3934
RONALD P. O'HANLEY III Director:
Vice Chairman The Boston Company Asset Management,
LLC**;
TBCAM Holding, Inc.**;
Franklin Portfolio Holdings, Inc.
Two International Place - 22nd floor
Boston, Massachusetts 02110;
Mellon Capital Management Corporation***;
Certus Asset Advisors Corporation++;
Mellon-France Corporation***;
Chairman and Director:
Boston Safe Advisors, Inc.**;
Partner Representative:
Pareto Partners
271 Regent Street
London, England W1R 8PP;
Chairman and Trustee:
Mellon Bond Associates, LLP*;
Mellon Equity Associates, LLP*;
Trustee:
Laurel Capital Advisors, LLP*;
Chairman, President and Chief Executive Officer
Mellon Global Investing Corp.*;
Partner:
McKinsey & Company, Inc.
Boston, Massachusetts
</TABLE>
<PAGE>
<TABLE>
<S> <C>
WILLIAM T. SANDALS, JR. Chairman and Director:
Senior Vice President and Dreyfus Transfer, Inc.
Chief Executive Officer One American Express Plaza
Providence, Rhode Island 02903;
President and Director:
Dreyfus-Lincoln, Inc.
4500 New Linden Hill Rd.
Wilmington, DE 19808;
Executive Vice President and Chief Financial Officer:
Dreyfus Service Corporation****;
Executive Vice President, Treasurer and Director:
Dreyfus Service Organization, Inc.****;
WILLIAM T. SANDALS, JR. Director and Treasurer:
(continued) Dreyfus Investment Advisors, Inc.****;
Seven Six Seven Agency, Inc.****;
Dreyfus Precious Metals, Inc.+;
Director, Vice President and Treasurer:
The Dreyfus Consumer Credit Corporation****;
The TruePenny Corporation****;
Director, Treasurer and Chief Financial Officer:
The Dreyfus Trust Company+;
Past Director and President:
Lion Management, Inc.****;
Dreyfus Partnership Management, Inc.****;
Past Director and Executive Vice President:
Dreyfus Service Organization, Inc.****;
Past Director and Treasurer:
Dreyfus Personal Management, Inc.****
MARK N. JACOBS Director:
Vice President, Dreyfus Service Organization, Inc.****;
General Counsel The Dreyfus Trust Company+;
and Secretary
Director and Secretary:
Dreyfus Investment Advisors, Inc.****;
The TruePenny Corporation****;
Past Director, Vice President and Secretary:
Lion Management, Inc.****
</TABLE>
<PAGE>
<TABLE>
<S> <C>
PATRICE M. KOZLOWSKI None
Vice President-
Corporate Communications
MARY BETH LEIBIG None
Vice President-
Human Resources
ANDREW S. WASSER Vice President:
Vice President-Information Mellon Bank Corporation*
Services
JAMES BITETTO None
Assistant Secretary
STEVEN F. NEWMAN Vice President, Secretary and Director:
Assistant Secretary Dreyfus Transfer, Inc.
One American Express Plaza
Providence, Rhode Island 02903;
Assistant Secretary:
Dreyfus Service Organization, Inc.****
<FN>
- ----------------
* The address of the business so indicated is One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258.
** The address of the business so indicated is One Mellon Bank Place, Boston,
Massachusetts 02108.
*** The address of the business so indicated is 595 Market Street, Suite
3000, San Francisco, California 94105.
**** The address of the business so indicated is 200 Park Avenue, New York,
New York 10166.
***** The address of the business so indicated is Union Trust Building, 501 Grant Street,
Pittsburgh, Pennsylvania 15259.
+ 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 Bush Street, Suite 450,
San Francisco, California 94104.
</TABLE>
<PAGE>
Item 29. Principal Underwriters
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or exclusive
distributor:
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 GNMA Fund
6) Dreyfus BASIC Money Market Fund, Inc.
7) Dreyfus BASIC Municipal Fund, Inc.
8) Dreyfus BASIC U.S. Government Money Market Fund
9) Dreyfus California Intermediate Municipal Bond Fund
10) Dreyfus California Tax Exempt Bond Fund, Inc.
11) Dreyfus California Tax Exempt Money Market 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) Dreyfus Florida Intermediate Municipal Bond Fund
17) Dreyfus Florida Municipal Money Market Fund
18) The Dreyfus Fund Incorporated
19) Dreyfus Global Bond Fund, Inc.
20) Dreyfus Global Growth Fund
21) Dreyfus GNMA Fund, Inc.
22) Dreyfus Government Cash Management
23) Dreyfus Growth and Income Fund, Inc.
24) Dreyfus Growth and Value Funds, Inc.
