AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1999
SECURITIES ACT FILE NO. 33-40771
INVESTMENT COMPANY ACT FILE NO. 811-5502
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
PRE-EFFECTIVE AMENDMENT NO. |_|
POST-EFFECTIVE AMENDMENT NO. 15 |X|
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 21 |_|
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COMSTOCK PARTNERS FUNDS, INC.
(Exact name of Registrant as Specified in Charter)
993 Lenox Drive, Suite 106, Lawrenceville, New Jersey 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, New Jersey 08648
(Name and Address of Agent for Service)
Copies to:
Cynthia G. Cobden, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
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It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on August 28, 1999 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
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PART A
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Item 1. Front and Back Cover Pages Front Cover Page; Back Cover Page
Item 2. Risk/Return Summary: Investments, Risks, and COMSTOCK PARTNERS STRATEGY FUND:
Performance The Fund's Objective; The Fund's Principal
Investment Strategies; The Fund's Principal Risks;
The Fund's Past Performance; COMSTOCK
PARTNERS CAPITAL VALUE FUND: The
Fund's Objective; The Fund's Principal Investment
Strategies; The Fund's Principal Risks; The Fund's
Past Performance
Item 3. Risk/Return Summary: Fee Table COMSTOCK PARTNERS STRATEGY FUND:
Fees and Expenses; COMSTOCK PARTNERS
CAPITAL VALUE FUND: Fees and Expenses
Item 4. Investment Objectives, Principal Investment COMSTOCK PARTNERS STRATEGY FUND:
Strategies, and Related Risks The Fund's Objective; The Fund's Principal
Investment Strategies; The Fund's Principal Risks
COMSTOCK PARTNERS CAPITAL VALUE
FUND: The Fund's Objective; The Fund's
Principal Investment Strategies; The Fund's
Principal Risks
Item 5. Management's Discussion of Fund Performance See Comstock Partners Funds, Inc. Annual Report
to Shareholders for the year ended April 30, 1999
Item 6. Management, Organization, and Capital MANAGEMENT: Portfolio Managers
Structure
Item 7. Shareholder Information HOW YOUR ACCOUNT WORKS: Net Asset
Value; Sales Charges, Annual Fees and Choosing a
Share Class; Buying Shares; Selling Shares;
Exchanging Shares; Dividends, Distributions and Taxes;
Other Information Concerning the Funds
Item 8. Distribution Arrangements COMSTOCK PARTNERS STRATEGY FUND:
Fees and Expenses; COMSTOCK PARTNERS
CAPITAL VALUE FUND: Fees and Expenses;
HOW YOUR ACCOUNT WORKS: Sales
Charges, Annual Fees and Choosing a Share Class
Item 9. Financial Highlights Information FINANCIAL HIGHLIGHTS: Comstock Partners
Strategy Fund; FINANCIAL HIGHLIGHTS:
Comstock Partners Capital Value Fund
PART B STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page and Table of Contents Cover Page; Table of Contents
Item 11. Fund History THE COMPANY; ORGANIZATION AND
CAPITAL STOCK
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2
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Item 12. Description of the Fund and Its Investments and THE COMPANY; INVESTMENT OBJECTIVES
Risks AND POLICIES; INVESTMENT
RESTRICTIONS
Item 13. Management of the Fund MANAGEMENT ARRANGEMENTS
Item 14. Control Persons and Principal Holders of MANAGEMENT ARRANGEMENTS
Securities
Item 15. Investment Advisory and Other Services MANAGEMENT ARRANGEMENTS;
GENERAL INFORMATION
Item 16. Brokerage Allocation and Other Practices PORTFOLIO TRANSACTIONS
Item 17. Capital Stock and Other Securities ORGANIZATION AND CAPITAL STOCK
Item 18. Purchase, Redemption, and Pricing of Shares PURCHASE OF SHARES; REDEMPTION OF
SHARES; NET ASSET VALUE
Item 19. Taxation of the Fund DIVIDENDS, DISTRIBUTIONS AND TAXES;
ADDITIONAL INFORMATION CONCERNING
TAXES
Item 20. Underwriters MANAGEMENT ARRANGEMENTS
Item 21. Calculation of Performance Data PERFORMANCE INFORMATION
Item 22. Financial Statements See Comstock Partners Funds, Inc. Annual Report
to Shareholders for the year ended April 30, 1999
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
----------------
COMSTOCK PARTNERS STRATEGY FUND
COMSTOCK PARTNERS CAPITAL VALUE FUND
----------------
PROSPECTUS
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AUGUST 28, 1999
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
ACCURATE OR COMPLETE. IT IS A CRIME TO STATE OTHERWISE.
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[THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.]
<PAGE>
TABLE OF CONTENTS
COMSTOCK PARTNERS STRATEGY FUND........................... 3
The Fund's Objective................................. 3
The Fund's Principal Investment Strategies........... 3
The Fund's Principal Risks........................... 5
The Fund's Past Performance.......................... 7
Fees and Expenses.................................... 9
COMSTOCK PARTNERS CAPITAL VALUE FUND...................... 11
The Fund's Objective................................. 11
The Fund's Principal Investment Strategies........... 11
The Fund's Principal Risks........................... 13
The Fund's Past Performance.......................... 15
Fees and Expenses.................................... 17
MANAGEMENT................................................ 19
Portfolio Managers................................... 19
HOW YOUR ACCOUNT WORKS.................................... 20
Net Asset Value...................................... 20
Sales Charges, Annual Fees and Choosing a Share
Class..................................................... 20
Buying Shares........................................ 23
Selling Shares....................................... 26
Additional Services for Buying and Selling Shares.... 28
Exchanging Shares.................................... 30
Dividends, Distributions and Taxes................... 31
Other Information Concerning the Funds............... 31
Third Party Investments.............................. 32
FINANCIAL HIGHLIGHTS...................................... 33
2
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COMSTOCK PARTNERS STRATEGY FUND
THE FUND'S OBJECTIVE
The Fund seeks 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 FUND'S PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest as least 65% of its
assets in debt securities. The Fund may also invest in a wide range of asset
classes, including domestic and foreign equity securities and derivatives. For
each asset class, the adviser uses a broad approach to investing by examining
the overall economic picture, the characteristics of individual securities, and
historical market information.
The adviser seeks to emphasize investments in debt securities which
maximize total return in light of (1) the credit risk, (2) the interest rate
risk, and (3) the risk associated with the length of maturity of the debt
instrument. Credit risk involves the ability of the issuer to make timely
payments of principal and interest. Interest rate risk involves the change in
market value of debt securities that normally occurs as a result of changes in
prevailing interest rates. Assuming that there is no change in the
creditworthiness of the issuer, the degree of the change in market value of debt
securities will depend on changes in prevailing interest rates and the length of
the maturity of the debt security.
The adviser considers whether particular debt securities contain "call"
provisions or are otherwise subject to prepayment of principal. The adviser also
considers the market's perception of the issuer's creditworthiness and how that
may affect the market value of the issuer's debt securities. Additionally, the
adviser considers the maturity of particular debt securities in light of
anticipated interest rate movements.
The Fund won't necessarily invest in securities with the highest current
yield permitted by the Fund's investment policies if the adviser believes that
the differences in yield and the potential for capital gain aren't enough to
justify the greater risks. The adviser believes that its strategies tend to
minimize credit and reinvestment risks.
As of the date of this prospectus, the adviser views the U.S. equity market
as highly overvalued by most traditional measurements, and has positioned the
Fund to seek profits from a major U.S. equity market decline through a variety
of investment practices, including puts, together with investments in
fixed-income securities which the adviser believes are appropriate for
prevailing market conditions. The Fund is flexibly managed, however, and the
adviser may, without notice, change the Fund's asset positioning quickly and
decisively.
The Fund may invest in a wide range of debt securities. These include
corporate debt, U.S. government and agency debt and foreign sovereign
3
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and other debt securities (including sovereign and other debt securities from
emerging market issuers). The Fund may invest a substantial portion of its
assets in foreign debt securities. The Fund may also invest in debt securities
convertible into shares of common stock. The Fund's debt securities may have
fixed, floating or variable rates of interest.
The Fund may invest up to 25% of its total assets in high yield debt
securities (commonly referred to as "junk bonds"). These securities may be rated
as low as "C" at the time of purchase by Moody's Investors Service, Inc. or
Standard & Poors Corporation or, if unrated, will be determined by the adviser
to be of comparable quality. If a debt security falls below the minimum rating,
the adviser will decide whether to dispose of the security.
There is no restriction on the maturity of the Fund's portfolio or on any
individual debt security in the Fund's portfolio. The adviser may adjust the
average maturity according to actual or anticipated changes in the market.
To enhance total return, the Fund may invest up to 35% of its total assets
in equity securities of domestic and foreign issuers. These equity securities
may take the form of common and preferred stock (including convertible preferred
stock), depository receipts, equity interests in trusts, partnerships, joint
ventures and similar enterprises, and equity warrants and other rights.
The Fund may invest in high quality money market instruments, and may enter
into repurchase agreements. In addition, when the adviser determines that a
temporary defensive position is advisable or to meet anticipated redemption
requests, the Fund may invest without limit in short-term debt obligations, such
as commercial paper, bank obligations and U.S. Treasury bills.
The Fund intends to invest in derivatives, which are financial instruments
whose value is based on another security, index or exchange rate. The Fund may
use derivatives to hedge various market risks. Derivative strategies the Fund
may use include writing covered call or put options or purchasing put and call
options on securities, foreign currencies or stock indices. The Fund may also
purchase stock index futures contracts or interest rate futures contracts and
may enter into interest rate or forward currency transactions. In addition, the
Fund may purchase options on securities and securities indices for speculative
purposes in order to increase the Fund's income or gain. The Fund's net exposure
under all permitted types of derivatives transactions, when used for speculative
purposes, is limited to 15% of its total assets. The Fund's compliance with this
limitation is calculated at the time any new position is added, although this
limitation may be exceeded if derivatives positions held by the Fund appreciate.
The Fund may trade securities actively, which could increase transaction
costs, thus lowering performance, and increasing your taxable dividends.
4
<PAGE>
THE FUND'S PRINCIPAL RISKS
While the Fund seeks to maximize total return, there is no guarantee that
shares of the Fund will not lose value. This means that you can lose money on
your investment in the Fund. The Fund may not be able to achieve its objective
if the adviser's expectations regarding particular securities or markets are not
met. In particular, as long as the Fund is positioned to seek profits from a
major U.S. equity market decline, the value of the Fund's shares may be
adversely affected during periods in which there are stable or rising market
conditions.
Two of the main risks of the Fund are credit risk and interest rate risk.
Typically, when interest rates rise, the market value of debt securities, such
as those held by the Fund, will decline. Debt securities with longer maturities
are more sensitive to interest rate risk than shorter term debt securities.
During periods of falling interest rates, the Fund's total return may be subject
to reinvestment rate risk. Reinvestment rate risk could occur during a time of
declining interest rates due to the need to reinvest prepayments on debt
securities, income generated by the Fund's assets or a substantial inflow of
money into the Fund. The Fund's total return may suffer as a result of
reinvestment rate risk to the extent the market value gains caused by falling
interest rates are not enough to offset the lower rates of return available for
the continuing investment or reinvestment of the Fund's assets. Credit risk is
the risk that the issuer of a debt security may not be able to pay principal and
interest payments on time. The market's perception that an issuer might not be
able to make such timely payments may negatively affect the market value of that
issuer's debt securities.
The Fund also is subject to market risks that affect the value of its
shares, including general economic and market conditions. To the extent that the
Fund has significant equity exposure, the value of the Fund's shares will be
influenced by conditions in the stock markets, as well as the performance of the
companies and industries selected for the Fund's portfolio.
The Fund is not classified as diversified. It may invest a greater
percentage of its assets in a particular issuer or group of issuers than a
diversified fund would. That makes the value of its shares more sensitive to
problems affecting the issuers of the securities it holds.
Investments in foreign securities may be riskier than investments in the
securities of U.S. issuers. Foreign issuers may be affected by political, social
and economic instability. Some foreign securities may be harder to trade without
incurring a loss and may be difficult to convert into cash. There may be less
public information available, differing settlement procedures, or regulations
and standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. If the Fund invests in a
security which is not denominated in U.S.
5
<PAGE>
dollars, it also will be subject to currency exchange risk. These risks increase
when investing in issuers located in emerging markets.
On January 1, 1999, the European Monetary Union implemented a new currency
called the "euro." While the full impact of the euro cannot be predicted, it is
possible that the euro could increase volatility in financial markets worldwide,
which could have a negative effect on shares of the Fund.
High yield securities, which are rated Ba or lower by Moody's or BB or
lower by S&P, may have fewer protective provisions and are generally riskier and
less liquid than higher rated securities. Issuers of these securities may have
trouble making principal and interest payments when difficult economic
conditions exist.
The market value of convertible securities tends to decline as interest
rates increase.Their value also tends to change whenever the market value of the
underlying common or preferred stock fluctuates.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and short-term debt obligations, such as
commercial paper, bank obligations and U.S. Treasury bills, including where the
Fund is investing for temporary defensive purposes, it could reduce the Fund's
potential return as these securities earn only limited returns.
Derivatives may be riskier than other types of investments because they may
respond more to changes in economic conditions than other investments. An
investment in derivatives may entail the loss of an entire derivative position.
If the interest rates on floating and variable rate securities falls, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation.
The Fund, like any business, could be affected if the computer systems on
which it relies fail to properly process information beginning January 1, 2000.
While Year 2000 issues could have a negative effect on the Fund, the Fund's
adviser is updating its own systems and encouraging its service providers to do
the same, but there is no guarantee that these systems will work properly. Year
2000 problems could also adversely affect issuers whose securities the Fund
holds or securities markets generally, and it is possible that the Year 2000
issue could have a greater effect on foreign issuers.
6
<PAGE>
THE FUND'S PAST PERFORMANCE
The bar chart and table below show the Fund's annual returns and its
long-term performance. The bar chart shows you how the performance of the Fund's
Class A shares has varied from year to year over a 10-year period. This provides
some indication of the risk of investing in the Fund.
The table compares the average annual returns for each class of the Fund's
shares for one, five and ten years and since inception with those of the S&P 500
Index, the Lehman Brothers Government/Corporate Bond Index, and a blended index
containing 65% of the Lehman Brothers Government/Corporate Bond Index and 35% of
the S&P 500 Index.
The chart and the table both assume that all dividends and distributions
are reinvested in the Fund. As with all mutual funds, the Fund's past
performance is not necessarily an indication of how it will perform in the
future.
ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED DECEMBER 31)*
Best Quarter:
14.79%, Q2, 1989
Worst Quarter:
-13.36%, Q4, 1998
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21.73% 2.95% 13.44% -1.98% 20.91% -3.73% 4.02% -1.26% -15.18% -7.54%
89 90 91 92 93 94 95 96 97 98
</TABLE>
The front-end sales load on Class A shares is not reflected in the
performance figures in the bar chart. If these amounts were reflected, returns
would be less than those shown.
- ---------------
* The Fund's Class A shares were first introduced on July 15, 1992. Total
return prior to July 15, 1992 reflects the performance of the Fund's Class O
shares, which the Fund no longer offers, except in connection with the
reinvestment of dividends on outstanding Class O shares. The actual returns
of Class A shares would have been lower than shown because Class A shares
have higher expenses than Class O shares. Total
7
<PAGE>
return prior to August 1, 1991 reflects the performance of the Fund as a
closed-end fund. The year-to-date return for the six months ended June 30,
1999 was -11.49%.
AVERAGE ANNUAL TOTAL RETURNS*
(FOR THE PERIODS ENDED DECEMBER 31, 1998)
SINCE
PAST PAST PAST 10 INCEPTION
1 YEAR 5 YEARS YEARS (5/26/88)
-------- -------- -------- ----------
Class A Shares**................ -11.70% -5.83% 2.24% 2.90%
Class C Shares***............... -9.18% -5.46% 2.44% 3.09%
S&P 500 Index****............... 28.58% 24.05% 19.20% 19.23%
Lehman Brothers Government/
Corporate Bond Index*****..... 9.47% 7.30% 9.33% 9.31%
Blended Index (containing 65%
Lehman Brothers Govt./Corp.
Bond Index and 35% S&P 500
Index)........................ 21.89% 18.22% 15.86% 15.88%
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* The performance for the Class A shares reflects the deduction of the
maximum front-end sales load and the performance for Class C shares
reflects the deduction of the applicable contingent deferred sales
charge. The Fund no longer offers Class O shares, except in connection
with the reinvestment of dividends on outstanding Class O shares. Total
return prior to August 1, 1991 reflects the performance of the Fund as a
closed-end fund.
** Class A shares were introduced on July 15, 1992. The performance for the
period before Class A shares were launched is based on the performance of
Class O shares. The actual returns of Class A shares would have been lower
than shown because Class A shares have higher expenses than Class O
shares.
*** Class C shares were introduced on August 1, 1995. The performance for the
period before Class C shares were launched is based on the performance of
Class O and Class A shares. The actual returns of Class C shares would
have been lower than shown because Class A and Class C shares have higher
expenses than Class O shares and Class A shares have higher expenses than
Class C shares.
**** The S&P 500Registered is the Standard & Poor's Composite Index of 500
stocks, a widely recognized, unmanaged index of common stocks.
***** The Lehman Brothers Government/Corporate Bond Index is an unmanaged
broad-based index comprised of U.S. Government Agency and Treasury
securities and investment grade corporate debt.