25) Dreyfus Growth Opportunity Fund, Inc.
26) Dreyfus Income Funds
27) Dreyfus Index Funds, Inc.
28) Dreyfus Institutional Money Market Fund
29) Dreyfus Institutional Preferred 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 Funds, Inc.
34) Dreyfus Investment Grade Bond Funds, Inc.
35) Dreyfus Investment Portfolios
36) The Dreyfus/Laurel Funds, Inc.
37) The Dreyfus/Laurel Funds Trust
38) The Dreyfus/Laurel Tax-Free Municipal Funds
39) Dreyfus LifeTime Portfolios, Inc.
40) Dreyfus Liquid Assets, Inc.
41) Dreyfus Massachusetts Intermediate Municipal Bond Fund
<PAGE>
42) Dreyfus Massachusetts Municipal Money Market Fund
43) Dreyfus Massachusetts Tax Exempt Bond Fund
44) Dreyfus MidCap Index Fund
45) Dreyfus Money Market Instruments, Inc.
46) Dreyfus Municipal Bond Fund, Inc.
47) Dreyfus Municipal Cash Management Plus
48) Dreyfus Municipal Money Market Fund, Inc.
49) Dreyfus New Jersey Intermediate Municipal Bond Fund
50) Dreyfus New Jersey Municipal Bond Fund, Inc.
51) Dreyfus New Jersey Municipal Money Market Fund, Inc.
52) Dreyfus New Leaders Fund, Inc.
53) Dreyfus New York Insured Tax Exempt Bond Fund
54) Dreyfus New York Municipal Cash Management
55) Dreyfus New York Tax Exempt Bond Fund, Inc.
56) Dreyfus New York Tax Exempt Intermediate Bond Fund
57) Dreyfus New York Tax Exempt Money Market Fund
58) Dreyfus 100% U.S. Treasury Intermediate Term Fund
59) Dreyfus 100% U.S. Treasury Long Term Fund
60) Dreyfus 100% U.S. Treasury Money Market Fund
61) Dreyfus 100% U.S. Treasury Short Term Fund
62) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
63) Dreyfus Pennsylvania Municipal Money Market Fund
64) Dreyfus Premier California Municipal Bond Fund
65) Dreyfus Premier Equity Funds, Inc.
66) Dreyfus Premier International Funds, Inc.
67) Dreyfus Premier GNMA Fund
68) Dreyfus Premier Worldwide Growth Fund, Inc.
69) Dreyfus Premier Insured Municipal Bond Fund
70) Dreyfus Premier Municipal Bond Fund
71) Dreyfus Premier New York Municipal Bond Fund
72) Dreyfus Premier State Municipal Bond Fund
73) Dreyfus Premier Value Fund
74) Dreyfus Short-Intermediate Government Fund
75) Dreyfus Short-Intermediate Municipal Bond Fund
76) The Dreyfus Socially Responsible Growth Fund, Inc.
77) Dreyfus Stock Index Fund, Inc.
78) Dreyfus Tax Exempt Cash Management
79) The Dreyfus Third Century Fund, Inc.
80) Dreyfus Treasury Cash Management
81) Dreyfus Treasury Prime Cash Management
82) Dreyfus Variable Investment Fund
83) Dreyfus Worldwide Dollar Money Market Fund, Inc.
84) General California Municipal Bond Fund, Inc.
85) General California Municipal Money Market Fund
86) General Government Securities Money Market Fund, Inc.
87) General Money Market Fund, Inc.
<PAGE>
88) General Municipal Bond Fund, Inc.
89) General Municipal Money Market Fund, Inc.
90) General New York Municipal Bond Fund, Inc.
91) General New York Municipal Money Market Fund
(b)
<TABLE>
<CAPTION>
Positions and
Name and principal business Positions and offices with Premier offices with
address Mutual Fund Services, Inc. Registrant
- --------------------------- ---------------------------------- -------------
<S> <C> <C>
Marie E. Connolly* Director, President, Chief Operating None
Officer and Compliance Officer
Joseph F. Tower, III* Director, Senior Vice President, None
Treasurer and Chief Financial
Officer
Mary A. Nelson* Vice President None
Paul Prescott* Vice President None
Jean M. O'Leary* Assistant Secretary and Assistant None
Clerk
John W. Gomez* Director None
William J. Nutt* Director None
Richard W. Ingram Senior Vice President None
Roy M. Moura* First Vice President None
Elizabeth A. Keeley** Vice President None
Dale F. Lampe* Vice President None
Mary A. Nelson* Vice President None
<FN>
* Principal business address is 60 State Street, Boston, Massachusetts 02109.