8
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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MAXIMUM DEFERRED SALES CHARGE
(LOAD) ON REDEMPTIONS
MAXIMUM SALES CHARGE (LOAD) (AS % OF THE ORIGINAL
WHEN YOU BUY SHARES PURCHASE PRICE OR REDEMPTION
(AS % OF THE OFFERING PRICE1) PROCEEDS, WHICHEVER IS LOWER)
----------------------------- -----------------------------
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Class A Shares......... 4.50% 2
Class C Shares......... None 1.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
12B-1 SERVICE
AND TOTAL ANNUAL
CLASS OF MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
SHARES FEES FEES EXPENSES3 EXPENSES4
-------- ---------- ------------- --------- --------------
<S> <C> <C> <C> <C>
Class A....... 0.60% 0.25% 0.90% 1.75%
Class C....... 0.60% 1.00% 0.88% 2.48%
</TABLE>
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1 The offering price is the net asset value of the shares purchased plus any
sales charge.
2 You will pay a deferred sales charge of 1% if you purchase $1 million or more
of Class A shares without a sales load and you redeem within one year.
3 Other Expenses include administrative fees, among other expenses, and are
based on actual amounts incurred for the fiscal year ended April 30, 1999.
During the fiscal year, the Fund's administrator waived fees amounting to
approximately 0.14% of the Fund's average daily net assets.
4 Total Annual Fund Operating Expenses have been restated to reflect the Fund's
current contractual arrangements, and reflect the fees payable under a new
administration agreement which will go into effect on August 31, 1999. Under
this new arrangement, administrative fees are expected to equal approximately
0.25% of the Fund's average daily net assets, subject to a minimum annual fee
of $125,000.
9
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EXAMPLE --This example helps you compare the costs of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
* you invest $10,000
* you sell all your shares at the end of the period
* your investment earns a 5% return each year, and
* the Fund's operating expenses are not waived and remain the same as shown
above.
Although your actual costs may be higher or lower, based on these
assumptions:
IF YOU SELL YOUR SHARES YOUR COSTS WOULD BE:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Class A Shares.......... $620 $ 976 $1,356 $2,420
Class C Shares.......... $351 $ 773 $1,321 $2,816
</TABLE>
IF YOU DON'T SELL YOUR SHARES YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares.......... $620 $ 976 $1,356 $2,420
Class C Shares.......... $251 $ 773 $1,321 $2,816
</TABLE>
10
<PAGE>
COMSTOCK PARTNERS CAPITAL VALUE FUND
THE FUND'S OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation
and current income.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in, and may shift frequently among, a wide range of asset
classes and market sectors. These include foreign and domestic equity and debt
securities, money market instruments, and derivatives. The Fund is classified as
a diversified portfolio, but is not managed as a balanced portfolio. As a
result, the adviser has considerable flexibility in selecting the types of
investments and market sectors for investment of the Fund's assets and is not
required to maintain any minimum portion of the Fund's assets in any particular
asset class. Thus, during the course of a business cycle, for example, the Fund
may invest solely in equity securities, debt securities or money market
instruments, or in a combination of these classes of investments. For each asset
class, the adviser uses a valuation approach to investing by examining the
overall economic picture, the characteristics of individual securities,
historical market information and technical analysis to determine securities
which it believes are overvalued or undervalued. The Fund may use either long or
short positions in pursuit of its objective. The Fund's investment performance
will depend in large part on the asset allocation selected by the adviser.
As of the date of this prospectus, the adviser views the U.S. equity
markets as highly overvalued by most traditional measurements, and has
positioned the Fund to seek profits in a major U.S. equity market decline
through a variety of investment practices, including puts and short sales,
together with investments in short-term fixed income securities which the
adviser believes are appropriate for prevailing market conditions. The Fund is
flexibly managed, however, and the adviser may, without notice, change the
Fund's asset positioning quickly and decisively.
The Fund may invest in a wide range of assets. Equity securities in which
the Fund may invest include common stock, preferred stock (including convertible
preferred stock), warrants and depository receipts. Debt securities in which the
Fund may invest include U.S. corporate debt, U.S. government and agency debt and
foreign sovereign and other debt securities (including sovereign and other debt
securities from emerging market issuers). The Fund may invest up to 65% of its
assets in the equity and debt securities of foreign issuers. The Fund may also
invest in debt securities convertible into shares of common stock. The Fund's
debt securities may have fixed, floating or variable rates of interest.
The Fund may invest without limit in debt securities with no minimum rating
assigned by Moody's or S&P. However, the Fund intends to invest less than 35% of
its assets in debt securities rated at the time of purchase
11
<PAGE>
"Ba" or lower by
Moodys or "BB" or lower by S&P (commonly referred to as "junk bonds").
The Fund may invest in high quality domestic and foreign money market
instruments, and may enter into repurchase agreements. In addition, when the
adviser determines that a temporary defensive position is advisable or to meet
anticipated redemption requests, the Fund may invest without limit in short-term
debt obligations, such as commercial paper, bank obligations and U.S. Treasury
bills.
There is no restriction on the maturity of the Fund's portfolio or on any
individual debt security in the Fund's portfolio. The adviser may adjust the
average maturity according to actual or anticipated changes in the market.
The Fund may make short sales, which are transactions in which the Fund
sells a security it does not own, with the expectation that the security's value
will decline. To complete a short sale, the Fund must borrow the security to
make delivery, and then replace the security by purchasing it. The total market
value of all the Fund's short sales may not exceed 25% of the value of the
Fund's net assets. In addition, the Fund's short sales of the securities of any
single issuer listed on a national securities exchange may not exceed 5% of the
value of the Fund's net assets, and the Fund may not sell short more than 5% of
the outstanding securities of a single class of securities of an issuer. The
Fund may enter into short sales of securities the Fund owns, but such sales
cannot exceed 5% of the value of the Fund's net assets. The Fund's compliance
with these limitations is calculated at the time a transaction is effected.
The Fund intends to invest in derivatives, which are financial instruments
whose value is based on another security, index or exchange rate. The Fund may
use derivatives to hedge various market risks. Derivative strategies the Fund
may use include writing covered call or put options or purchasing put and call
options on securities, foreign currencies or stock indices. The Fund may also
purchase or sell stock index futures contracts or interest rate futures
contracts and may enter into interest rate or forward currency transactions. In
addition, the Fund may purchase futures and options on futures and may purchase
options on securities or securities indices for speculative purposes in order to
increase the Fund's income or gain. The Fund's net exposure under all permitted
types of futures and options on futures transactions, when used for speculative
purposes, is limited to 5% of its net assets. In addition to the preceding
limitation, the value of all put and call options held by the Fund cannot exceed
5% of the Fund's net assets. The Fund may not write covered call and put option
contracts in excess of 20% of its net assets. The Fund's compliance with these
limitations is calculated at the time any new position is added, although the
limitations may be exceeded if derivatives positions held by the Fund
appreciate.
12
<PAGE>
The Fund may trade securities actively, which could increase transaction
costs, thus lowering performance, and increasing your taxable dividends.
THE FUND'S PRINCIPAL RISKS
While the Fund seeks to maximize total return, there is no guarantee that
shares of the Fund will not lose value. This means that you can lose money on
your investment in the Fund. The Fund may not be able to achieve its objective
if the adviser's expectations regarding particular securities or markets are not
met. In particular, as long as the Fund is positioned to seek profits from a
major U.S. equity market decline, the value of the Fund's shares may be
adversely affected during periods in which there are stable or rising market
conditions.
The Fund is subject to market risks that affect the value of its shares,
including general economic and market conditions. To the extent the Fund has
significant equity exposure, the value of the Fund's shares will be influenced
by conditions in the stock markets, as well as the performance of the companies
or industries selected for the Fund's portfolio.
To the extent the Fund's assets are invested in debt securities, the Fund
is subject to credit risk and interest rate risk. Typically, when interest rates
rise, the market value of debt securities, such as those held by the Fund, will
decline. Debt securities with longer maturities are more sensitive to interest
rate risk than shorter term debt securities. During periods of falling interest
rates, the Fund's total return may be subject to reinvestment rate risk.
Reinvestment rate risk could occur during a time of declining interest rates due
to the need to reinvest prepayments on debt securities, income generated by the
Fund's assets or a substantial inflow of money into the Fund. The Fund's total
return may suffer as a result of reinvestment rate risk to the extent the market
value gains caused by falling interest rates are not enough to offset the lower
rates of return available for the continuing investment or reinvestment of the
Fund's assets. Credit risk is the risk that the issuer of a debt security may
not be able to pay principal and interest payments on time. The market's
perception that an issuer might not be able to make such timely payments may
negatively affect the market value of that issuer's debt securities.
Investments in foreign securities may be riskier than investments in the
securities of U.S. issuers. They may be affected by political, social and
economic instability. Some securities may be harder to trade without incurring a
loss and may be difficult to convert into cash. There may be less public
information available, differing settlement procedures, or regulations and
standards that don't match U.S. standards. Some countries may nationalize or
expropriate assets or impose exchange controls. If the Fund invests in a
security which is not denominated in U.S. dollars, it also will be subject
13
<PAGE>
to currency exchange risk. These risks increase when investing in
issuers located in emerging markets.
On January 1, 1999, the European Monetary Union implemented a new currency
called the "euro." While the full impact of the euro cannot be predicted, it is
possible that the euro could increase volatility in financial markets worldwide,
which could have a negative effect on the value of shares of the Fund.
High yield securities, which are rated Ba or lower by Moody's or BB or
lower by S&P, may have fewer protective provisions and are generally riskier and
less liquid than higher rated securities. Issuers of these securities may have
trouble making principal and interest payments when difficult economic
conditions exist.
The market value of convertible securities tends to decline as interest
rates increase. Their value also tends to change whenever the market value of
the underlying common or preferred stock fluctuates.
If the price of a security sold "short" by the Fund declines between the
date of the short sale and the date on which the Fund replaces the borrowed
security, the Fund will make money on the transaction. If the price of the
"shorted" security increases between these two dates, the Fund will incur a
loss.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements and short-term debt obligations, such as
commercial paper, bank obligations and U.S. Treasury bills, including where the
Fund is investing for temporary defensive purposes, it could reduce the Fund's
potential return as these securities earn only limited returns.
Derivatives may be riskier than other types of investments because they may
respond more to changes in economic conditions than other investments. An
investment in derivatives may entail the loss of an entire derivative position.
In certain cases, the use of derivatives may result in losses which exceed the
Fund's original investment in derivatives.
If the interest rates on floating or variable rate securities falls, the
Fund's yield may decline and it may lose the opportunity for capital
appreciation.
The Fund, like any business, could be affected if the computer systems on
which it relies fail to properly process information beginning January 1, 2000.
While Year 2000 issues could have a negative effect on the Fund, the Fund's
adviser is updating its own systems and encouraging its service providers to do
the same, but there is no guarantee that these systems will work properly. Year
2000 problems could also hurt issuers whose securities the Fund holds or
securities markets generally, and it is possible that the Year 2000 issue could
have a greater effect on foreign issuers.
14
<PAGE>
THE FUND'S PAST PERFORMANCE
The bar chart and table below show the Fund's annual returns and its
long-term performance. The bar chart shows you how the performance of the Fund's
Class A shares has varied from year to year over a 10-year period. This provides
some indication of the risk of investing in the Fund.
The table compares the average annual returns for each class of the Fund's
shares for one, five and ten years and since inception with those of the S&P 500
Index (a widely recognized, unmanaged index of common stock prices).
The chart and the table both assume that all dividends and distributions
are reinvested in the Fund. As with all mutual funds, the Fund's past
performance is not necessarily an indication of how it will perform in the
future.
ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED DECEMBER 31)*
Best Quarter:
18.57%, Q2, 1989
Worst Quarter:
-23.32%, Q4, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25.24% 1.34% 4.08% -10.34% 12.70% -3.87% -3.12% -5.67% -27.26% -22.10%
89 90 91 92 93 94 95 96 97 98
</TABLE>
The front-end sales load on Class A shares is not reflected in the
performance figures in the bar chart. If these amounts were reflected, returns
would be less than those shown.
- ---------------
* On July 25, 1996, the Comstock Partners Capital Value Fund became the
successor to the Dreyfus Capital Value Fund. Performance prior to this date
reflects the performance of the Dreyfus Capital Value Fund. The year-to-date
return for the six months ended June 30, 1999 was -19.18%.
15
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
(FOR THE PERIODS ENDED DECEMBER 31, 1998)
SINCE
PAST PAST PAST 10 INCEPTION
1 YEAR 5 YEARS YEARS (10/10/85)
------ ------- ------- ----------
Class A Shares*........ -25.63% -13.82% -4.45% 1.59%
Class B Shares**....... -25.62% -13.94% -4.47% -9.9%
Class C Shares***...... -23.38% -13.66% -4.46% -17.77%
Class R Shares****..... -21.81% -12.86% -3.92% -16.96%
S&P 500 Index*****..... 28.58% 24.05% 19.20% 19.23%
------------------
* The performance for Class A shares reflects the deduction of the maximum
front-end sales load and the performance for Class B and Class C shares
reflects the deduction of the applicable contingent deferred sales
charge. On July 25, 1996, the Comstock Partners Capital Value Fund became
the successor to the Dreyfus Capital Value Fund. Performance prior to
this date reflects the performance of the Dreyfus Capital Value Fund.
** Class B shares were introduced on January 15, 1993. The performance for
the period before Class B shares were launched is based on the performance
of Class A shares. The actual returns of Class B shares would have been
lower than shown because Class B shares have higher expenses than Class A
shares.
*** Class C shares were introduced on August 22, 1995. The performance for the
period before Class C shares were launched is based on the performance of
Class A shares for the period prior to January 15, 1993 and the
performance of Class B shares from that time until the introduction of
Class C shares. The actual returns of Class C shares would have been lower
because Class C shares and Class B shares have higher expenses than
Class A shares.
**** Class R shares were introduced on August 22, 1995. The performance for the
period before Class R shares were launched is based on the performance of
Class A shares.
***** The S&P 500Registered is the Standard & Poor's Composite Index of 500
stocks, a widely recognized, unmanaged index of common stocks.
16
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
(LOAD) ON REDEMPTIONS
MAXIMUM SALES CHARGE (LOAD) (AS % OF THE ORIGINAL
WHEN YOU BUY SHARES PURCHASE PRICE OR REDEMPTION
(AS % OF THE OFFERING PRICE1) PROCEEDS, WHICHEVER IS LOWER)
----------------------------- -----------------------------
<S> <C> <C>
Class A Shares......... 4.50% 2
Class B Shares......... None 4.00%
Class C Shares......... None 1.00%
Class R Shares......... None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
12B-1 SERVICE
AND TOTAL ANNUAL
CLASS OF MANAGEMENT DISTRIBUTION OTHER FUND OPERATING
SHARES FEES3 FEES EXPENSES4 EXPENSES5
-------- ---------- ------------- --------- --------------
<S> <C> <C> <C> <C>
Class A....... .40% 0.25% 1.44% 2.09%
Class B....... .40% 1.00% 1.56% 2.96%
Class C....... .40% 1.00% 1.46% 2.86%
Class R....... .40% None 1.46% 1.86%
</TABLE>
- ---------------
1 The offering price is the net asset value of the shares purchased plus any
sales charge.
2 You will pay a deferred sales charge of 1% if you purchase $1 million or more
of Class A shares without a sales load and you redeem within one year.
3 Management Fees have been restated to reflect the Fund's current contractual
arrangements and reflect the termination by The Dreyfus Corporation as
subadviser and administrator to the Fund as of August 31, 1999.
4 Other Expenses include administrative fees, among other expenses, and are
based on actual amounts incurred for the fiscal year ended April 30, 1999.
5 Total Annual Fund Operating Expenses have been restated to reflect the Fund's
current contractual arrangements and reflect (1) the termination by The
Dreyfus Corporation as sub-adviser and administrator to the Fund as of August
31, 1999 and (2) the fees payable under a new administration agreement which
will go into effect on August 31, 1999. Under this new arrangement,
administrative fees are expected to equal approximately 0.25% of the Fund's
average daily net assets, subject to a minimum annual fee of $125,000.
17
<PAGE>
EXAMPLE--This example helps you compare the costs of investing in the Fund
with the cost of investing in other mutual funds. The example assumes:
* you invest $10,000
* you sell all your shares at the end of the period
* your investment earns a 5% return each year, and
* the Fund's operating expenses are not waived and remain the same as shown
above.
Although your actual costs may be higher or lower, based on these
assumptions:
IF YOU SELL YOUR SHARES YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares.......... $652 $1,075 $1,523 $2,762
Class B Shares.......... $699 $1,215 $1,757 $2,888*
Class C Shares.......... $389 $ 886 $1,508 $3,185
Class R Shares.......... $189 $ 585 $1,006 $2,180
</TABLE>
IF YOU DON'T SELL YOUR SHARES YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares.......... $652 $1,075 $1,523 $2,762
Class B Shares.......... $299 $ 915 $1,557 $2,888*
Class C Shares.......... $289 $ 886 $1,508 $3,185
Class R Shares.......... $189 $ 585 $1,006 $2,180
</TABLE>
- ---------------
* Reflects conversion of Class B shares to Class A shares at the end of six
years from purchase.
18
<PAGE>
MANAGEMENT
Comstock Partners, Inc. is the investment adviser to the Funds. Comstock
Partners was founded in 1986 and performs investment advisory services for the
Funds and institutional and other clients and publishes various investment
strategy subscriber publications. Comstock Partners is located at 993 Lenox
Drive, Suite 106, Lawrenceville, New Jersey 08648.