** Principal business address is 200 Park Avenue, New York, New York 10166.
</FN>
</TABLE>
<PAGE>
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., 993 Lenox Drive, Suite 106,
Lawrenceville, New Jersey 08648; 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) Not applicable.
(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 certifies that it meets all of
the requirements for effectiveness of this 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 Lawrenceville and State of New Jersey
on the 26th day of August, 1998.
COMSTOCK PARTNERS FUNDS, INC.
By/s/Robert C. Ringstad
------------------------
Robert C. Ringstad
Vice President, Treasurer and
Chief Financial Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Robert C. Ringstad Vice President, Treasurer and August 26, 1998
- --------------------------------------- Chief Financial Officer
Robert C. Ringstad
/s/Charles L. Minter Director, Chairman of the August 26, 1998
- --------------------------------------- Board and President
Charles L. Minter
*M. Bruce Adelberg Director August 26, 1998
- ---------------------------------------
M. Bruce Adelberg
*Sven B. Karlen, Jr. Director August 26, 1998
- ---------------------------------------
Sven B. Karlen, Jr.
*Robert M. Smith Director August 26, 1998
- ---------------------------------------
Robert M. Smith
*By /s/ Robert C. Ringstad August 26, 1998
- ---------------------------------------
Robert C. Ringstad
Attorney-in-Fact
<PAGE>
Comstock Partners Funds, Inc.
INDEX TO EXHIBITS
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
8(a)(1) Form of Foreign Custody Manager Agreement between Registrant, on
behalf of Comstock Partners Capital Value Fund, and The Bank of New
York
8(b)(1) Form of Foreign Custody Manager Delegation Agreement between
Registrant, on behalf of Comstock Partners Strategy Fund, and Brown
Brothers Harriman & Co.
11 Consent of Independent Auditors
27 Financial Data Schedules
</TABLE>
FOREIGN CUSTODY MANAGER AGREEMENT
AGREEMENT made as of December 10, 1997 , between COMSTOCK PARTNERS
FUNDS, INC., on behalf of the Comstock Partners Capital Value Fund, a series
thereof (the "Fund") and The Bank of New York ("BNY").
W I T N E S S E T H:
WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager
on the terms and conditions contained herein;
WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform
the duties set forth herein on the terms and condition contained herein;
NOW THEREFORE, in consideration of the mutual promises hereinafter
contained in this Agreement, the Fund and BNY hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Board" shall mean the board of directors or board of
trustees, as the case may be, of the Fund.
2. "Eligible Foreign Custodian" shall have the meaning provided in the
Rule.
3. "Monitoring System" shall mean a system established by BNY to
fulfill the Responsibilities specified in clauses 1(d) and 1(e) of Article III
of this Agreement.
4. "Qualified Foreign Bank" shall have the meaning provided in the
Rule.
5. "Responsibilities" shall mean the responsibilities delegated to BNY
as a Foreign Custody Manager with respect to each Specified Country and each
Eligible Foreign Custodian selected by BNY, as such responsibilities are more
fully described in Article III of this Agreement.
6. "Rule" shall mean Rule 17f-5 under the Investment Company Act of
1940, as amended, as such Rule became effective on June 16, 1997.
7. "Securities Depository" shall mean any securities depository or
clearing agency within the meaning of Section (a)(1)(ii) or (a)(1)(iii) of the
Rule.
<PAGE>
2
8. "Specified Country" shall mean each country listed on Schedule I
attached hereto and each country, other than the United States, constituting the
primary market for a security with respect to which the Fund has given
settlement instructions to The Bank of New York as custodian (the "Custodian")
under its Custody Agreement with the Fund.
Capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings given such terms in the Rule.
ARTICLE II
BNY AS A FOREIGN CUSTODY MANAGER
1. The Fund on behalf of its Board hereby delegates to BNY with respect
to each Specified Country the Responsibilities.
2. BNY accepts the Board's delegation of Responsibilities with respect
to each Specified Country and agrees in performing the Responsibilities as a
Foreign Custody Manager to exercise reasonable care, prudence and diligence such
as a person having responsibility for the safekeeping of the Fund's assets would
exercise.
3. BNY shall provide to the Board at such times as the Board deems
reasonable and appropriate based on the circumstances of the Fund's foreign
custody arrangements written reports notifying the Board of the placement of
assets of the Fund with a particular Eligible Foreign Custodian within a
Specified Country and of any material change in the arrangements (including, in
the case of Qualified Foreign Banks, any material change in any contract
governing such arrangements and in the case of Securities Depositories, any
material change in the established practices or procedures of such Securities
Depositories) with respect to assets of the Fund with any such Eligible Foreign
Custodian.