For its investment advisory services to the Funds, Comstock Partners
receives advisory fees paid monthly. The advisory fee rate (as a percentage of
average daily net assets) for each of the Funds is:
ANNUAL FEE RATES
FUND AVERAGE DAILY NET ASSETS INVESTMENT ADVISORY FEE
---- -------------------------- -----------------------
Strategy Fund All asset levels 0.60%
Capital Value Fund * First $300 million 0.40%
* $300 million - $750 million 0.45%
* $750 million - $1 billion 0.50%
* Greater than $1 billion 0.55%
PORTFOLIO MANAGERS
The portfolio managers for the Funds are Charles L. Minter and Martin
Weiner. Mr. Minter is Comstock Partners' Chairman and Chief Executive Officer
and co-founded the firm in 1986. Mr. Minter worked for Merrill Lynch from 1966
to 1986, serving as Vice President Institutional Sales from 1976 to 1986. In
that capacity, he serviced institutional accounts and supervised portfolios,
which included commodity and financial futures, options, foreign securities and
zero coupon bonds. Mr. Minter has been primarily responsible for the management
of the Strategy Fund since its inception and the Capital Value Fund (including
its predecessor, the Dreyfus Capital Value Fund) since April 30, 1987. Mr.
Minter has a M.B.A. degree from New York University's Graduate School of
Business.
Mr. Weiner, a Chartered Financial Analyst, joined Comstock Partners in
1995. He began his career as a financial analyst at the Securities and Exchange
Commission in 1959. From 1966 to 1969, he was Equity Analyst and Division Chief
at the Value Line Investment Survey, and from 1969 to 1974, he was Equity
Analyst and then Vice President at Standard & Poor's Intercapital. In 1974, Mr.
Weiner joined the Grumman Corporation where he served as Senior Equity Portfolio
Manager for the employee benefit plan from 1978 to 1994. Mr. Weiner has a M.S.
degree in Finance from Columbia University's Graduate School of Business.
19
<PAGE>
HOW YOUR ACCOUNT WORKS
NET ASSET VALUE
Net asset value (NAV) is the value of everything a Fund owns, minus
everything it owes, divided by the number of shares held by each investor. When
you buy shares in either of the Funds, you pay the net asset value, plus any
applicable sales charge. This is the offering price. Shares are also redeemed at
their net asset value, minus any applicable deferred sales charge. Net asset
value for each class of shares is calculated by dividing the applicable Fund's
assets attributable to that Class minus the liabilities attributable to that
class by the number of outstanding shares in that class.
The Funds' investments are based on market value, or where market values
are not readily available, are based on fair value as determined in good faith
by or under the direction of the Board of Directors. Under some circumstances,
certain short-term debt securities will be valued using the amortized cost
method.
The NAV for each class of the Funds' shares is generally determined as of
the close of business on the New York Stock Exchange (currently 4:00 p.m., New
York time) on business days. A "business day" is any day when each of the Funds'
adviser, administrator, transfer agent and the New York Stock Exchange is open,
which is Monday through Friday, except for holidays. For purposes of determining
NAV, options and futures contracts in the Fund's portfolios are valued 15
minutes after the close of trading on the floor of the New York Stock Exchange.
SALES CHARGES, ANNUAL FEES AND CHOOSING A SHARE CLASS
Comstock Partners Strategy Fund offers two options for purchasing shares
Class A shares and Class C shares. Comstock Partners Capital Value Fund offers
four options for purchasing shares Class A shares, Class B shares, Class C
shares and Class R shares.
ABOUT SALES CHARGES
Class A shares, Class B shares and Class C shares each carry their own
sales charges. There are also ongoing charges that all investors pay as long as
they own their shares. Class A shares have an initial sales charge which is
deducted directly from the money you invest. Class B shares have a deferred
sales charge which is deducted directly from your assets when you sell your
shares. You don't pay any sales charge when you buy Class B shares, but you may
have to pay a charge when you sell them, depending on how long you hold them.
Class C shares also have a deferred sales charge that you may have to pay if you
sell your shares within one year of buying them. Class R shares have no sales
charges.
20
<PAGE>
SERVICE AND DISTRIBUTION FEES
Service and distribution fees are ongoing charges that investors pay as
long as they own their shares. The Funds have adopted Rule 12b-1 service and
distribution plans for Class A, B and C shares under which each Fund pays annual
fees for distribution of the Fund's shares and shareholder services at the
following rates:
* 0.25% of the average daily net assets attributed to Class A shares (as a
distribution and service fee)
* 1.00% of the average daily net assets attributed to Class B shares (0.75%
for distribution fees; 0.25% for service fees)
* 1.00% of the average daily net assets attributed to Class C shares (0.75%
for distribution fees; 0.25% for service fees)
These payments cover such things as compensation for services provided by
broker-dealers and expenses connected to the sale of shares and the servicing of
accounts. Payments are not tied to actual expenses incurred. There are no
service or distribution fees for Class R shares.
Because 12b-1 expenses are paid out of a Fund's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may cost you
more than other types of sales charges.
Class A Shares (Strategy Fund and Capital Value Fund)
The initial sales charge is deducted directly from the money you invest. As
the table below shows, the charge is lower the more you invest. The public
offering price of Class A shares is the net asset value plus the initial sales
charge. The applicable Fund receives the net asset value.
The following chart shows the sales charges for Class A shares for both the
Strategy Fund and the Capital Value Fund:
TOTAL SALES CHARGE (CLASS A SHARES)
-----------------------------------
AS % OF THE AS %* OF NET
OFFERING PRICE ASSET VALUE PER
AMOUNT OF INVESTMENT PER SHARE SHARE
--------------------- ----------- ----------
Less than $50,000 4.50% 4.70%
$50,000 to less than $100,000 4.00% 4.20%
$100,000 to less than $250,000 3.00% 3.10%
$250,000 to less than $500,000 2.50% 2.60%
$500,000 to less than $1 million 2.00% 2.00%
$1,000,000 or more 0 0
- ---------------
* Rounded to the nearest one-hundredth percent.
There is no sales charge for investments in Class A shares of $1 million or
more, except that you will pay a deferred sales charge of 1% if you purchase $1
million or more of Class A shares without a sales load and you redeem within one
year.
21
<PAGE>
Class B Shares (Capital Value Fund only)
The deferred sales charge is deducted directly from your investment when
you sell your shares. It is a percentage of the original purchase price or the
current value of the shares, whichever is lower. As the table shows, the
deferred sales charge gets lower the longer you hold the shares and disappears
altogether after six years. Class B shares automatically convert into Class A
shares at the end of the sixth year after purchase.
YEAR DEFERRED SALES CHARGE
---- ---------------------
1 4.00%
2 4.00%
3 3.00%
4 3.00%
5 2.00%
6 1.00%
We calculate the deferred sales charge from the month you buy your shares.
We always redeem the shares with the lowest deferred sales charge first. Shares
acquired by reinvestment of distributions can be sold without a deferred sales
charge.
Class C Shares (Strategy Fund and Capital Value Fund)
The deferred sales charge is deducted directly from your investment when
you sell your shares. It is equal to 1% of the original purchase price or the
current value of the shares, whichever is lower. The deferred sales charge on
Class C shares disappears altogether after one year. We calculate the deferred
sales charge from the month you buy your shares. We always redeem the shares
with the lowest deferred sales charge first.
Unlike Class B shares, Class C shares are never converted to Class A
shares. That means you keep paying the higher distribution and service fees
associated with Class C shares as long as you hold them. Over the long term,
this can add up to higher total fees than either Class A or Class B shares.
Class R Shares (Capital Value Fund only)
Class R shares have no sales charges and no distribution or service fees.
22
<PAGE>
COMPARING SHARE CLASSES
The table below summarizes the sales charges and fees applicable to each
class of shares.
<TABLE>
<CAPTION>
CLASS B CLASS R
CLASS A (CAPITAL VALUE CLASS C (CAPITAL VALUE
(BOTH FUNDS) FUND ONLY) (BOTH FUNDS) FUND ONLY)
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
WHO MAY INVEST? Limited to Limited to Limited to Limited to
clients of clients of clients of certain
service agents, service agents, service agents, institutional
which include which include which include investors acting
certain banks, certain banks, certain banks, for themselves or
securities securities securities for certain
dealers, and dealers, and dealers, and benefit or
other financial other financial other financial retirement plans
industry industry industry in an advisory,
professionals. professionals. professionals. agency, custodial
or fiduciary
capacity.
UPFRONT SALES CHARGE? Yes. Payable at No. Entire No. Entire No. Entire
time of purchase. purchase price is purchase price is purchase price is
However, lower invested in invested in invested in
sales charges are shares of the shares of the shares of the
available for Fund. Fund. Fund.
larger
investments.
CONTINGENT DEFERRED No. However, will Yes. Payable if Yes. Payable if No.
SALES CHARGES? be charged for you redeem within you redeem within
purchases over $1 six years of one year of
million that are purchase (on a purchase.
redeemed within descending scale,
one year. depending on how
long you hold
your shares.)
12B-1 SERVICE AND 0.25% 0.75% 0.75% None.
DISTRIBUTION FEES? distribution and distribution fee; distribution fee;
service fee 0.25% service 0.25% service
fee. fee.
CONVERSION TO CLASS A Not applicable. Yes. No. No.
SHARES? Automatically
after 6 years.
</TABLE>
BUYING SHARES
In order to purchase Class A, Class B or Class C shares, you must be a
client of a service agent (except as noted in the Statement of Additional
Information). "Service agents" include financial institutions, such as banks and
securities dealers, as well as other industry professionals. Tell your service
agent whether you wish to invest in Comstock Partners Strategy Fund or Comstock
Partners Capital Value Fund and which class of shares you want to buy. Your
service agent may charge you a fee and may offer additional services, such as
special purchase and redemption programs described under "Additional Services
for Buying and Selling Fund Shares." Class R shares may only be purchased by
institutional investors acting for
23
<PAGE>
themselves or in a fiduciary, advisory, agency, custodial or similar capacity
for certain benefit plans and retirement plans.
Purchase orders received by the transfer agent by 4:00 p.m., New York time,
on any business day will be priced based on the NAV calculated on that day.
Purchase orders received after this time will be priced based on the next
calculation of NAV. Purchase orders 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 priced
based on the NAV determined on that day. Otherwise, the orders will be priced
based on the next calculation of NAV.
MINIMUM INVESTMENTS*
ADDITIONAL
TYPE OF ACCOUNT INITIAL INVESTMENT INVESTMENTS
- --------------------- --------------------- ---------------------
REGULAR ACCOUNTS $2,500** $100***
TRADITIONAL IRAS $ 750 No minimum
SPOUSAL IRAS $ 750 No minimum
ROTH IRAS $ 750 No minimum
ROLLOVER IRAS $ 750 No minimum
EDUCATION IRAS $ 500 No minimum
after the first year
- ---------------
* The Funds may change the initial and subsequent minimum investment
requirements at any time.
** If you are a client of a service agent which has made an aggregate minimum
initial purchase for its customers, your initial minimum investment is
$1,000.
*** Teletransfer purchases require a minimum investment of $500, and are limited
to a maximum investment of $150,000 per day per Fund.
METHODS FOR BUYING SHARES:
You may purchase shares of either Fund by check or wire, or through the
TeleTransfer Privilege described below.
Buying shares by mail:
Make your checks 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." Mail your checks to
open new accounts, together with your Account Application, to:
Comstock Partners Funds, Inc.
P.O. Box 9387
Providence, Rhode Island 02940-9387
When making subsequent investments, you should write your Fund account number on
the check and enclose an investment slip.
24
<PAGE>
For Dreyfus retirement plan accounts, both initial and subsequent
investments should be mailed to:
The Dreyfus Trust Company, Custodian
P.O. Box 6427
Providence, Rhode Island 02940-6427
To avoid delays, all payments should be made in U.S. dollars and drawn on U.S.
banks. Payments should not be made by third-party check.
Buying shares by wire:
Instruct your bank to send immediately available funds by wire to the Bank
of New York, with these instructions:
* DDA #8900119551
* the Fund name and Class to be purchased
* your social security number or tax ID number
* your account registration or dealer number, if applicable
* name(s) of investor(s)
If your initial purchase of Fund shares is by wire, please call 1-800-554-
4611 after completing your wire 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 address shown above, as you will not be
permitted to redeem any shares until the Account Application is received.
To add to an account by wire:
Instruct your bank to send immediately available funds by wire to the Bank
of New York, with these instructions:
* DDA #8900119551
* the Fund name and Class to be purchased
* your account number
* name(s) of investor(s)
Further information about buying shares or adding to your account by wire
may be obtained from your bank. Please note that payments into the account of a
corporation, foundation or other organization should not be made by third-party
check.
To add to an investment by electronic check:
If your account is with certain banks or other domestic financial
institutions, you may make subsequent investments by electronic transfer of
funds. The instructions for adding to your account in this manner are the same
as for adding to an account by wire, but the instructions must include your Fund
account registration and your Fund account number with the digits "1111" placed
before your account number.
25
<PAGE>
Buying shares using the TeleTransfer Privilege
The TeleTransfer Privilege allows you to move money between your bank
account and either of the Funds with a phone call. You can use the TeleTransfer
Privilege if you have checked the appropriate box and supplied the necessary
information on your Account Application or have filed a Shareholder Services
Form with the Funds' transfer agent. Only banks and financial institutions which
are designated Automated Clearing House members may qualify to use this
privilege. Ask your bank or financial institution for more information about
this service.
Once you have selected the TeleTransfer Privilege, you may request a
TeleTransfer purchase of shares by telephoning 1-800-554-4611, or, if you are
calling from overseas, by calling 516-794-5452.
You may make TeleTransfer orders at any time. However, orders received
after 4:00 p.m. New York time on business days will be credited to your account
on the next business day the Funds' transfer agent is open for business. Orders
made on Saturdays, Sundays or holidays will be credited to your account on the
second business day after you place your order.
SELLING SHARES
You may sell shares of either Fund at any time. Your shares will be sold at
the next NAV calculated after your order is received in good order by the Funds'
transfer agent. Any certificates representing Fund shares being sold must be
returned with your redemption request. Your order will be processed promptly and
you will generally receive the proceeds within a week. Before selling recently
purchased shares, please note that if the Fund has not collected payment for the
shares you are selling, it may delay sending the proceeds for up to eight
business days or until it has collected payment.
Depending on how long you have held your shares, redemptions of Class A, B
and C shares may be subject to a deferred sales charge described under "Sales
Charges, Annual Fees and Choosing a Share Class."
METHODS FOR SELLING SHARES:
You may sell shares of either Fund by mail, telephone or wire, or through
the TeleTransfer Privilege described below. Other redemption procedures may
apply if you are a client of a service agent.
Selling shares by mail:
To sell your shares by mail:
(1) Write a letter of instruction that includes:
* your name(s) and signature(s)
* your account number
* the Fund name and Class to be sold
* the dollar amount of shares you want to sell
26
<PAGE>
* how and where to send the proceeds
* whether the 10% TEFRA should be withheld
(2) Obtain a signature guarantee or other documentation, if required. For
joint accounts, each signature must be guaranteed. A signature guarantee helps
to protect against fraud. You can obtain one from most banks or securities
dealers, but not from a notary public. If you have any questions with regard to
signature guarantees, please call 1-800-554-4611.
(3) Mail your request to:
Comstock Partners Funds, Inc.
P.O. Box 6587
Providence, Rhode Island 02940-6587
(4) If your request relates to a Dreyfus retirement plan account, it should
be mailed to:
The Dreyfus Trust Company, Custodian
P.O. Box 6427
Providence, Rhode Island 02940-6427
Some redemption requests require written sell orders, along with signature
guarantees. These include:
* amounts of $100,000 or more
* amounts of $1,000 or more on accounts whose address has been changed
within the last 30 days
* requests to send the proceeds to a different payee or address
Selling shares by telephone:
You may redeem Fund shares through the Telephone Redemption Privilege. This
privilege is granted automatically when you set up your account unless you
specifically refuse it by checking the applicable "No" box on your Account
Application. You may make telephone redemption requests by calling
1-800-554-4611 or, if you are calling from overseas, call 516-794-5452. The
maximum amount you may redeem per day per Fund using this privilege is $150,000.
The redemption proceeds will be paid by check and mailed to your address of
record.
Selling shares by wire:
To redeem Fund shares by wire, first be sure that we have your bank account
information on file. You may request by wire, telephone or letter that
redemption proceeds (minimum $1,000) be wired to your bank. To establish the
Wire Redemption Privilege, check the appropriate box and supply the necessary
information on the Funds' Account Application or file a Shareholder Services
Form with the Funds' transfer agent.
You may telephone wire redemption requests by calling 1-800-554-4611 or, if
you are calling from overseas, call 516-794-5452. You may wire your redemption
requests to the Funds' transfer agent by employing the
follow-
27
<PAGE>
ing transmittal code which may be used for domestic or overseas transmissions:
TRANSFER AGENT'S
TRANSMITTAL CODE ANSWER BACK SIGN
---------------- ----------------
144295 144295 TSSG PREP
If you do not have direct access to telegraphic equipment, you may wire
redemption requests by contacting a TREED Cables operator toll-free at
1-800-654-7171 to have the wire transmitted. You should advise the operator that
the above transmittal code must be used and you should also inform the operator
of the transfer agent's answer back sign.
If you wish to change the commercial bank or account designated to receive
wire redemption proceeds, you must send a written request to the Funds' transfer
agent. You must sign the request and provide a signature guarantee.