ARTICLE III
RESPONSIBILITIES
1. Subject to the provisions of this Agreement, BNY shall with respect
to each Specified Country select an Eligible Foreign Custodian. In connection
therewith, BNY shall: (a) determine that assets of the Fund held by such
Eligible Foreign Custodian will be subject to reasonable care, based on the
standards applicable to custodians in the relevant market in which such Eligible
Foreign Custodian operates, after considering all factors relevant to the
safekeeping of such assets, including, without limitation, those contained in
Section (c)(1) of the Rule; (b) determine that the Fund's foreign custody
arrangements with each Qualified Foreign Bank are governed by a written contract
with BNY (or, in the case of foreign custody arrangements with a Securities
Depository, by such a contract, by the rules or established practices or
procedures of the Securities Depository, or by any combination of the foregoing)
that BNY has determined will provide reasonable care for the Fund's assets based
on the standards specified in paragraph (c)(1) of the Rule; (c) require that
each contract with a Qualified Foreign Bank shall include the provisions
specified in paragraph (c)(2)(i)(A) through (F) of the Rule or, alternatively,
in lieu of any or all of such (c)(2)(i)(A) through (F) provisions, such other
provisions as BNY determines
<PAGE>
3
will provide, in their entirety, the same or a greater level of care and
protection for the assets of the Fund as such specified provisions; (d) monitor
pursuant to the Monitoring System the appropriateness of maintaining the assets
of the Fund with a particular Eligible Foreign Custodian pursuant to paragraph
(c)(1) of the Rule and in the case of a Qualified Foreign Bank, the contract
governing the Fund's arrangements and any material change in such contract
pursuant to paragraph (c)(2) of the Rule and in the case of a Securities
Depository, any material change in the established practices or procedures of
such Securities Depository; and (e) advise the Fund promptly whenever an
arrangement (including, in the case of a Qualified Foreign Bank, any material
change in the contract governing such arrangement and in the case of a
Securities Depository, any material change in the established practices or
procedures of such Securities Depository) described in preceding clause (d) no
longer meets the requirements of the Rule. Anything in this Agreement to the
contrary notwithstanding, BNY shall in no event be deemed to have selected any
Securities Depository the use of which is mandatory by law or regulation or
because securities cannot be withdrawn from such Securities Depository, or
because maintaining securities outside the Securities Depository is not
consistent with prevailing custodial practices in the relevant market (each, a
"Compulsory Depository"); it being understood however, that for each Compulsory
Depository utilized or intended to be utilized by the Fund, BNY shall provide
the Fund from time to time with information as it shall provide to its clients
generally, addressing the factors set forth in Section (c)(1) of the Rule and
shall provide BNY's opinions with respect thereto so that the Fund may determine
the appropriateness of placing Fund assets therein.
2. (a) For purposes of Clauses (a) and (b) of preceding Section 1 of
this Article, with respect to Securities Depositories, it is understood that
such determination shall be made on the basis of, and limited by, publicly
available information with respect to each such Securities Depository and such
other information as shall be in the possession of BNY's Global Custody and
Network Management Department.
(b) For purposes of clause (d) of preceding Section 1 of this Article,
BNY's determination of appropriateness shall not include, nor be deemed to
include, any evaluation of Country Risks associated with investment in a
particular country. For purposes hereof, "Country Risks" shall mean systemic
risks of holding assets in a particular country including, but not limited to,
(a) the use of Compulsory Depositories, (b) such country's financial
infrastructure, (c) such country's prevailing custody and settlement practices,
(d) nationalization, expropriation or other governmental actions, (e) regulation
of the banking or securities industry, (f) currency controls, restrictions,
devaluations or fluctuations, and (g) market conditions which affect the orderly
execution of securities transactions or affect the value of securities.
ARTICLE IV
REPRESENTATIONS
1. The Fund hereby represents that: (a) this Agreement has been duly
authorized, executed and delivered by the Fund, constitutes a valid and legally
binding obligation of the Fund enforceable in accordance with its terms, and no
statute, regulation, rule, order, judgment or contract binding on the Fund
prohibits the Fund's execution or performance of this Agreement; (b) this
Agreement has been approved and ratified by the Board at a meeting duly
<PAGE>
4
called and at which a quorum was at all times present; and (c) the Board or its
investment advisor has considered the Country Risks associated with investment
in each Specified Country and will have considered such risks prior to any
settlement instructions being given to the Custodian with respect to any other
Specified Country.
2. BNY hereby represents that: (a) BNY is duly organized and existing
under the laws of the State of New York, with full power to carry on its
businesses as now conducted, and to enter into this Agreement and to perform its
obligations hereunder; (b) this Agreement has been duly authorized, executed and
delivered by BNY, constitutes a valid and legally binding obligation of BNY
enforceable in accordance with its terms, and no statute, regulation, rule,
order, judgment or contract binding on BNY prohibits BNY's execution or
performance of this Agreement; and (c) BNY has established the Monitoring
System.
ARTICLE V
CONCERNING BNY
1. BNY shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees, sustained or
incurred by, or asserted against, the Fund, except to the extent the same arises
out of the failure of BNY to exercise the care, prudence and diligence required
by Section 2 of Article II hereof. In no event shall BNY be liable to the Fund,
the Board, or any third party for special, indirect or consequential damages, or
for lost profits or loss of business, arising in connection with this Agreement.
2. The Fund shall indemnify BNY and hold it harmless from and against
any and all costs, expenses, damages, liabilities or claims, including
attorneys' and accountants' fees, sustained or incurred by, or asserted against,
BNY by reason or as a result of any action or inaction, or arising out of BNY's
performance hereunder, provided that the Fund shall not indemnify BNY to the
extent any such costs, expenses, damages, liabilities or claims arises out of
BNY's failure to exercise the reasonable care, prudence and diligence required
by Section 2 of Article II hereof.
3. For its services hereunder, the Fund agrees to pay to BNY such
compensation and out-of-pocket expenses as shall be mutually agreed.
4. BNY shall have only such duties as are expressly set forth herein.
In no event shall BNY be liable for any Country Risks associated with
investments in a particular country.
ARTICLE VI
MISCELLANEOUS
1. This Agreement constitutes the entire agreement between the Fund and
BNY with respect to the subject matter hereof, and no provision in the Custody
Agreement between the Fund and the Custodian shall affect the duties and
obligations of BNY hereunder, nor shall any provision in this Agreement affect
the duties or obligations of the Custodian under the Custody Agreement.
<PAGE>
5
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to BNY, shall be sufficiently given if received by it
at its offices at 90 Washington Street, New York, New York 10286, or at such
other place as BNY may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if received
by it at its offices at 993 Lenox Drive, Suite 106, Laurenceville, New Jersey
08648 or at such other place as the Fund may from time to time designate in
writing.
4. In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
thereby. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties. This Agreement shall extend to and
shall be binding upon the parties hereto, and their respective successors and
assigns; provided however, that this Agreement shall not be assignable by either
party without the written consent of the other.
5. This Agreement shall be construed in accordance with the substantive
laws of the State of New York, without regard to conflicts of laws principles
thereof. The Fund and BNY hereby consent to the jurisdiction of a state or
federal court situated in New York City, New York in connection with any dispute
arising hereunder. The Fund hereby irrevocably waives, to the fullest extent
permitted by applicable law, any objection which it may now or hereafter have to
the laying of venue of any such proceeding brought in such a court and any claim
that such proceeding brought in such a court has been brought in an inconvenient
forum. The Fund and BNY each hereby irrevocably waives any and all rights to
trial by jury in any legal proceeding arising out of or relating to this
Agreement.
6. The parties hereto agree that in performing hereunder, BNY is acting
solely on behalf of the Fund and no contractual or service relationship shall be
deemed to be established hereby between BNY and any other person.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
8. This Agreement shall terminate simultaneously with the termination
of the Custody Agreement between the Fund and the Custodian, and may otherwise
be terminated by either party giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than sixty (60)
days after the date of such notice.
<PAGE>
6
IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the date
first above written.
COMSTOCK PARTNERS FUNDS, INC.
on behalf of the Comstock Partners
Capital Value Fund
By: _____________________________
Title:
Tax Identification No.:
THE BANK OF NEW YORK
By: _____________________________
Title:
<PAGE>
FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT
Exhibit 8(b)(1)
AGREEMENT made as of this 10th day of December 1997 between Comstock
Partners Fund, Inc. ("CPF"), a management investment company registered
with the Securities and Exchange Commission (the "Commission") under the
Investment Company Act of 1940, as amended, (the "Act"), acting through its
Board of Directors or their duly appointed representative on behalf of Comstock
Partners Strategy Fund, a series of CPF (the "Fund"), and BROWN BROTHERS
HARRIMAN & CO., a New York limited partnership with an office in Boston,
Massachusetts (the "Delegate").
WITNESSETH
WHEREAS the Fund has appointed the Delegate as custodian (the
"Custodian") of the Fund's Assets pursuant to a Custodian Agreements dated
November 22, 1991 (the "Custodian Agreement");
WHEREAS the Fund may, from time to time determine to invest and
maintain some or all of the Fund's Assets outside the United States;
WHEREAS the Board of Directors of the Fund (the "Board") wishes to
delegate to the Delegate certain functions with respect to the custody of the
Fund' Assets outside the United States;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Fund and the Delegate agree as follows. Capitalized terms
shall have the meaning indicated in Section 12 unless otherwise indicated.