Selling shares using the TeleTransfer Privilege
If you have selected the TeleTransfer Privilege, you may request a
TeleTransfer redemption (minimum $500 per day) by telephoning
1-800-554-4611 (or, if you are calling from overseas, call 516-794-5452). Be
sure that we have your bank account information on file. The redemption proceeds
will be sent to your bank by electronic check.
The Company reserves the right to refuse any redemption request made by
wire or telephone, including requests made shortly after a change of address,
and may limit the amount involved or the number of such requests.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares
for which certificates have been issued, are not eligible for the Telphone
Redemption, Wire Redemption or TeleTransfer Privilege.
ADDITIONAL SERVICES FOR BUYING AND SELLING SHARES
You may buy or sell shares using the services described below. With some
of these services, you select a schedule and amount, subject to certain
restrictions. 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. You can set up most of these services with your Account
Application or by calling 1-800-554-4611. In addition, you should be aware that
certain shareholder services or privileges are subject to change as specified in
the Statement of Additional Information.
AUTOMATIC ASSET BUILDER: For making automatic investments from a designated bank
account.
This privilege allows you to purchase 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 trans-
28
<PAGE>
action) at regular intervals selected by you. To establish an Automatic Asset
Builder account, call 1-800-554-4611 and obtain the necessary authorization
form. You may cancel this privilege or change the purchase amount at any time by
mailing a notice of cancellation or change to:
Comstock Partners Funds, Inc.
P.O. Box 6587
Providence, Rhode Island 02940-6587
For Dreyfus retirement plan accounts, notices should be mailed to:
The Dreyfus Trust Company, Custodian
P.O. Box 6427
Providence, Rhode Island 02940-6427
PAYROLL SAVINGS PLAN: For making automatic investments through a payroll
deduction.
The Payroll Savings Plan permits you to purchase Class A and Class C shares
of the Strategy Fund and Class A, Class B and Class C shares of the Capital
Value Fund (minimum of $100 per transaction) automatically on a regular basis.
You may establish a Payroll Savings account by doing the following:
(1) Obtain the necessary authorization form by calling 1-800-554-4611.
(2) File the form with your employer's payroll department. Have your
employer complete the reverse side of the form and return it to:
Comstock Partners Funds, Inc.
P.O. Box 9671
Providence, Rhode Island 02940
GOVERNMENT DIRECT DEPOSIT PRIVILEGE: For making automatic investments from your
federal government, Social Security or other regular government check.
Government Direct Deposit 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 elect
the amount you wish to deposit. To enroll in Government Direct Deposit, obtain a
sign-up form for each type of payment that you desire by calling 1-800-554-4611.
AUTOMATIC WITHDRAWAL PLAN: For making regular withdrawals from either of the
Funds.
The Automatic Withdrawal Plan permits an investor with a minimum account
balance to request withdrawal of a specified dollar amount (minimum of $50) on
either a monthly or quarterly basis. You may obtain an application for the
Automatic Withdrawal Plan by calling 1-800-554-4611.
29
<PAGE>
RIGHT OF ACCUMULATION; LETTER OF INTENT -- CLASS A SHARES: For making certain
Class A share purchases at reduced sales loads.
You may qualify for a reduced sales load on purchases of Class A shares of
either Fund pursuant to the "right of accumulation," where your aggregate
investment, including a new purchase, amounts to $50,000 or more. To qualify for
a reduced sales load, at the time of purchase you or your service agent must
notify the distributor (for purchases by wire) or the transfer agent (for
purchases by mail). The reduced sales load is subject to confirmation of your
holdings through a check of appropriate records.
You may become eligible for a reduced sales load on purchases of Class A
shares of either Fund purchased in a 13-month period pursuant to a Letter of
Intent. A minimum initial purchase of $5,000 is required and use of this
privilege is also subject to an escrow requirement. On the date you submit a
Letter of Intent, you may count the offering price of shares you hold that may
be used toward the "right of accumulation" benefits described above as a credit
toward completion of the Letter of Intent. However, the reduced sales load will
be applied only to new purchases. You may obtain a Letter of Intent form by
calling 1-800-554-4611.
Please consult the Statement of Additional Information for additional
requirements for purchases of shares under the "right of accumulation" or a
Letter of Intent.
REINSTATEMENT PRIVILEGE -- CLASS A SHARES: For making certain Class A share
purchases without a sales load.
In certain circumstances, you may reinvest in Class A shares of a Fund
without a sales load. Within 30 days of redemption of Class A shares of either
Fund, you may reinvest in up to the number of shares you have redeemed at their
prevailing net asset value without a sales load. The Reinstatement Privilege may
be exercised only once.
EXCHANGING SHARES
You may exchange your shares of the Strategy Fund for shares of the same
class of the Capital Value Fund. Likewise, you may exchange your shares of the
Capital Value Fund for shares of the same class of the Strategy Fund. The
ability to give exchange instructions by telephone is given to all Fund
shareholders automatically, unless you check the applicable "No" box on the
Account Application indicating that you refuse this privilege.
All share exchanges are made at net asset value. For tax purposes, an
exchange is treated as a sale of shares. This will generally result in a capital
gain or loss to you. In addition, you should be aware that the exchange
privilege is subject to change as specified in the Statement of Additional
Information.
30
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Fund dividends and distributions are taxable to investors as ordinary
income or capital gains. Unless your Fund shares are in an IRA or other
tax-advantaged account, you are required to pay taxes on distributions whether
you receive them in cash or in the form of additional shares.
Distributions paid out of a Fund's "net capital gain" will be taxed to
shareholders as long-term capital gains, regardless of how long a shareholder
has owned shares. All other distributions will be taxed to shareholders as
ordinary income.
The Strategy Fund intends to pay dividends from net investment income
monthly and to distribute net capital gain, if any, annually. The Capital Value
Fund intends to pay dividends from net investment income and to distribute net
capital gain, if any, annually. The Funds will not make distributions from net
capital gain unless capital loss carryovers, if any, have been utilized or have
expired. In general, you will receive dividends and distributions on your shares
of a Fund in additional shares of the same Class of that Fund valued at net
asset value unless you select a different option when you open your account.
A Dividend Sweep privilege also enables you to automatically invest
dividends or distributions received from one of the Funds in shares of the other
Fund. Shares held under Keogh Plans, IRAs or other retirement plans are not
eligible for the Dividend Sweep privilege. Please consult the Statement of
Additional Information for additional requirements of the Dividend Sweep
privilege.
Your annual tax statement from Comstock Partners Funds will present in
detail the tax status of your distributions for each year.
Because every investor has an individual tax situation, and also because
the tax laws are subject to periodic changes, you should always consult your tax
professional about federal, state and local tax consequences of owning shares in
the Funds.
OTHER INFORMATION CONCERNING THE FUNDS
If your account falls below $500, we may ask you to increase your balance.
If it is still below $500 after 45 days, we may close your account and send you
the proceeds.
In addition, we reserve the right to:
* refuse any purchase or exchange request that could adversely affect a
Fund or its operations, including those from any individual or group who,
in our view, is likely to engage in excessive trading (usually defined
as more than four exchanges out of a Fund within a calendar year)
31
<PAGE>
* refuse any purchase or exchange request in excess of 1% of a Fund's total
assets
* change or discontinue the exchange privilege, or temporarily suspend this
privilege during unusual market conditions
* change minimum investment amounts
* delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions)
We also reserve the right to make a "redemption in kind" payment in
portfolio securities rather than cash if the amount you are redeeming is large
enough to affect a Fund's operations (for example, if it represents more than 1%
of a Fund's assets).
THIRD PARTY INVESTMENTS
If you invest through a third-party service agent, the policies and fees
may be different than those described here. Banks, brokers, 401(k) plans,
financial advisers and financial supermarkets may charge transaction fees and
may set different minimum investments or limitations on buying or selling
shares. Consult a representative of your plan or financial institution to see if
any of the policies or fees are different from those described here.
32
<PAGE>
FINANCIAL HIGHLIGHTS--COMSTOCK PARTNERS STRATEGY FUND
The following Financial Highlights tables are intended to help you
understand the Fund's financial performance for the past five years. The total
returns in the tables represent the rate an investor would have earned or lost
on an investment in shares of the Fund (assuming reinvestment of all dividends).
The tables set forth below provide selected per share data and ratios for
one Class A or Class C share outstanding throughout each period shown.
The information in the following tables should be read together with the
financial statements of the Fund appearing in the Fund's Annual Report to
Shareholders for the year ended April 30, 1999, which is incorporated by
reference into the Statement of Additional Information. Shareholders may obtain
a copy of the Annual Report to Shareholders by contacting the Fund.
The financial information in the following tables for each of the four
years in the period ended April 30, 1999 has been audited by Ernst & Young LLP,
independent auditors, whose report on the Fund's financial statements is
included in the Annual Report to Shareholders. The Financial Highlights for the
year ended April 30, 1995 were audited by other auditors whose report dated May
31, 1995 expressed an unqualified opinion on such Financial Highlights.
33
<PAGE>
FINANCIAL HIGHLIGHTS--Comstock Partners Strategy Fund
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, 1999 APRIL 30, 1998
------------------------------ ------------------------------
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.......................... $ 6.06 $ 6.06 $ 6.06 $ 7.77 $ 7.77 $ 7.74
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (1)...... 0.30 0.29 0.26 0.43 0.42 0.37
Net realized and unrealized
gain (loss) on investments,
put options purchased, futures
transactions and foreign
currency transactions......... (0.94) (0.95) (0.97) (1.54) (1.55) (1.54)
-------- -------- -------- -------- -------- --------
Total from investment
operations.................. (0.64) (0.66) (0.71) (1.11) (1.13) (1.17)
-------- -------- -------- -------- -------- --------
LESS DIVIDENDS AND
DISTRIBUTIONS
Dividends from net investment
income........................ (0.48) (0.46) (0.41) (0.60) (0.58) (0.51)
Distributions from realized
gains on foreign currency
transactions.................. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions............... (0.48) (0.46) (0.41) (0.60) (0.58) (0.51)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR... $ 4.94 $ 4.94 $ 4.94 $ 6.06 $ 6.06 $ 6.06
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total investment return (2).... (11.32)% (11.56)% (12.42)% (14.88)% (15.11)% (15.61)%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of year (000
omitted)...................... $ 45,803 $ 7,858 $ 710 $ 71,692 $ 17,871 $ 1,780
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Ratio of expenses to average
net assets.................... 1.49% 1.75% 2.48% 1.31% 1.55% 2.29%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Decrease reflected in above
expense ratios due to waiver
of administrative fees........ 0.14% 0.14% 0.14% 0.01% 0.01% 0.01%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Ratio of net investment income
to average net assets......... 5.29% 5.05% 4.14% 6.01% 5.79% 5.08%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Portfolio turnover rate........ 130% 130% 130% 227% 227% 227%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
<CAPTION>
FOR THE YEAR
ENDED
APRIL 30, 1997
--------------------------------
CLASS O CLASS A CLASS C
---------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR.......................... $ 8.78 $ 8.78 $ 8.77
---------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (1)...... 0.78 0.54 0.45
Net realized and unrealized
gain (loss) on investments,
put options purchased, futures
transactions and foreign
currency transactions......... (1.19) (0.96) (0.95)
---------- -------- --------
Total from investment
operations.................. (0.41) (0.42) (0.50)
---------- -------- --------
LESS DIVIDENDS AND
DISTRIBUTIONS
Dividends from net investment
income........................ (0.47) (0.46) (0.41)
Distributions from realized
gains on foreign currency
transactions.................. (0.13) (0.13) (0.12)
---------- -------- --------
Total dividends and
distributions............... (0.60) (0.59) (0.53)
---------- -------- --------
NET ASSET VALUE, END OF YEAR... $ 7.77 $ 7.77 $ 7.74
---------- -------- --------
---------- -------- --------
Total investment return (2).... (4.85)% (5.10)% (5.94)%
---------- -------- --------
---------- -------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of year (000
omitted)...................... $ 134,719 $ 43,327 $ 13,020
---------- -------- --------
---------- -------- --------
Ratio of expenses to average
net assets.................... 1.18% 1.43% 2.14%
---------- -------- --------
---------- -------- --------
Decrease reflected in above
expense ratios due to waiver
of administrative fees........ -- -- --
---------- -------- --------
---------- -------- --------
Ratio of net investment income
to average net assets......... 6.80% 6.55% 5.81%
---------- -------- --------
---------- -------- --------
Portfolio turnover rate........ 126% 126% 126%
---------- -------- --------
---------- -------- --------
</TABLE>
34
<PAGE>
FINANCIAL HIGHLIGHTS--Comstock Partners Strategy Fund (concluded)
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, 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 YEAR................. $ 9.10 $ 9.10 $ 9.00 $ 9.40 $ 9.41
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (1).......................... 0.76 0.57 0.37 0.66 0.52
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)
-------- -------- -------- -------- --------
Total from investment operations................ 0.23 0.21 0.15 0.22 0.18
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income............... (0.55) (0.53) (0.38) (0.52) (0.49)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR....................... $ 8.78 $ 8.78 $ 8.77 $ 9.10 $ 9.10
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return (2)........................ 2.66% 2.40% 1.96%(3) 2.39% 1.94%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of year (000 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%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
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%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
+ 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.
(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>
35
<PAGE>
FINANCIAL HIGHLIGHTS--COMSTOCK PARTNERS CAPITAL VALUE FUND
The following Financial Highlights tables are intended to help you
understand the Fund's financial performance for approximately the past five
years. The total returns in the table represent the rate an investor would have
earned or lost on an investment in shares of the Fund (assuming reinvestment of
all dividends).
The tables set forth below provide selected per share data and ratios for
one Class A, B, C or R share outstanding throughout each period shown and
include, where applicable, 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.
The information in the following tables should be read together with the
financial statements of the Fund appearing in the Fund's Annual Report to
Shareholders for the year ended April 30, 1999, which is incorporated by
reference into the Statement of Additional Information. Shareholders may obtain
a copy of the Annual Report to Shareholders by contacting the Fund.
The financial information in the following tables has been audited by Ernst
& Young LLP, independent auditors, whose report on the Fund's financial
statements is included in the Annual Report to Shareholders.
36
<PAGE>
FINANCIAL HIGHLIGHTS--Comstock Partners Capital Value Fund
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, 1999
--------------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.................. $ 5.06 $ 4.99 $ 4.80 $ 5.05
------- ------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)..................... 0.14(1) 0.11(1) 0.10(1) 0.15(1)
Net realized and unrealized
gain (loss) on investments,
put options purchased,
futures transactions, short
sale transactions and
foreign currency
transactions............... (1.40) (1.38) (1.32) (1.40)
------- ------- ------- --------
Total from investment
operations............... (1.26) (1.27) (1.22) (1.25)
------- ------- ------- --------
LESS DIVIDENDS
Dividends from net
investment income.......... (0.31) (0.25) (0.26) (0.32)
------- ------- ------- --------
NET ASSET VALUE, END OF
PERIOD..................... $ 3.49 $ 3.47 $ 3.32 $ 3.48
------- ------- ------- --------
------- ------- ------- --------
Total investment return
(2)........................ (25.80)% (26.19)% (26.22)% (25.67)%
------- ------- ------- --------
------- ------- ------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period
(000 omitted).............. $59,246 $13,752 $ 5,014 $ 29
------- ------- ------- --------
------- ------- ------- --------
Ratio of expenses to average
net assets................. 1.47% 2.21% 2.18% 1.24%
------- ------- ------- --------
------- ------- ------- --------
Ratio of interest expense
and dividends on securities
sold short to average net
assets..................... 0.72% 0.85% 0.78% 0.72%
------- ------- ------- --------
------- ------- ------- --------
Ratio of net investment
income to average net
assets..................... 3.31% 2.46% 2.54% 3.56%
------- ------- ------- --------
------- ------- ------- --------
Portfolio turnover rate..... 465% 465% 465% 465%
------- ------- ------- --------
------- ------- ------- --------
<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
(loss)..................... 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 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, 1997
-----------------------------------------
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
(loss)..................... 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 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>
37
<PAGE>
FINANCIAL HIGHLIGHTS--Comstock Partners Capital Value Fund (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
APRIL 30, 1996
--------------------------------------
CLASS A CLASS B CLASS C CLASS R
-------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 10.61 $ 10.41 $ 10.41 $ 10.62
-------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........ 0.22 0.18 0.44 0.30
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
-------- ------- ------- -------
Total from investment
operations................ 0.39 0.34 0.32 0.39
-------- ------- ------- -------
LESS DIVIDENDS
Dividends from net investment
income...................... (0.46) (0.37) (0.49) (0.48)
-------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD...................... $ 10.54 $ 10.38 $ 10.24 $ 10.53
-------- ------- ------- -------
-------- ------- ------- -------
Total investment return
(2)......................... 3.81% 3.36% 3.30% 3.97%
-------- ------- ------- -------
-------- ------- ------- -------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period
(000 omitted)............... $241,472 $81,786 $ 3,531 $ 1
-------- ------- ------- -------
-------- ------- ------- -------
Ratio of operating expenses
to average net assets....... 0.75%(3) 1.18%(3) 1.28%(3) 0.61%(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)
-------- ------- ------- -------
-------- ------- ------- -------
Ratio of net investment
income to average net
assets...................... 2.13%(3) 1.70%(3) 1.71%(3) 2.28%(3)
-------- ------- ------- -------
-------- ------- ------- -------
Portfolio turnover rate...... 56%(3) 56%(3) 56%(3) 56%(3)
-------- ------- ------- -------
-------- ------- ------- -------
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------------------------ -------------------
CLASS A CLASS B CLASS C+ CLASS R+ CLASS A CLASS B
---------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 11.88 $ 11.69 $ 10.64 $ 10.84 $ 11.42 }$ 11.32
---------- ------- ------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........ 0.36 0.31 0.02 0.04 0.24 0.23
Net realized and unrealized
gain (loss) on investments,
put options purchased,
futures transactions, short
sale transactions and
foreign currency
transactions................ (1.37) (1.38) (0.25) (0.26) 0.46 0.38
---------- ------- ------- ------- -------- --------
Total from investment
operations................ (1.01) (1.07) (0.23) (0.22) 0.70 0.61
---------- ------- ------- ------- -------- --------
LESS DIVIDENDS
Dividends from net investment
income...................... (0.26) (0.21) -- -- (0.24) (0.24)
---------- ------- ------- ------- -------- --------
NET ASSET VALUE, END OF
PERIOD...................... $ 10.61 $ 10.41 $ 10.41 $ 10.62 $ 11.88 $ 11.69
---------- ------- ------- ------- -------- --------
---------- ------- ------- ------- -------- --------
Total investment return
(2)......................... (8.58)% (9.27)% (2.26)% (2.03)% 6.14% 5.35%
---------- ------- ------- ------- -------- --------
---------- ------- ------- ------- -------- --------
RATIOS/SUPPLEMENTARY DATA
Net assets, end of period
(000 omitted)............... $ 271,052 $87,847 $ 1 $ 1 $402,708 $108,532
---------- ------- ------- ------- -------- --------
---------- ------- ------- ------- -------- --------
Ratio of operating expenses
to average net assets....... 1.24% 1.99% 0.26%(3) 0.14%(3) 1.21% 1.99%
---------- ------- ------- ------- -------- --------
---------- ------- ------- ------- -------- --------
Ratio of interest expense and
dividends on securities sold
short to average net
assets...................... 0.45% 0.45% 0.06%(3) 0.04%(3) 0.39% 0.40%
---------- ------- ------- ------- -------- --------
---------- ------- ------- ------- -------- --------
Ratio of net investment
income to average net
assets...................... 3.61% 2.86% 0.23%(3) 0.38%(3) 2.06% 1.39%
---------- ------- ------- ------- -------- --------
---------- ------- ------- ------- -------- --------
Portfolio turnover rate...... 55% 55% 55% 55% 46% 46%
---------- ------- ------- ------- -------- --------
---------- ------- ------- ------- -------- --------
+ 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>
38
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION:
This prospectus contains information you should know before investing in the
Funds. You are advised to read this prospectus carefully and retain it for
future reference. More information about the Funds is available in the
following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
These reports contain more information about each Fund's performance,
investments and strategies. The Annual Report to Shareholders also includes a
discussion of the market conditions and investment strategies that had a
significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
A Statement of Additional Information, dated August 28, 1999, has been filed
with the Securities and Exchange Commission (SEC). The SAI contains additional
information about the Funds and is incorporated by reference into this
prospectus.
You may request a free copy of these documents, or make other shareholder
inquiries, by calling 1-800-554-4611 or writing to:
Comstock Partners Funds, Inc.
144 Glenn Curtiss Boulevard
Uniondale, New York 11566-0144
SECURITIES AND EXCHANGE COMMISSION
You may also review information about the Funds (including the SAI) on the SEC's
website at http://www.sec.gov or by visiting the SEC's Public Reference Room in
Washington, D.C. Information about the operation of the Public Reference Room
can be obtained by calling the SEC at 1-800-SEC-0330. Copies of this information
may be obtained for a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009.
Investment Company Act File
No. 811- 5502
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
COMSTOCK PARTNERS FUNDS
COMSTOCK PARTNERS
STRATEGY FUND
COMSTOCK PARTNERS
CAPITAL VALUE FUND
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
107/503p0899
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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, 1999
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".
The 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.
The 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, 1999 (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 only in
conjunction with the Prospectus. Certain information contained in the Company's
Annual Report to shareholders is incorporated by reference herein. Copies of the
Prospectus and current shareholder reports of the Company may be obtained
without charge by sending your request in writing to Comstock Partners Funds,
Inc., 144 Glenn Curtis Boulevard, Uniondale, New York 11556-0144, or by calling
toll-free 1-800-554-4611.
1
<PAGE>
TABLE OF CONTENTS
PAGE
THE COMPANY................................................................ 3
INVESTMENT OBJECTIVES AND POLICIES......................................... 3
OTHER INVESTMENT POLICIES, PRACTICES AND RISK FACTORS...................... 4
DESCRIPTION OF BOND AND COMMERCIAL PAPER RATINGS........................... 22
INVESTMENT RESTRICTIONS.................................................... 23
MANAGEMENT ARRANGEMENTS.................................................... 26
PURCHASE OF FUND SHARES.................................................... 30
REDEMPTION OF FUND SHARES.................................................. 34
SHAREHOLDER SERVICES....................................................... 38
SERVICE AND DISTRIBUTION PLANS............................................. 41
PORTFOLIO TRANSACTIONS .................................................... 43
ADDITIONAL INFORMATION CONCERNING TAXES.................................... 44
PERFORMANCE INFORMATION.................................................... 47
NET ASSET VALUE............................................................ 51
ORGANIZATION AND CAPITAL STOCK............................................. 52
GENERAL INFORMATION........................................................ 53
EXPERTS.................................................................... 54
OTHER INFORMATION.......................................................... 54
REPORTS TO SHAREHOLDERS.................................................... 54
FINANCIAL STATEMENTS....................................................... 54
2
<PAGE>
THE COMPANY
The Company is an open-end, management investment company registered under
the Investment Company Act of 1940 (the "1940 Act") and currently consists of
two separate portfolios: the Strategy Fund, a non-diversified portfolio, and the
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.
The Funds are advised by Comstock Partners, Inc. (the "Investment
Adviser").
INVESTMENT OBJECTIVES AND POLICIES
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. 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
Comstock Partners, Inc. (the "Investment Adviser") may substantially change the
composition of the Fund's investment portfolio from time to time.
COMSTOCK PARTNERS STRATEGY FUND
The 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
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. Although 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
may invest up to 25% of its total assets in debt securities that are rated below
A 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. There can be no assurance that the Strategy Fund
will achieve its investment objective.
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 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's investment objective will be achieved.
3
<PAGE>
OTHER INVESTMENT POLICIES, PRACTICES AND RISK FACTORS
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.
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.
The Strategy Fund is classified as a "non-diversified" investment company
under the 1940 Act, which means that 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.
Each Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Fund of any liability for
federal income taxes to the extent its earnings are distributed to shareholders.
See " Additional Information Concerning 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. 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.
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. 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."
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. These securities, commonly referred to as "junk bonds", provide yields
superior to those of 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
4
<PAGE>
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.
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.
The Strategy Fund may invest up to 25% of its total assets in debt
securities that are rated below A 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. Management's decision to invest in lower
rated securities is not subject to shareholder approval.
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.
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. Lower rated securities are securities such as those rated Ba by
Moody's or BB by S&P or as low as the lowest rating assigned by Moody's or S&P.
They generally are not meant for short-term investing and may be subject to
certain risks with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed-income securities.
Obligations rated Ba by Moody's are judged to have speculative elements; their
future cannot be considered as well assured and often the protection of interest
and principal payments may be very moderate. Obligations rated BB by S&P are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other speculative
grade debt, they face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payment. Obligations rated C by
Moody's are regarded as having extremely poor prospects of ever attaining any
real investment standing. Obligations rated D by S&P are in default and the
payment of interest and/or repayment of principal is in arrears. Such
obligations, though high yielding, are characterized by great risk. See
"Description of Bond and Commercial Paper Ratings" 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.
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
5
<PAGE>
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.
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
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with higher rated 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."
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.
FOREIGN 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>
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 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".
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.
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
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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 Investments and Loan
Participations and Assignments (as defined below). See "Brady Bonds",
"Structured Investments" and "Loan Participations and Assignments" below.
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 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
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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.
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 for bona fide hedging and/or speculative purposes as
specified in the Prospectus. 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. 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.
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 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 net 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 ability of the Funds to engage in the options and futures strategies
described herein 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
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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 herein.
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.
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 the
Prospectus or this Statement of Additional Information.
WRITING COVERED OPTIONS ON SECURITIES. Each Fund may write covered call
options and covered put options on optionable securities and stock indices 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. 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
at times may speculate or 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.
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
"Illiquid or Restricted Securities."
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.
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In the case of call options, these exercise prices are referred to as
"in-the-money," "at-the-money" and "out-of-the-money," respectively. A Fund may
write (a) in-the-money call options when the Investment Adviser expects that the
price of the underlying security will remain stable or decline moderately during
the option period, (b) at-the-money call options when the Investment Adviser
expects that the price of the underlying security will remain stable or advance
moderately during the option period and (c) out-of-the-money call options when
the Investment Adviser expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-money put options (the
reverse of call options as to the relation of exercise price to market price)
may be utilized in the same market environments that such call options are used
in equivalent transactions.
So long as a Fund's obligation as the writer of an option continues, a
Fund may be assigned an exercise notice by the broker-dealer through which the
option was sold, requiring the Fund to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. A Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice.
PUT AND CALL OPTIONS ON SECURITIES. Each Fund may purchase put options for
speculative purposes or to protect its portfolio holdings in an underlying
security against a decline in market value. Such hedge protection is provided
during the life of the put option since a Fund, as holder of the put option, is
able to sell the underlying security at the put exercise price regardless of any
decline in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options for hedging purposes, the Fund engaging in that
transaction will reduce any profit it might otherwise have realized on its
underlying security by the premium paid for the put option and by transaction
costs.
Each Fund may also purchase call options for speculative purposes or to
hedge against an increase in prices of securities that it wants ultimately to
buy. Such hedge protection is provided during the life of the call option since
a Fund, as holder of the call option, is able to buy the underlying security at
the exercise price regardless of any increase in the underlying security's
market price. In order for a call option to be profitable, the market price of
the underlying security must rise sufficiently above the exercise price to cover
the premium and transaction costs. By using call options for hedging purposes,
the Fund engaging in that transaction will reduce any profit it might 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.
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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.
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.
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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 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.
FOREIGN CURRENCY TRANSACTIONS. Each Fund may enter into forward foreign
currency exchange contracts ("forward contracts") for speculative purposes or to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between the United States dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. A Fund may enter into a forward contract
for hedging purposes, for example, when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the United States dollar price of the security. Likewise, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the United States dollar, it may enter into a forward contract to sell
an amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency, or when a Fund
believes that the United States dollar may suffer a substantial decline against
a foreign currency, it may enter into a forward contract to buy that foreign
currency for a fixed dollar amount. This second investment practice is generally
referred to as "cross-hedging." The Fund may enter into a 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.
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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.
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 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 lower than current
market values, or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions could result in the Fund's incurring losses as a
result of the imposition of exchange controls, suspension of settlements, or the
inability to deliver or receive a specified currency in addition to exchange
rate fluctuations. The use of options and futures transactions entails certain
special risks. In particular, in the case of hedging, the variable degree of
correlation between price movements of options or futures contracts and price
movements in the related portfolio position of the Fund could create the
possibility that losses on the instrument will be greater than gains in the
value of the Fund's position. In addition, futures and options markets could be
illiquid in some circumstances and certain over-the-counter options could have
no markets. The Fund might not be able to close out certain positions without
incurring substantial losses. To the extent the Fund utilizes futures and
options transactions for hedging, such transactions should tend to minimize the
risk of loss due to a decline in the value of the hedged position and, at the
same time, limit any potential gain to the Fund that might result from an
increase in value of the position. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential financial
risk than would purchases of options, in which case the exposure is limited to
the cost of the initial premium and transaction costs. Expenses and losses
incurred as a result of 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.
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 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. The use of derivatives for speculative
purposes involves a variety of risks, including the risk of an increased
volatility that may potentially increase losses. 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."
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SHORT-SELLING
The Capital Value Fund may make short sales, which are transactions in
which the Fund sells a security it does not own in anticipation of a decline in
the market value of that security. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The Fund will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale and the date
on which the Fund replaces the borrowed security. The Fund will realize a gain
if the security declines in price between those dates. The Capital Value Fund
may purchase call options to provide a hedge against an increase in the price of
a security sold short by the Fund. When the Fund purchases a call option it has
to pay a premium to the person writing the option and a commission to the broker
selling the option. If the option is exercised by the Fund, the premium and the
commission paid may be more than the amount of the brokerage commission charged
if the security were to be purchased directly. No securities will be sold short
by the Capital Value Fund if, after effect is given to any such short sale, the
total market value of all securities sold short would exceed 25% of the value of
the Fund's net assets. The Fund may not sell short the securities of any single
issuer listed on a national securities exchange to the extent of more than 5% of
the value of the Fund's net assets. The Fund may not sell short the securities
of any class of an issuer to the extent, at the time of the transaction, of more
than 5% of the outstanding securities of that class. In addition to the short
sales discussed above, the Capital Value Fund may make short sales "against the
box," a transaction in which the Capital Value Fund enters into a short sale of
a security which the Capital Value Fund owns. The Capital Value Fund at no time
will have more than 15% of the value of its net assets in deposits on short
sales against the box.
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
Bank obligations that the Funds may purchase include time deposits
("TDs"), certificates of deposit ("CDs") and banker acceptances ("BAs"). TDs 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.
CDs are negotiable certificates evidencing the obligation of a bank to repay
funds deposited with it for a specified period of time. BA's 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.
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 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 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
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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.
COMMERCIAL PAPER
Each Fund may purchase commercial paper, which 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.
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. 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.
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. Each Fund will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
BRADY BONDS AND EMERGING MARKET GOVERNMENTAL OBLIGATIONS
Each Fund may invest in emerging market governmental debt obligations
commonly referred to as "Brady Bonds." Brady Bonds are debt securities,
generally denominated in U.S. dollars, issued under the framework of the "Brady
Plan," an initiative announced by former U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their outstanding
external commercial bank indebtedness. Investors should recognize that Brady
Bonds have only been issued relatively recently, and accordingly do not have a
long payment history. 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 may
invest are likely to be acquired at a discount, which involves certain
considerations discussed below under "--Zero Coupon Securities and Discount
Obligations."
The Brady Plan framework, as it has developed, contemplates the exchange
of external commercial bank debt for newly issued 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.
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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
Each Fund may invest in zero coupon U.S. Treasury securities, which are
treasury Notes and Bonds that have been stripped of their unmatured interest
coupons, the coupons themselves and receipts or certificates representing
interests in such stripped debt obligations and coupons. The Funds also may
invest in zero coupon securities issued by financial institutions which
constitute a proportionate ownership of the issuer's pool of underlying U.S.
Treasury securities. Zero coupon securities are debt securities that pay no cash
income but are sold at substantial discounts from their value at maturity.
Certain zero coupon securities also are sold at substantial discounts from their
maturity value and provide for the commencement of regular interest payments at
a deferred date. In addition, as indicated above, certain of the Fund's emerging
market governmental debt securities may be acquired at a discount ("Discount
Obligations").
Zero coupon securities and Discount Obligations 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. 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.
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 prior to the receipt of cash payments. Accordingly, to maintain
its qualification as a regulated investment company and avoid liability for
Federal income taxes, 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."
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
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an underlying pool of mortgage assets. A common type of SMBS will have one class
receiving all of the interest ("IO" or interest-only class) and the other class
receiving all of the principal ("PO" or principal-only class). SMBS may be
highly sensitive to changes in prepayment and interest rates, and under certain
interest rate or prepayment rate scenarios a Fund may fail to recoup fully its
investment in these securities even if the securities are of the highest credit
quality. Furthermore, the yield to maturity on these securities may be adversely
affected.
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.
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 1940 Act. As a result, the Funds' investment in
these structured investments may be limited by the restrictions contained in the
1940 Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments.
PREFERRED STOCK
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. 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
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
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the issuers of the convertible securities may default on their obligations.
Convertible securities, however, generally offer lower interest or dividend
yields than non-convertible securities of similar quality because of the
potential for capital appreciation. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities generally are subordinated to other similar but non-convertible
securities of the same issuer, although convertible bonds, as corporate debt
obligations, enjoy seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the same issuer.
Because of the subordination feature, however, convertible securities typically
have lower ratings than similar non-convertible securities.
WARRANTS
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 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
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. 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.
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.
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. See " Additional Information Concerning
Taxes."
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
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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.
RULE 144A SECURITIES
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 PARTICIPATIONS AND ASSIGNMENTS
Each Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between a borrower (often an issuer of Sovereign
Debt Obligations) and one or more financial institutions ("Lenders"). The Funds'
investments in Loans are expected in most instances to be in the form of
participations in Loans ("Participations") and, in the case of the Capital Value
Fund but not the Strategy Fund, assignments of all or a portion of Loans
("Assignments") from third parties. A Fund's investment in Participations
typically will result in such Fund having a contractual relationship only with
the Lender and not with the borrower. Such Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participations and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, a Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and a Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participations. As a result,
the Fund may be subject to the credit risk of both the borrower and the Lender
that is selling the Participations and, accordingly, the Funds will consider
both the borrower and the Lender to be issuers for purposes of their investment
restrictions. In the event of the insolvency of the Lender selling a
Participation, a Fund may be treated as a general creditor of the Lender and may
not benefit from any set-off between the Lender and the borrower. Certain
Participations may be structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender with respect to
the Participations, but even under such a structure, in the event of the
Lender's insolvency, the Lender's servicing of the Participations may be delayed
and the assignability of the Participations impaired. A Fund will acquire
Participations only if the Lender interpositioned between the Fund and the
borrower is a Lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher (i.e., Baa/BBB or
higher). A Fund's investments in Loans are considered to be debt obligations for
purposes of its investment restrictions. In addition, for purposes of a Fund's
investment restriction on investment in illiquid securities, the Fund will treat
loans as illiquid securities unless the staff of the Securities and Exchange
Commission concludes that a market in these instruments has developed
sufficiently such that they may be treated as liquid.