1. Maintenance of Fund's Assets Abroad. The Fund, acting through its
Board or its duly authorized representative, hereby instructs Delegate pursuant
to the terms of the Custodian Agreement to place and maintain the Fund's Assets
within the countries listed in Schedule 1 attached hereto (as such Schedule may
be amended from time to time in accordance herewith). Such instruction shall be
deemed to include an instruction to use any Compulsory Securities Depository in
any such country and shall represent a Proper Instruction under the terms of the
Custodian Agreement. Countries may be added to Schedule 1 by written instruction
of the Fund that is accepted in writing by the Delegate as an amendment to
Schedule 1. With respect to amendments adding countries to Schedule 1, the Fund
acknowledges that - (a) the Delegate shall perform services hereunder with
respect to the countries where it provides custodial services to the Fund under
the Custodian Agreement; (b) depending on conditions in the particular country,
advance notice may be required before the Delegate shall be able to perform its
duties hereunder in or with respect to such country (such advance notice to be
reasonable in light of the specific facts and circumstances attendant to
performance of duties in such country); and (c) nothing in this Agreement shall
require the Delegate to provide delegated or custodial services in any country
not listed in Schedule 1 until such amended Schedule 1 has been accepted by the
Delegate in accordance herewith.
2. Delegation. Pursuant to the provisions of Rule 17f-5 under the Act
as amended, the Board hereby delegates to the Delegate, and the Delegate hereby
accepts such delegation and agrees to perform, only those duties set forth in
this Agreement concerning the safekeeping of the Fund's Assets in each of the
countries set forth in Schedule 1 hereto as amended from time to time. The
Delegate is hereby authorized to take such actions on behalf of or in the name
of the Fund as are reasonably required to discharge its duties under this
Agreement, including, without limitation, to cause the Fund's Assets to be
placed with a particular Eligible Foreign Custodian in accordance herewith. The
Fund confirms to the Delegate that the Fund or its investment adviser has
considered the Sovereign risk and prevailing country risk as part of its
continuing investment decision process, including such factors as may be
reasonably related to the systemic risk of maintaining the Fund's Assets in a
particular country, including, but not limited to, financial infrastructure,
prevailing custody and settlement systems and practices (including the use of
any Compulsory Securities depository), and the laws relating to the safekeeping
and recovery of the Fund's Assets held in custody pursuant to the terms of the
Custodian Agreement.
<PAGE>
3. Selection of Eligible Foreign Custodian and Contract Administration.
The Delegate shall perform the following duties with respect to the selection of
Eligible Foreign Custodians and administration of certain contracts governing
the Fund's foreign custodial arrangements:
(a) Selection of Eligible Foreign Custodian. The Delegate shall place
and maintain the Fund's Assets with an Eligible Foreign Custodian; provided that
the Delegate shall have determined that the Fund's Assets will be subject to
reasonable care based on the standards applicable to custodians in the relevant
market, if maintained with the custodian, after considering all factors relevant
to the safekeeping of such assets including without limitation:
(i) The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), the controls and
procedures for dealing with any Securities Depository, the method of keeping
custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite financial
strength to provide reasonable care for the Fund's Assets;
(iii) The Eligible Foreign Custodian's general reputation and standing
and, in the case of a Securities Depository, the depository's operating history
and number of participants; and
(iv) Whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such as by virtue of
the existence of any offices of such Eligible Foreign Custodian in the United
States or such Eligible Foreign Custodian's appointment of an agent for service
of process in the United States or consent to jurisdiction in the United States.
The Delegate shall be required to make the foregoing determination to the best
of its knowledge and belief based only on information reasonably available to
it.
(b) Contract Administration. In the case of an Eligible Foreign
Custodian that is not a Securities Depository or a U.S. Bank, the Delegate shall
ensure that the foreign custody arrangements shall be governed by a written
contract that the Delegate has determined will provide reasonable care for Fund
assets based on the standards applicable to custodians in the relevant market.
Each such contract shall, except as set forth in the last paragraph of this
subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any combination
of the foregoing) such that the Fund will be adequately protected against the
risk of loss of assets held in accordance with such contract;
(ii) That the Fund's Assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the Eligible Foreign
Custodian or its creditors except a claim of payment for their safe custody or
administration or, in the case of cash deposits, liens or rights in favor of
creditors of such Custodian arising under bankruptcy, insolvency or similar
laws;
(iii) That beneficial ownership of the Fund's Assets will be freely
transferable without the payment of money or value other than for safe custody
or administration;
(iv) That adequate records will be maintained identifying the Fund's
Assets as belonging to the Fund or as being held by a third party for the
benefit of the Fund;
(v) That the Fund's independent public accountants will be given access
to those records described in (iv) above or confirmation of the contents of such
records; and
(vi) That the Delegate will receive sufficient and timely periodic
reports with respect to the safekeeping of the Fund's Assets, including, but not
limited to, notification of any transfer to or from the Fund's account or a
third party account containing the Fund's Assets.