When the Capital Value Fund purchases Assignments from Lenders it will
acquire direct rights against the borrower on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Capital Value
Fund as the purchaser of an Assignment may differ from, and be more limited
than, those held by the assigning Lender. The assignability of certain Sovereign
Debt Obligations is restricted by the governing documentation as to the nature
of the assignee such that the only way in which the Capital Value Fund may
acquire an interest in a Loan is through a Participation and not an Assignment.
The Funds may have difficulty disposing of Assignments and Participations
because to do so it will have to assign such securities to a third party.
Because there is no established secondary market for such securities, the Funds
anticipate that such securities could be sold only to a limited number of
institutional investors. The lack of an established secondary market may have an
adverse impact on the value of such securities and the Funds' ability to dispose
of particular Assignments or Participations when necessary to meet the Funds'
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of an
20
<PAGE>
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)
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.
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. 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. 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. 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.
21
<PAGE>
FORWARD COMMITMENTS
The Funds may purchase securities on a when-issued or forward commitment
basis, which means that delivery and payment take place a number of days after
the date of the commitment to purchase. The payment obligation and the interest
rate that will be received on a when-issued security are fixed at the time a
Fund enters into the commitment. The Funds will make commitments to purchase
such securities only with the intention of actually acquiring the securities,
but the Funds may sell these securities before the settlement date if it is
deemed advisable. The Funds will not accrue income in respect of a security
purchased on a when-issued or forward commitment basis prior to its stated
delivery date.
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.
CONCENTRATION
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.
YEAR 2000
Like other mutual funds and financial and business organizations
worldwide, the Funds could be adversely affected if computer 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' adviser has 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 is taking steps
reasonably designed to address any Year 2000 Problems. In light of these
remedial steps, the Funds' adviser expects that its 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 adviser 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.
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, 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 Corporation ("S&P") for
determining the applicable ratings.
22
<PAGE>
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.
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.
23
<PAGE>
INVESTMENT RESTRICTIONS
COMSTOCK PARTNERS CAPITAL VALUE FUND (FUNDAMENTAL RESTRICTIONS)
The Capital Value Fund has adopted the following fundamental investment
restrictions which 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". The Capital Value Fund may not:
1. 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 331/3% 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.)
2. Invest more than 25% of its total assets in any one industry.
(Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities are not considered to represent industries.)
3. 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.
4. 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.
5. Purchase or sell commodities or commodity contracts.
6. 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. 4 above. (The deposit of assets in escrow
in connection with portfolio transactions is not deemed to be a pledge or
hypothecation for this purpose.)
7. 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.
8. 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.
9. 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)
The Strategy Fund has adopted the following fundamental investment
restrictions which may not be changed without the affirmative vote of the
holders of a majority of the Strategy Fund's outstanding voting securities, as
defined under "Capital Stock".
The Strategy Fund may not:
1. 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.)
2. 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.
3. Pledge, mortgage or hypothecate its assets other than to secure
borrowings permitted by Investment Restriction (2) 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.)
24
<PAGE>
4. Make loans of securities to other persons in excess of 331/3% of
its total assets; provided the Fund may invest without limitation in
short-term obligations (including repurchase agreements) and publicly
distributed obligations.
5. 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.
6. 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.
7. 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.
8. 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 5 above, and the
Strategy Fund has adopted restriction number 8 above, in order to comply with
certain state securities laws. In these laws, the term "commodity contract" is
defined as a "contract or option providing for the delivery or receipt at a
future date of a specified amount and grade of a traded commodity at a specified
price and delivery point." None of the Fund's derivative 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.
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.
25
<PAGE>
If a percentage restriction set forth above or elsewhere in this Statement
of Additional Information 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)(1) 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.
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 Chief Executive Officer of Comstock
Lawrenceville, New Jersey 08648 Partners, Inc. since September 1996,
57 years old and, prior thereto, Vice Chairman,
President and Secretary of Comstock
Partners, Inc.
M. Bruce Adelberg Director, Member of Consultant, MBA Research Group since
MBA Research Audit Committee November 1995; Director, Oakwood
33 Channel Lane Counselors Inc. (investments); and
Salem, SC 29676 Director, Southern Sun Propagation
62 years old Systems Inc.
Robert M. Smith Director, Member of Audit President and Director, Smith Advisors,
Smith Advisors, Ltd. Committee Ltd. (investments) since November
812 Coachway 1995; President and Director of
Annapolis, MD 21401 Ansbacher (Dublin) Asset Management
69 years old Ltd. from January 1983 to November
1995.
*Martin Weiner President Director of Research of Comstock
993 Lenox Drive, Suite 106 Partners, Inc. since 1995; prior thereto,
Lawrenceville, New Jersey 08648 Senior Equity Portfolio Manager for the
65 years old Grumman Corporation employee benefit
plan from 1978 to 1994.
*Robert C. Ringstad Vice President, Treasurer, Chief Vice President, Treasurer, Chief
993 Lenox Drive, Suite 106 Financial Officer and Secretary Financial Officer and Assistant Secretary
Lawrenceville, New Jersey 08648 of Comstock Partners, Inc. since
69 years old September 1995; 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.
</FN>
</TABLE>
26
<PAGE>
For so long as the Class A, Class B or Class C Service and Distribution
Plans remain in effect, the Directors of the Company who are not "interested
persons" of the Company, as defined in the 1940 Act, will be selected and
nominated by the Directors who are not "interested persons" of the Company.
The Executive Committee of the Board of Directors of the Company exercises
all of the powers and authority of the Board of Directors between meetings of
the Board of Directors.
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 in the same fund complex. 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, 1999. For the
fiscal year ended April 30, 1999, 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.** $ 16,230 0 0 $ 16,230
E. W. Kelley** $ 5,000 0 0 $ 5,000
Robert M. Smith $ 20,000 0 0 $ 20,000
<FN>
- ------------------
* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $1,520 for the Company.
** Messrs. Karlen and Kelley resigned as Directors of the Company, effective
March 16, 1999 and July 1, 1998, respectively.
</FN>
</TABLE>
As of August 26, 1999, the following entities were known by the Capital
Value Fund to own, of record or beneficially, 5% or more of the Capital Value
Fund's outstanding voting securities: Merrill Lynch, Pierce, Fenner & Smith
Incorporated was the record owner of 30.6440%, 20.1190% and 30.5161%,
respectively, of the outstanding Class A, B and C shares of the Capital Value
Fund; and Westcliff Capital Management, USAA Investment Management Co., Key
Trust Co. Trustee FBO David Draper and Freeman Welwood & Co., Inc. FBO William
M. Swartz, respectively, were the record owners of 46.3361%, 25.0401%, 19.1660%
and 7.5770% of the outstanding Class R shares of the Capital Value Fund.
As of August 16, 1999, 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 NFSC FBO Frida Salvigsen, respectively, were the record holders
of 33.4669% and 5.7757% of the outstanding Class A shares of the Strategy Fund;
Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.C. Bradford & Co.
Custodian FBO David G. Mercer, respectively, were the record owners of 54.0387%
and 25.6013% of the outstanding Class C shares of the Strategy Fund; and Merrill
Lynch, Pierce, Fenner & Smith Incorporated was the record owner of 53.0378% 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.
A shareholder who beneficially owns, directly or indirectly, more than 25%
of a Fund's voting securities may be deemed a "control person" (as defined in
the 1940 Act) of the Fund.
INVESTMENT ADVISER
Comstock Partners, Inc. is the Investment Adviser to each Fund 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 1988,
and as sub-investment adviser to the predecessor to the Capital Value
27
<PAGE>
Fund, the 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. The principal address
of the Investment Adviser is 993 Lenox Drive, Suite 106, Lawrenceville, New
Jersey 08648.
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"), dated as of August 30, 1996. Unless earlier terminated as described
below, the Capital Value Fund Investment Advisory Agreement will remain in
effect from year to year if approved annually (i) by a majority of the
non-interested directors of the Company (as defined in the 1940 Act) and (ii) by
the Board of Directors of the Company or by a majority of the outstanding shares
of the Capital Value Fund (as defined in the 1940 Act). In addition, unless
earlier terminated as described below, the Strategy Fund Investment Advisory
Agreement will remain in effect from year to year 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.
Under the terms of the Capital Value Fund Investment Advisory Agreement,
the Investment Adviser is responsible for investment decisions for, and the
day-to-day management of, the Capital Value Fund's 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.
Under the terms of the Strategy Fund Investment Advisory Agreement, 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.
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, 1997, April 30, 1998 and April 30,
1999 amounted to $1,429,864, $817,706 and $460,751, 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 years ended
April 30, 1998 and April 30, 1999 amounted to $823,026, $616,951 and $329,277,
respectively.
SUB-INVESTMENT ADVISER
The Company, on behalf of the Capital Value Fund, and the Investment
Adviser, on behalf of the Strategy Fund, engaged The Dreyfus Corporation (the
"Sub-Investment Adviser") to provide sub-investment advisory services to the
Funds pursuant to
28
<PAGE>
(i) a 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, and (ii) a Sub-Investment Advisory
Agreement (the "Strategy Fund Sub-Investment Advisory Agreement"), between the
Sub-Investment Adviser and the Investment Adviser.
Effective August 31, 1999, both the Capital Value Fund Sub-Investment
Advisory Agreement and the Strategy Fund Sub-Investment Advisory Agreement have
terminated.
For the fiscal years ended April 30, 1997, April 30, 1998 and April 30,
1999 the Sub-Investment Adviser received fees from the Investment Adviser with
respect to the Strategy Fund in the amounts of $357,466, $204,426 and $115,188 ,
respectively, from the Investment Adviser. For the period from July 26, 1996
through April 30, 1997 and for the fiscal years ended April 30, 1998 and April
30, 1999 the Sub-Investment Adviser received fees from the Capital Value Fund
for sub-investment advisory and administration services in the amount of
$946,711, $539,832 and $343,244, respectively.
ADMINISTRATOR
Under the terms of an amended and restated administration agreement
between the Company, on behalf of each of the Funds, and Princeton
Administrators, L.P. ("Princeton") (the "Amended and Restated Administration
Agreement"), dated as of August 31, 1999, 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 Funds, including maintaining certain of the books and records of the
Funds, preparing certain reports and other documents required by United States
federal, state and other applicable laws and regulations to maintain the
registration of the Funds and its shares and providing the Funds with
administrative office facilities. For the services rendered to the Funds and the
facilities furnished, the Company pays Princeton a separate monthly fee on
behalf of each Fund at an annual rate equal to the greater of (i) $125,000 per
annum (for each Fund), or (ii) an annual rate equal to .25% of each Fund's
average daily net assets up to $100 million, .225% of each Fund's average daily
net assets on the next $100 million, .20% of each Fund's average daily net
assets on the next $400 million and .175% of each Fund's average daily net
assets in excess of $600 million.
Prior to August 31, 1999, Princeton provided administrative services to
the Strategy Fund pursuant to an administration agreement between the Company
and Princeton (the "Administration Agreement"). The fees charged with respect to
the Strategy Fund under the Administration Agreement were substantially the same
as the fees provided for in the Amended and Restated Administration Agreement,
except that Princeton was entitled to a minimum fee of $300,000 per annum
($25,000 per month) for the Strategy Fund. Effective, November 20, 1997,
Princeton agreed to voluntarily reduce the minimum fee under the Administration
Agreement to $125,000 per annum. For the fiscal years ended April 30, 1997,
April 30, 1998 and April 30, 1999, Princeton received fees pursuant to the
contractual arrangements then in effect amounting to $551,621, $331,640 and
$191,980 pursuant to the Administration Agreement, respectively, from the
Strategy Fund. In the absence of the waiver by Princeton of $18,826 and
$108,020, respectively, in fees during the fiscal years ended April 30, 1998 and
April 30, 1999, Princeton would have been entitled to fees amounting to $350,466
and $300,000 for the fiscal years ended April 30, 1998 and April 30, 1999,
respectively. The principal address of Princeton is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
TRANSFER AND DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc., a wholly-owned subsidiary of The Dreyfus
Corporation, 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").
THE DISTRIBUTOR
Premier Mutual Fund Services, Inc. (the "Distributor"), 60 State Street,
Boston, Massachusetts 02109, serves as each Fund's distributor pursuant to an
agreement that is renewable annually. The Distributor's ultimate parent is
Boston Institutional Group, Inc. The Distributor also acts as distributor for
funds in the Dreyfus Family of Funds.
FUND EXPENSES
Except for the expenses borne by the Investment Adviser, Princeton and the
Distributor (as described below) pursuant to their respective agreements, the
Company, on behalf of the relevant Fund, will pay all expenses incurred in
connection with its operation, including, among other things, organizational
costs, taxes, interest, loan commitment fees, interest and distributions paid on
securities sold short, brokerage fees and commissions, if any, Securities and
Exchange Commission fees and Blue Sky
29
<PAGE>
qualification fees, fees and expenses of non-interested directors, officers' and
employees' fees (other than officers or employees of the 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.
PURCHASE OF FUND SHARES
Reference is made to "How Your Account Works--Buying Shares" in the
Prospectus.
GENERAL
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, 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, directors of the Investment Adviser, Board members of a fund
advised by the 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) 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. Class R shares 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. Capital Value Fund Class R shares are
not subject to an annual service fee or distribution fee.
When purchasing shares of either Fund, you must specify which Class is
being purchased. Stock certificates are issued only upon your written request.
No certificates are issued for fractional shares. The Company, on behalf of each
Fund, reserves the right to reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a client of
a Service Agent which has made an aggregate minimum initial purchase for its
customers of $2,500. Subsequent investments must be at least $100. However, the
minimum initial investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs
(including regular IRAs for a non-working spouse, Roth IRAs, 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
directors of the Investment Adviser, Board members of a fund advised by the
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.
Full-time employees of the Investment Adviser may purchase shares of each Fund
without regard to minimum initial investment
30
<PAGE>
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.
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
"Shareholder Services." These services enable you to make regularly scheduled
investments and may provide you with a convenient way to invest for long-term
financial goals. You should be aware, however, that periodic investment plans do
not guarantee a profit and will not protect an investor against loss in a
declining market.
Subsequent investments also may be made by electronic transfer of funds
from an account maintained in a bank or other domestic financial institution
that is an Automated Clearing House member. You must direct the institution to
transmit immediately available funds through the Automated Clearing House to The
Bank of New York with instructions to credit your Fund account. The instructions
must specify your Fund account registration and your Fund account number
preceded by the digits "1111."
The Distributor may pay dealers a fee of up to .5% of the amount invested
through such dealers in Fund shares by employees participating in qualified or
non-qualified employee benefit plans or other programs where (i) the employers
or affiliated employers maintaining such plans or programs have a minimum of 250
employees eligible for participation in such plans or programs or (ii) such
plan's or program's aggregate initial investment in Comstock 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. 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 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 at net asset value. See
"Net Asset Value." 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 "Management Arrangements - Fund 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.
31
<PAGE>
Orders for the purchase of Fund shares received by Service Agents by 4:00
p.m., New York time, on any business day and transmitted to the Transfer Agent
by the close of its business day (normally 5:15 p.m., New York time) will be
based on the public offering price per share determined on that day, as
described above. Otherwise, the orders will be based on the next day's
determined public offering price. It is the responsibility of each Service Agent
to transmit orders so that they will be received by the Transfer Agent before
the close of its business day.
Service Agents may receive different levels of compensation for selling
different Classes of shares. Management understands that some Service Agents may
impose certain conditions on their clients which are different from those
described in this Statement of Additional Information, 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)
If you were an actual beneficial owner of shares of the Dreyfus Capital
Value Fund, the Capital Value Fund's predecessor, held in a Dreyfus Capital
Value Fund account on April 16, 1987, you may purchase Capital Value Fund Class
A shares for the Capital Value Fund account without a sales load.
Full-time employees of NASD member firms and full-time employees of other
financial institutions which have entered into an agreement with the Distributor
pertaining to the sale of shares of the Funds (or which otherwise have a
brokerage related or clearing arrangement with an NASD member firm or financial
institution with respect to the sale of Fund shares) may purchase Class A shares
of either Fund for themselves directly or pursuant to an employee benefit plan
or other program, or for their spouses or minor children at net asset value,
provided that they have furnished the Distributor with such information it may
request from time to time in order to verify eligibility for this privilege.
This privilege also applies to full-time employees of financial institutions
affiliated with NASD member firms whose full-time employees are eligible to
purchase Class 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 or any of its affiliates or subsidiaries, Board members of a fund
advised by the 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 IRA "Rollover Accounts" with the distribution
proceeds from a qualified retirement plan or a 403(b)(7) plan, provided that, at
the time of such distribution, such qualified retirement plan or 403(b)(7) plan
met the requirements of an Eligible Benefit Plan and all or a portion of
such plan's assets were invested in funds in Comstock 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
its affiliates. The purchase of Class A shares of a Fund must be made within 60
days of such redemption and the shareholder must have either (i) paid an initial
sales charge or a contingent deferred sales charge or (ii) been obligated to pay
at any time during the holding period, but did not actually pay on redemption, a
deferred sales charge with respect to such redeemed shares.