Any such contract may contain, in lieu of any or all of the provisions specified
in this Section 3 (b), such other provisions that the Delegate determines will
provide, in their entirety, the same or a greater level of care and protection
for the Fund's Assets as the specified provisions, in their entirety.
(c) Limitation to Delegated Selection. Notwithstanding anything in this
Agreement to the contrary, the duties under this Section 3 shall apply only to
Eligible Foreign Custodians selected by the
<PAGE>
Delegate and shall not apply to Compulsory Securities Depositories or to any
Eligible Foreign Custodian that the Delegate is directed to use pursuant to
Section 7.
4. Monitoring. The Delegate shall establish a system to monitor at
reasonable intervals (but at least annually) the appropriateness of maintaining
the Fund's Assets with each Eligible Foreign Custodian that has been selected by
the Delegate pursuant to Section 3 of this Agreement. The Delegate shall monitor
the continuing appropriateness of placement of the Fund's Assets in accordance
with the criteria established under Section 3(a) of this Agreement. The Delegate
shall monitor the continuing appropriateness of the contract governing the
Fund's arrangements in accordance with the criteria established under Section
3(b) of this Agreement.
5. Reporting. The Delegate shall provide to the Board written reports
specifying placement of the Fund's Assets with each Eligible Foreign Custodian
selected by the Delegate pursuant to Section 3 of this Agreement and shall
promptly report as to any material changes to such foreign custody arrangements
effected by the Delegate pursuant to said Section, with such reports to be
provided to the Board at such times as the board deems reasonable and
appropriate based on the circumstances of the Fund's foreign custody
arrangements (and until further notice from the Fund, such reports shall be
provided not less that quarterly with respect to the placement of Fund's Assets
with particular Eligible Foreign custodians and with reasonable promptness upon
the occurrence of any material change in the arrangements with the Eligible
Foreign Custodians). Delegate will prepare such a report with respect to any
Eligible Foreign Custodian that the Delegate has been instructed to use pursuant
to Section 7 only to the extent specifically agreed with respect to the
particular situation.
6. Withdrawal of Fund's Assets. If the Delegate determines that an
arrangement with a specific Eligible Foreign Custodian selected by the Delegate
under Section 3 of this Agreement no longer meets the requirements of said
Section, Delegate shall withdraw the Fund's Assets from the non-complying
arrangement as soon as reasonably practicable; provided, however, that if in the
reasonable judgment of the Delegate, such withdrawal would require liquidation
of any of the Fund's Assets or would materially impair the liquidity, value or
other investment characteristics of the Fund's Assets, it shall be the duty of
the Delegate to promptly provide information regarding the particular
circumstances to the Fund's Investment Adviser and to act only in accordance
with Proper Instructions of the Fund or its Investment Advisor with respect to
such liquidation or other withdrawal.
7. Direction as to Eligible Foreign Custodian. Notwithstanding this
Delegation Agreement, the Fund, acting through its Board, its Investment Adviser
or its other authorized representative, may direct the Delegate to place and
maintain the Fund's Assets with a particular Eligible Foreign Custodian. In such
event, the Delegate shall be entitled to rely on any such instruction as a
Proper Instruction under the terms of the Custodian Agreement and shall have no
duties under this Delegation Agreement with respect to such arrangement save
those that it may undertake specifically in writing with respect to each
particular instance.
8. Standard of Care. In carrying out its duties under this Agreement,
the Delegate agrees to exercise reasonable care, prudence and diligence such as
a person having responsibility for safekeeping the Fund's Assets would exercise.
9. Representations. The Delegate hereby represents and warrants that it
is a U.S. Bank and that this Agreement has been duly authorized, executed and
delivered by the Delegate and is a legal, valid and binding agreement of the
Delegate.
The Fund hereby represents and warrants that the Board has determined
that it is reasonable to rely on the Delegate to perform the delegated
responsibilities provided for herein and that this Agreement has been duly
authorized, executed and delivered by the Fund and is a legal, valid and binding
agreement of the Fund.