Class A shares of a Fund also may be purchased at net asset value, subject
to appropriate documentation, by (i) qualified separate accounts maintained by
an insurance company pursuant to the laws of any State or territory of the
United States, (ii) a State, county or city or instrumentality thereof, (iii) a
charitable organization (as defined in Section 501(c)(3) of the Code) investing
$50,000 or more in Fund shares, and (iv) a charitable remainder trust (as
defined in Section 501(c)(3) of the Code).
The dealer reallowance may be changed from time to time but will remain
the same for all dealers. The Distributor, at its expense, may provide
additional promotional incentives to dealers that sell shares of funds which
retain the Investment Adviser 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.
32
<PAGE>
RIGHT OF ACCUMULATION -- CLASS A SHARES
Reduced sales loads apply to any purchase of Class A shares of either
Fund, or shares of either Fund 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 this 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 with an aggregate current market value of $40,000 and
subsequently purchase Class A shares of either 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.
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
Comstock 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 Comstock Fund that may be used toward "Right of Accumulation"
benefits described above may be used as a credit toward completion of the Letter
of Intent. However, the reduced sales load will be applied only to new
purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if you do not purchase the
full amount indicated in the Letter of Intent. The escrow will be released when
you fulfill the terms of the Letter of Intent by purchasing the specified
amount. If your purchases qualify for a further sales load reduction, the sales
load will be adjusted to reflect your total purchase at the end of 13 months. If
total purchases are less than the amount specified, you will be requested to
remit an amount equal to the difference between the sales load actually paid and
the sales load applicable to the aggregate purchases actually made. If such
remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Class A shares of the relevant Fund held in escrow to
realize the difference. Signing a Letter of Intent does not bind you to
purchase, or the relevant Fund to sell, the full amount indicated at the sales
load in effect at the time of signing, but you must complete the intended
purchase to obtain the reduced sales load. At the time you purchase Class A
shares of a Fund, you must indicate your intention to do so under a Letter of
Intent. 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.
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.
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, the initial
payment 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
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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" and "--TeleTransfer Privilege."
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"), 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
Reference is made to "How Your Account Works--Selling Shares" in the
Prospectus.
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 good order, 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 distribution. The Company will
not report to the IRS redemptions of shares of either Fund by qualified
Retirement Plans, IRAs or certain non-qualified deferred compensation plans. The
administrator, trustee or custodian of such Retirement Plans and IRAs will be
responsible for reporting distributions from such Plans and IRAs to the IRS.
Ordinarily payment will be made for all shares redeemed within seven days
after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
However, if you have purchased shares of a Fund by check, by the TeleTransfer
Privilege or through the Automatic Asset Builder and subsequently submit a
written redemption request to the Transfer Agent, the redemption proceeds will
be transmitted to you promptly upon bank clearance of your purchase check, the
TeleTransfer Purchase or the Automatic Asset Builder order, which may take up to
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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, 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.
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.
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 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. 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 and this
Statement of Additional Information 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.
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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 or 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 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 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 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.
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. 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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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
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.
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 a bank account
maintained in a domestic financial institution which is an Automated Clearing
House member may be 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. 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 1-800-554-4611 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
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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.
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.
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
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 Statement of Additional Information. You should consult your
Service Agent in this regard. Because separate accounts are maintained for each
Class of shares of the Funds, the services and privileges described under this
heading will operate for a given account only with respect to the Class of
shares in that account.
EXCHANGE PRIVILEGE
You may purchase, in exchange for Class A and Class C shares of the
Strategy Fund or Class A or Class C shares of the Capital Value Fund, shares of
the same class of the other Fund. You should be aware that these Funds have
different investment
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objectives. 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.
To request an exchange, your Service Agent, acting on your 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 shareholders
automatically, unless you check the applicable "No" box on the Account
Application, indicating that you specifically refuse this privilege. By using
the telephone exchange privilege, you authorize the Transfer Agent to act on
telephonic instructions (including over the 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.
Telephone exchanges may be subject to limitations as to the amount involved or
the number of telephone exchanges permitted. Shares issued in certificated form
are not eligible for telephone exchange. No fees currently are charged to
shareholders directly in connection with exchanges, although the Funds reserve
the right, upon not less than 60 days' written notice, to charge shareholders a
nominal administrative fee in accordance with rules promulgated by the
Securities and Exchange Commission.
Shares of a Fund purchased by exchange will be purchased on the basis of
relative net asset value per share.
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.
AUTOMATIC ASSET BUILDER
Automatic Asset Builder permits you to purchase Fund Class A and Class C
shares of the Strategy Fund and Class A, Class B, Class C or Class R shares of
the Capital Value Fund (minimum of $100 and maximum of $150,000 per transaction)
at regular intervals selected by you. Such shares are purchased by transferring
funds from the bank account designated by you. At your option, the bank account
designated by you will be debited in the specified amount, and shares will be
purchased, once a month, on either the first or fifteenth day (or the next
business day if such first or fifteenth day is not a business day), or twice a
month, on both days. Only an account maintained at a domestic financial
institution which is an Automated Clearing House member may be so designated. To
establish an Automatic Asset Builder account, you must file an authorization
form with the Transfer Agent. You may obtain the necessary authorization form 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. 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 Class A, Class B and Class C shares 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 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.
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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.
An application for the Automatic Withdrawal Plan can be 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 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. Withdrawals of Class A shares subject to any applicable CDSC and
Class C shares under 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.
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
one Fund in shares of the other Fund of which the investor is a shareholder.
Shares of a Fund 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 the other Fund 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 the other Fund sold with a
sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a Fund which charges a sales load
may be invested in shares of the other Fund 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 the other Fund that imposes 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.
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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 $1,000
with no minimum on subsequent purchases. The minimum initial investment is $750
for Dreyfus-sponsored Keogh Plans, IRAs (including regular IRAs for a
non-working spouse, Roth IRAs, SEP-IRAs and rollover IRAs) and 403(b)(7) Plans
with only one participant, and $500 for Dreyfus-sponsored Education IRAs with no
minimum on subsequent purchases.
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 Funds' Prospectus entitled "How Your Account Works -
Sales Charges, Annual Fees and Choosing a Share Class." Class A, Class B and
Class 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 the Prospectus and this Statement of Additional
Information 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
Rule 12b-1, 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, 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 Dreyfus Corporation,
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 determines 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 may pay Service Agents out of its
investment advisory fees, past profits or any other source available to it. 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.
Under the Class A Service and Distribution Plan, servicing shareholder
accounts with respect to the Class A shares may include, among other things, one
or more of the following: answering client inquiries regarding the Fund;
assisting clients in changing dividend options, account designations and
addresses; performing subaccounting; establishing and maintaining shareholder
accounts and records; processing purchase and redemption transactions; investing
client cash account balances automatically in Fund shares; providing periodic
statements showing a client's account balance and integrating such statements
with those of other transactions and balances in the client's other accounts
serviced by the Service Agent; arranging for bank wires; and such other services
as the Fund may request, to the extent the Service Agent is permitted by
applicable statute, rule or regulation.
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For the fiscal years ended April 30, 1997, April 30, 1998 and April 30,
1999 the Strategy Fund's Class A shares bore expenses of $123,138, $74,213 and
$34,816, respectively, pursuant to the Class A Service and Distribution Plan
(formerly known as the "Account Maintenance Plan"). For the fiscal years ended
April 30, 1997, April 30, 1998 and April 30, 1999 the Capital Value Fund's Class
A shares bore expenses of $503,530, $259,124 and $172,081, 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 Class A Service and Distribution Plan described above,
the Company's Board of Directors has adopted a Class B Service and Distribution
Plan and a Class C Service and Distribution Plan under Rule 12b-1 with respect
to Class B shares 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 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.
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 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 may pay Service Agents out of its investment advisory fees, past profits
or any other source available to it. From time to time the Distributor 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.
For the fiscal years ended April 30, 1997, April 30, 1998 and April 30,
1999 the Capital Value Fund's Class B shares bore expenses of $556,548, $311,125
and $160,017, respectively, pursuant to the Class B Service and Distribution
Plan and $185,516, $103,708 and $53,339, 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 years ended
April 30, 1998 and April 30, 1999 the Capital Value Fund's Class C shares bore
expenses of $40,688, $67,840 and $59,035, respectively, pursuant to the Class C
Service and Distribution Plan and $13,563, $22,613 and $19,678, respectively,
were charged for shareholder servicing for the Capital Value Fund's Class C
shares. For the fiscal years ended April 30, 1997, April 30, 1998 and April 30,
1999 the Strategy Fund's Class C shares bore expenses of $85,733, $36,233 and
$16,116, respectively, pursuant to the Class C Service and Distribution Plan and
$28,578, $12,078 and $5,372, respectively, were charged for shareholder
servicing for the Strategy Fund's Class C shares.
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
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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).
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.
PORTFOLIO TRANSACTIONS
The Strategy Fund's portfolio turnover rate for the fiscal years ended
April 30, 1998 and April 30, 1999 was 227% and 130%, respectively. The Capital
Value Fund's portfolio turnover rate for the fiscal years ended April 30, 1998
and April 30, 1999 was 359% and 465%, respectively. The portfolio turnover rate
for each of the Funds has increased in recent years. These increases may be
attributed to investment techniques employed by the adviser which have involved
active trading of portfolio securities as well as investments in many short-term
instruments which require frequent reinvestment as they mature.
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.
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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 each intend to qualify and
elect to be treated as a regulated investment company (a "RIC") under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). To so qualify,
a Fund must, among other things, (a) derive in each taxable year at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of stock or securities,
foreign currencies, or other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; 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 capital gain" (i.e., the excess of a Fund's long-term capital
gain over net short-term capital loss), 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
share of the undistributed amount, (ii) entitled to credit their proportionate
share 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 gain included in their 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.
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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 applicable limitations in
the Code. 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.
The rules governing the foreign tax credit are complex. 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.
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
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
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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 subject to tax on dividends or
distributions in the year of receipt. However, dividends declared in October,
November or December of any year, payable to shareholders of record as of a
specified date in such a month, will be deemed to have been received by the
shareholders and paid by a Fund no later than December 31, provided such
dividends are paid during January of the following year.
Shareholders should consider the tax implications of buying shares of a
Fund prior to a dividend or distribution by such Fund. The price of shares
purchased at the time may reflect the amount of the forthcoming dividend or
distribution. Such dividend or distribution may have the effect of reducing the
net asset value of shares below a shareholder's cost and thus would be a return
on investment in an economic sense, but nevertheless would 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 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.
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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 the Prospectus and in this
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.
PERFORMANCE INFORMATION
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
a Fund's volatility or risk. Performance for each Class may be calculated on the
basis of average annual total return and/or total return. These total return
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the
measuring period were reinvested in shares of the same Class. These figures also
take into account any applicable service and distribution fees.
The Strategy Fund presents performance information for each Class of
shares commencing with the Strategy Fund's inception. Performance information
for the period prior to August 1, 1991 reflects the performance of the Strategy
Fund as a closed-end fund and does not reflect payment of the underwriting
discount paid in connection with the initial public offering of the Strategy
Fund's shares as a closed-end fund. In addition, as an open-end fund, the
Strategy Fund incurs certain additional expenses as a result of the continuous
offering and redemption of its shares. Because Strategy Fund Class O shares have
not been issued by the Strategy Fund since July 15, 1992 except in connection
with the reinvestment of dividends on outstanding 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 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
47
<PAGE>
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, 1999.
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 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, the
predecessor of the Capital 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
48
<PAGE>
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, 1999, 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 "Fees and Expenses" and "How Your Account
Works" sections in the Funds' Prospectus.
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 NAV WITH LOAD AT NAV WITH LOAD AT NAV WITH CDSC AT NAV WITH CDSC
---------- ------------ --------- ---------- --------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception (October 10, 1985) 9.30% 4.40% 0.66% 0.32% 4.02% 0.29%
Policy Inception
(April 28, 1987)(2) -31.08% -34.17% -3.42% -3.42% -34.41% -3.45%
10 Year -46.39% -48.81% -6.04% -6.48% -48.98% -6.51%
5 Year -57.03% -58.98% -15.55% -16.32% -58.57% -59.17% -16.16% -16.40%
1 Year -25.80% -29.16% -25.80% -29.16% -26.19% -28.97% -26.19% -28.97%
</TABLE>
<TABLE>
<CAPTION>
CLASS C(4) CLASS R(5)
TOTAL AVERAGE
AGGREGATE ANNUAL
TOTAL AGGREGATE RETURN AVERAGE ANNUAL RETURN RETURN RETURN
AT NAV WITH CDSC AT NAV WITH CDSC AT NAV AT NAV
----------- ------------ ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Inception (October 10, 1985) 3.95% 0.29% 10.27% 0.72%
Policy Inception (April 28, 1987) -34.45% -3.45% -30.47% -2.98*
10 Year -49.02% -6.52% -45.92% -5.96%
5 Year -58.59% -16.17% -56.65% -15.39%
1 Year -26.22% -26.91% -26.22% -26.91% -25.67% -25.67%
<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 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 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
</FN>
</TABLE>
49
<PAGE>
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.
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, 1999. 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 "Fees
and Expenses" and "How Your Account Works" sections in the Funds' Prospectus.
<TABLE>
<CAPTION>
COMSTOCK PARTNERS STRATEGY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH DEDUCTION OF APPLICABLE SALES CHARGES(1)
SINCE
COMMENCEMENT
ONE YEAR FIVE YEARS TEN YEARS OF OPERATIONS
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Class O (2).......................................... -15.31% -6.33% 1.23% 2.29%
Class A (3)(4)....................................... -15.54% -6.61% 1.03% 2.11%
Class C (5)(6)....................................... -13.23% -6.29% 1.21% 2.27%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
WITHOUT DEDUCTION OF APPLICABLE SALES CHARGES(1)
SINCE
COMMENCEMENT
ONE YEAR FIVE YEARS TEN YEARS OF OPERATIONS
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Class O............................................. -11.32% -5.47% 1.70% 2.72%
Class A (4)......................................... -11.56% -5.74% 1.50% 2.54%
Class C (6)......................................... -12.42% -6.29% 1.21% 2.27%
<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 reflects 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 introduced until July
15, 1992, the total return for Class A shares for the period prior to their
introduction is based on the performance of Class O shares. As a result,
total return for Class A shares 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 total return presented.
(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.
</FN>
</TABLE>
---------------------------
Each Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of investment return. For example, in comparing a Fund's total return with data
published by Lipper Analytical Services, Inc., or similar independent services
or financial publications, each Fund calculates its aggregate total return for
the specified periods of time by assuming the investment of $10,000 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
50
<PAGE>
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value.
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 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. 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
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 (currently 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. "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. 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
51
<PAGE>
Exchange. With the exception of certain fees and expenses borne pursuant to the
Class A, B and C Service and Distribution Plans and 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 "Management Arrangements - Fund Expenses"
and "Service and Distribution Plans."
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 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.
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 Statement of Additional Information, the
Company consists of two investment portfolios: the Strategy Fund and the Capital
Value Fund.
The authorized capital stock of the Company consists of 1,000,000,000
shares, par value $.001 per share. The Company is authorized to issue
150,000,000 Strategy Fund Class O shares, 200,000,000 Strategy Fund Class A
shares and 200,000,000 Strategy Fund Class C shares. In addition, the Company is
authorized to issue 125,000,000 Capital Value Fund Class A shares, 125,000,000
Capital Value Fund Class B shares, 125,000,000 Capital Value Fund Class C shares
and 125,000,000 Capital Value Fund Class R shares. Each Class A, Class B, Class
C and Class R share represents an interest in the Strategy Fund or the Capital
Value Fund, as the case may be, in proportion to its net asset value, and has
identical rights except that Class A, B and C shares bear fees and expenses on
an ongoing basis pursuant to the Fund's Class A, Class B and Class C Service and
Distribution Plans, respectively, and Class B and C shares bear additional
incremental shareholder administrative expenses resulting from deferred sales
charge arrangements. In addition, only the holders of Class A, Class B and Class
C shares have voting rights with respect to matters pertaining to the Class A,
Class B and Class C Service and Distribution Plans, respectively.
The Company's Board of Directors may reclassify unissued shares of the
Company into additional classes of Common Stock at a future date. The Company's
Board of Directors may, in the future, authorize the issuance of shares of
additional classes of capital stock representing different investment
portfolios.
Except as described above with respect to the Company's Service and
Distribution Plans, all shares of the Company have equal voting rights and will
be voted in the aggregate and not by class, except where voting by class is
required by law. Under
52
<PAGE>
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.
All shares of the Company, when issued, will be fully paid and
nonassessable.
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.
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 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 " Additional Information Concerning Taxes--Distributions."
53
<PAGE>
GENERAL INFORMATION
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. is located at P.O. Box 9671, 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, 1999, the Fund paid the Transfer Agent $156,943
with respect to the Capital Value Fund and $93,620 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.
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.
FINANCIAL STATEMENTS
The audited financial statements for the Strategy Fund and the Capital
Value Fund are incorporated by reference to the Company's 1999 Annual Report to
Shareholders. You may request a copy of the Annual Report at no charge by
calling 1-800-332-8910.
54
<PAGE>
COMSTOCK PARTNERS FUNDS, INC.