<PAGE>
10. Effectiveness; termination. This Agreement shall be effective as of
the date on which this Agreement shall have been accepted by the Delegate, as
indicated by the date set forth below the Delegate's signature. This Agreement
may be terminated at any time, without penalty, by written notice from the
terminating party to the non-terminating party. Such termination shall be
effective on the 75th day following the date on which the non-terminating party
shall receive the foregoing notice. Notwithstanding the foregoing, in the event
of a termination of the Custody Agreement, this Agreement shall be deemed to
have been terminated concurrently with the termination of the Custodian
Agreement.
11. Notices. Notices and other communications under this Agreement are
to be made in accordance with the arrangements designated for such purpose under
the Custodian Agreement unless otherwise indicated in a writing referencing this
Agreement and executed by both parties.
12. Definitions. Capitalized terms in this agreement have the following
meanings:
a. Compulsory Securities Depository - shall mean a Securities
Depository the use of which is mandatory (i) under applicable law or regulation;
(ii) because securities cannot be withdrawn from the depository; or, (iii)
because maintaining securities outside the Securities Depository is not
consistent with prevailing custodial practices.
b. Eligible Foreign Custodian - shall have the meaning set forth in
Rule 17f-5(a)(1) and shall also include a U.S. Bank.
c. Fund's Assets - shall mean any of the Fund's investments (including
foreign currencies) for which the primary market is outside the United States,
and such cash and cash equivalents as are reasonably necessary to effect the
Fund's transactions in such investments.
d. Proper Instructions - shall have the meaning set forth in the
Custodian Agreement.
e. Securities Depository - shall have the meaning set forth in Rule
17f-5(a)(6).
f. Sovereign Risk - shall have the meaning set forth in Section 7.D of
the Custodian Agreement.
g. U.S. Bank - shall mean a bank which qualifies to serve as a
custodian of assets of investment companies under Section 17(f) of the Act.
13. Governing Law and Jurisdiction. This Agreement shall be construed
in accordance with the laws of the State of New York. The parties hereby submit
to the exclusive jurisdiction of the Federal courts sitting in the State of New
York or the Commonwealth of Massachusetts or of the state courts of either such
State or such Commonwealth.
14. Fees. Delegate shall perform its functions under this agreement for
the compensation determined under the Custodian Agreement.
15. Integration. This Agreement sets forth certain of the Delegate's
duties with respect to the selection and monitoring of Eligible Foreign
Custodians, the administration of contracts with Eligible Foreign Custodians,
the withdrawal of assets from Eligible Foreign Custodians and the issuance of
reports in connection with such duties. The terms of the Custodian Agreement
shall apply generally as to matters not expressly covered in this Agreement,
including dealings with the Eligible Foreign Custodians in the course of
discharge of the Delegate's obligations under the Custodian Agreement.
16. Provision of Information Relating to Country Risk. In addition to
the delegated duties set forth herein, and with respect to the jurisdictions
listed in Schedule1, or added thereto pursuant to Section 1, the Delegate agrees
to provide to the Board and/or the Fund's investment adviser, such information
as may be reasonably available to the Custodian relating to:
<PAGE>
(a) Information relevant to the compulsory nature of the depository;
(b) Information as to the existence and merits of an alternative to a
depository, including matters relevant to practices with regard to safekeeping,
administration and settlement of assets;
(c) Information relevant to the criteria established by Rule
17f-5(c)(1);
(d) Information concerning the rules of the depository relevant to the
assessment of the contractual terms required by Rule Section 17f-5(c)(2);
(e) Information regarding the Compulsory Depository's corporate or
other form, its ownership, regulatory framework and operating history;
The Custodian may provide information under this subsection by means of its
regularly established mechanisms for the communication of client market
information communication. In the provision of information under this Section,
the Delegate shall be responsible to use reasonable care in the gathering of
such information and may rely without limitation on reports and information
distributed by the Compulsory Securities Depository, governmental or regulatory
reports, reports of any auditor of a Compulsory Securities Depository, reports
and analysis of industry groups or similar sources and commercial information
services. Provision of information in accordance with this Section is not
offered as financial, investment or other professional advice. The Custodian
makes no warranty as to the accuracy or completeness of the information
provided.
<PAGE>
NOW THEREFORE, each of the parties has caused this Agreement to be executed by
its duly authorized representatives, effective as of the date first above
written.
BROWN BROTHERS HARRIMAN & CO. COMSTOCK PARTNERS FUND,
INC., ON BEHALF OF COMSTOCK
PARTNERS STRATEGY FUND
By: ______________________________ By: ____________________________
Name: ____________________ Name: ______________________
Title: __________________ Title: ___________________
Date: __________________ Date: ____________________
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 report dated June 15, 1998
included in this Registration Statement (Form N-1A No. 33-40771) of Comstock
Partners Funds, Inc.
/s/ ERNST & YOUNG LLP
New York, New York
August 24, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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</TABLE>