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) Registrant's Articles of Amendment and Restatement are
incorporated by reference to Exhibit 1(a) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A,
filed on February 14, 1996.*
(a)(2) Registrant's Form of Registrant's Articles Supplementary
are incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 8 to the Registration Statement
on Form N-1A, filed on February 14, 1996.*
(a)(3) Registrant's Form of Articles Supplementary are
incorporated by reference to Exhibit 1(c) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A,
filed on February 14, 1996.*
(a)(4) Registrant's Form of Articles of Amendment are
incorporated by reference to Exhibit 1(d) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A,
filed on February 14, 1996.*
(a)(5) Registrant's Form of Articles Supplementary are
incorporated by reference to Exhibit 1(e) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A,
filed on February 14, 1996.*
(b) Registrant's By-laws are incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A, filed on
February 14, 1996.*
(c) (1) Article 5 of Registrant's Articles of Amendment and
Restatement are incorporated by reference to Exhibit 1(a)
to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A, filed on February 14, 1996.*
(c)(2) Article II and V of Registrant's By-laws are
incorporated by reference to Exhibit (b).*
(d)(1) Investment Advisory Agreement between Registrant, on
behalf of the Comstock Partners Strategy Fund, and Comstock
Partners, Inc. is incorporated by reference to Exhibit 5(a)
to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A, filed on February 14, 1996.*
(d)(2) Investment Advisory Agreement between Registrant, on behalf
of the Comstock Partners Capital Value Fund, and Comstock
Partners, Inc. is incorporated by
<PAGE>
reference to Exhibit 5(c) to Post-Effective Amendment No. 8
to the Registration Statement on Form N-1A, filed on
February 14, 1996.*
(e) Form of Distribution Agreement between Registrant and
Premier Mutual Fund Services, Inc.
(f) Not applicable.
(g)(1) Form of Custody Agreement between Registrant and The Bank of
New York.
(g)(2) Form of Foreign Custody Manager Agreement between
Registrant, on behalf of Comstock Partners Capital Value
Fund, and The Bank of New York is incorporated by reference
to Exhibit 8 (a)(1) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A, filed on August 26,
1998.*
(g)(3) Form of Custody Agreement between Registrant and Brown
Brothers Harriman & Co.
(g)(4) Form of Foreign Custody Manager Delegation Agreement
between Registrant, on behalf of Comstock Partners Strategy
Fund, and Brown Brothers Harriman & Co. is incorporated by
reference to Exhibit 8(b)(1) to Post-Effective Amendment No.
13 to the Registration Statement on Form N-1A, filed on
August 26, 1998.*
(h) Form of Amended and Restated Administration Agreement
between Registrant and Princeton Administrators, L.P.
(i)(1) Opinion of Venable, Baetjer and Howard, LLP is incorporated
by reference to Registrant's Rule 24f-2 Notice, filed on
June 27, 1997.*
(i)(2) Consent of Venable, Baetjer and Howard, LLP.
(j) Independent Auditor's Consent.
(k) Not applicable.
(l) Not applicable.
(m)(1) Form of Amended and Restated Class A Service and
Distribution Plan is incorporated by reference to Exhibit
15(a) to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A, filed on February 14, 1996.*
(m)(2) Form of Class B Service and Distribution Plan is
incorporated by reference to Exhibit 15(b) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A,
filed on February 14, 1996.*
<PAGE>
(m)(3) Form of Amended and Restated Class C Service and
Distribution Plan is incorporated by reference to Exhibit
15(c) to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A, filed on February 14, 1996.*
(n) Not applicable.
(o) Form of Amended and Restated Multiclass Plan is incorporated
by reference to Exhibit 18 to Post-Effective Amendment No. 8
to the Registration Statement on Form N-1A, filed on
February 14, 1996.*
(p) Powers of Attorney for Messrs. Smith and Adelberg are
incorporated by reference to Other Exhibits to
Post-Effective Amendment No. 8 to the Registration Statement
on Form N-1A, filed on February 14, 1996.*
* Previously filed.
Item 24. Persons Controlled by or under Common Control with Registrant
Not applicable
Item 25. Indemnification
Reference is made to Article VII of Registrant's Articles of
Incorporation, Article VI of Registrant's By-laws, and subsection 1.10 of the
Distribution Agreement between Registrant and Premier Mutual Fund Services, Inc.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant understands that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer of controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
Reference is made to the Sections entitled "Management" in the
Prospectus and Management Arrangements in the Statement of Additional
Information with respect to the Investment Adviser.
Item 27. 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 Funds
23) Dreyfus Growth and Income Fund, Inc.
24) Dreyfus Growth and Value Funds, Inc.
25) Dreyfus Growth Opportunity Fund, Inc.
26) Dreyfus Debt and Equity 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.
<PAGE>
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
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 U.S. Treasury Intermediate Term Fund
59) Dreyfus U.S. Treasury Long Term Fund
60) Dreyfus 100% U.S. Treasury Money Market Fund
61) Dreyfus 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 Municipal Bond Fund
70) Dreyfus Premier New York Municipal Bond Fund
71) Dreyfus Premier State Municipal Bond Fund
72) Dreyfus Premier Value Fund
73) Dreyfus Short-Intermediate Government Fund
74) Dreyfus Short-Intermediate Municipal Bond Fund
75) The Dreyfus Socially Responsible Growth Fund, Inc.
76) Dreyfus Stock Index Fund, Inc.
77) Dreyfus Tax Exempt Cash Management
78) The Dreyfus Third Century Fund, Inc.
79) Dreyfus Treasury Cash Management
<PAGE>
80) Dreyfus Treasury Prime Cash Management
81) Dreyfus Variable Investment Fund
82) Dreyfus Worldwide Dollar Money Market Fund, Inc.
83) Founders Funds, 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.
88) General Municipal Bond Fund, Inc.
89) General Municipal Money Market Funds, Inc.
90) General New York Municipal Bond Fund, Inc.
91) General New York Municipal Money Market Fund
(b)
<TABLE>
<CAPTION>
Name and principal business Positions and offices with Premier Positions and offices
address Mutual Fund Services, Inc. with Registrant
- -------------------------------------- -------------------------------------- ---------------------
<S> <C> <C>
William J. Nutt* Chairman of the Board None
Marie E. Connolly* President, Chief Executive None
Officer and Director
Joseph F. Tower, III* Senior Vice President, None
Treasurer, Chief Financial
Officer and Director
George A. Rio* Executive Vice President None
Margaret W. Chambers* Senior Vice President, General None
Counsel, Chief Compliance Officer
Secretary and Clerk
Mary A. Nelson* Vice President None
Joseph A. Vignone* Vice President None
Elissa Kaye Grebber* Vice President and Associate None
General Counsel
Christopher J. Kelley* Vice President and Senior Associate None
General Counsel
Karen Jacoppo-Wood* Vice President and Senior Counsel None
John P. Covino* Vice President None
Stephanie D. Pierce** Vice President None
Frederick C. Dey* Vice President None
Patrick W. McKeon* Vice President, Assistant Secretary None
and Assistant Clerk
<FN>
* Principal business address is 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
** Principal business address is 200 Park Avenue, New York, New York 10166.
</FN>
</TABLE>
<PAGE>
Item 28. 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.,
P.O. Box 9671, Providence, Rhode Island 02940-9671.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
<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 under Rule
485(b) under the Securities Act 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, 1999.
COMSTOCK PARTNERS FUNDS, INC.
By/s/Robert C. Ringstad
-------------------------------------
Robert C. Ringstad
Vice President, Treasurer,
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signature Title Date
/s/Robert C. Ringstad Vice President, Treasurer, August 26, 1999
- --------------------------- Chief Financial Officer and
Robert C. Ringstad Secretary
/s/Martin Weiner President August 26, 1999
- ---------------------------
Martin Weiner
/s/Charles L. Minter Director and Chairman of the August 26, 1999
- --------------------------- Board
Charles L. Minter
*M. Bruce Adelberg Director August 26, 1999
- ---------------------------
M. Bruce Adelberg
*Robert M. Smith Director August 26, 1999
- ---------------------------
Robert M. Smith
*By/s/Robert C. Ringstad August 26, 1999
- ---------------------------
Robert C. Ringstad
Attorney-in-Fact
<PAGE>
Comstock Partners Funds, Inc.
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
(e) Form of Distribution Agreement between Registrant and
Premier Mutual Fund Services, Inc.
(g)(1) Form of Custody Agreement between Registrant and The
Bank of New York.
(g)(3) Form of Custody Agreement between Registrant and
Brown Brothers Harriman & Co.
(h) Form of Amended and Restated Administration Agreement
between Registrant and Princeton Administrators, L.P.
(i)(2) Consent of Venable, Baetjer and Howard, LLP.
(j) Independent Auditor's Consent.
EXHIBIT (e)
DISTRIBUTION AGREEMENT
COMSTOCK PARTNERS FUNDS, INC.
10 Exchange Place
Suite 2010
Jersey City, New Jersey 07302
July 25, 1996
Premier Mutual Fund Services, Inc.
60 State Street
Boston, Massachusetts 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company, on behalf of its
Comstock Partners Capital Value Fund (the "Fund"), has agreed that you shall be,
for the period of this agreement, the distributor of shares of the Fund. For
purposes of this agreement the term "Shares" shall mean the Fund's authorized
shares.
1. Services as Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement and prospectus
then in effect under the Securities Act of 1933, as amended, and will transmit
promptly any orders received by you for purchase or redemption of Shares to the
Transfer and Dividend Disbursing Agent for the Fund of which the Fund has
notified you in writing.
1.2 You agree to use your best efforts to solicit orders for
the sale of Shares. It is contemplated that you will enter into sales or
servicing agreements with securities dealers, financial institutions and other
industry professionals, such as investment advisers, accountants and estate
planning firms, and in so doing you will act only on your own behalf as
principal.
1.3 You shall act as distributor of Shares in compliance with
all applicable laws, rules and regulations, including, without limitation, all
rules and regulations made or adopted pursuant to the Investment Company Act of
1940, as amended, by the Securities and Exchange Commission or any securities
association registered under the Securities Exchange Act of 1934, as amended.
-1-
<PAGE>
1.4 Whenever in their judgment such action is warranted by
market, economic or political conditions, or by abnormal circumstances of any
kind, the Fund's officers may decline to accept any orders for, or make any
sales of, any Shares until such time as they deem it advisable to accept such
orders and to make such sales and the Fund shall advise you promptly of such
determination.
1.5 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the Securities Act of 1933, as
amended, and all expenses in connection with maintaining facilities for the
issue and transfer of Shares and for supplying information, prices and other
data to be furnished by the Fund hereunder, and all expenses in connection with
the preparation and printing of the Fund's prospectuses and statements of
additional information for regulatory purposes and for distribution to
shareholders; provided however, that nothing contained herein shall be deemed to
require the Fund to pay any of the costs of advertising the sale of Shares.
1.6 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take all actions which may be
reasonably necessary in the discretion of the Fund's officers in connection with
the qualification of Shares for sale in such states as you may designate to the
Fund and the Fund may approve, and the Fund agrees to pay all expenses which may
be incurred in connection with such qualification. You shall pay all expenses
connected with your own qualification as a dealer under state or Federal laws
and, except as otherwise specifically provided in this agreement, all other
expenses incurred by you in connection with the sale of Shares as contemplated
in this agreement.
1.7 The Fund shall furnish you from time to time, for use in
connection with the sale of Shares, such information with respect to the Fund
and the Shares as you may reasonably request, all of which shall be signed by
one or more of the Fund's duly authorized officers; and the Fund warrants that
the statements contained in any such information, when so signed by the Fund's
officers, shall be true and correct. The Fund also shall furnish you upon
request with: (a) semi-annual reports and annual audited reports of the Fund's
books and accounts made by independent public accountants regularly retained by
the Fund, (b) quarterly earnings statements prepared by the Fund, (c) a monthly
itemized list of the securities in the Fund's portfolio, (d) monthly balance
sheets as soon as practicable after the end of each month, and (e) from time to
time such additional information regarding the Fund's financial condition as you
may reasonably request.
-2-
<PAGE>
1.8 The Fund represents to you that all registration
statements and prospectuses filed by the Fund with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and under the
Investment Company Act of 1940, as amended, with respect to the Shares have been
carefully prepared in conformity with the requirements of said Acts and rules
and regulations of the Securities and Exchange Commission thereunder. As used in
this agreement the terms "registration statement" and "prospectus" shall mean
any registration statement and prospectus, including the statement of additional
information incorporated by reference therein, filed with the Securities and
Exchange Commission and any amendments and supplements thereto which at any time
shall have been filed with said Commission. The Fund represents and warrants to
you that any registration statement and prospectus, when such registration
statement becomes effective, will contain all statements required to be stated
therein in conformity with said Acts and the rules and regulations of said
Commission; that all statements of fact contained in any such registration
statement and prospectus will be true and correct when such registration
statement becomes effective; and that neither any registration statement nor any
prospectus when such registration statement becomes effective will include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The Fund may but shall not be obligated to propose from time to time such
amendment or amendments to any registration statement and such supplement or
supplements to any prospectus as, in the light of future developments, may, in
the opinion of the Fund's counsel, be necessary or advisable. If the Fund shall
not propose such amendment or amendments and/or supplement or supplements within
fifteen days after receipt by the Fund of a written request from you to do so,
you may, at your option, terminate this agreement or decline to make offers of
the Fund's securities until such amendments are made. The Fund shall not file
any amendment to any registration statement or supplement to any prospectus
without giving you reasonable notice thereof in advance; provided, however, that
nothing contained in this agreement shall in any way limit the Fund's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Fund may deem
advisable, such right being in all respects absolute and unconditional.
1.9 The Fund authorizes you to use any prospectus in the form
furnished to you from time to time, in connection with the sale of Shares. The
Fund agrees to indemnify, defend and hold you, your several officers and
directors, and any person who controls you within the meaning of Section 15 of
the Securities Act of 1933, as amended, free and harmless from and against any
-3-
<PAGE>
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which you, your officers and directors,
or any such controlling person, may incur under the Securities Act of 1933, as
amended, or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact contained in
any registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Fund's
agreement to indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement or prospectus in reliance
upon and in conformity with written information furnished to the Fund by you
specifically for use in the preparation thereof. The Fund's agreement to
indemnify you, your officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Fund's being notified of any action
brought against you, your officers or directors, or any such controlling person,
such notification to be given by letter or by telegram addressed to the Fund at
its address set forth above within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund of any
such action shall not relieve the Fund from any liability which the Fund may
have to the person against whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or alleged omission, otherwise
than on account of the Fund's indemnity agreement contained in this paragraph
1.9. The Fund will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such case, such defense
shall be conducted by counsel of good standing chosen by the Fund and approved
by you. In the event the Fund elects to assume the defense of any such suit and
retain counsel of good standing approved by you, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Fund does not elect to assume the defense of any
such suit, or in case you do not approve of counsel chosen by the Fund, the Fund
will reimburse you, your officers and directors, or the controlling person or
persons named as defendant or defendants in such suit, for the fees and expenses
of any counsel retained by you or them. The Fund's indemnification agreement
contained in this paragraph 1.9 and the Fund's representations and warranties in
this agreement shall remain operative and in full force and effect regardless of
-4-
<PAGE>
any investigation made by or on behalf of you, your officers and directors, or
any controlling person, and shall survive the delivery of any Shares. This
agreement of indemnity will inure exclusively to your benefit, to the benefit of
your several officers and directors, and their respective estates, and to the
benefit of any controlling persons and their successors. The Fund agrees
promptly to notify you of the commencement of any litigation or proceedings
against the Fund or any of its officers or Board members in connection with the
issue and sale of Shares.
1.10 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund within
the meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Fund, its officers or Board members, or any such controlling person, may incur
under the Securities Act of 1933, as amended, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the Fund, its
officers or Board members, or such controlling person resulting from such claims
or demands, shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished in writing by
you to the Fund specifically for use in the Fund's registration statement and
used in the answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such information not
misleading. Your agreement to indemnify the Fund, its officers and Board
members, and any such controlling person, as aforesaid, is expressly conditioned
upon your being notified of any action brought against the Fund, its officers or
Board members, or any such controlling person, such notification to be given by
letter or telegram addressed to you at your address set forth above within ten
days after the summons or other first legal process shall have been served. You
shall have the right to control the defense of such action, with counsel of your
own choosing, satisfactory to the Fund, if such action is based solely upon such
alleged misstatement or omission on your part, and in any other event the Fund,
its officers or Board members, or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any such
action. The failure so to notify you of any such action shall not relieve you
from any liability which you may have to the Fund, its officers or Board
members, or to such controlling person by reason of any such untrue, or alleged
-5-
<PAGE>
untrue, statement or omission, or alleged omission, otherwise than on account of
your indemnity agreement contained in this paragraph 1.10. This agreement of
indemnity will inure exclusively to the Fund's benefit, to the benefit of the
Fund's officers and Board members, and their respective estates, and to the
benefit of any controlling persons and their successors. You agree promptly to
notify the Fund of the commencement of any litigation or proceedings against you
or any of your officers or directors in connection with the issue and sale of
Shares.
1.11 No Shares shall be offered by either you or the Fund
under any of the provisions of this agreement and no orders for the purchase or
sale of such Shares hereunder shall be accepted by the Fund if and so long as
the effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.11 shall in any way restrict or have an application to or
bearing upon the Fund's obligation to repurchase any Shares from any shareholder
in accordance with the provisions of the Fund's prospectus or charter documents.
1.12 The Fund agrees to advise you immediately in writing:
(a) of any request by the Securities and Exchange
Commission for amendments to the registration statement or prospectus then in
effect or for additional information;
(b) in the event of the issuance by the Securities
and Exchange Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation of any
proceeding for that purpose;
(c) of the happening of any event which makes untrue
any statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in such
registration statement or prospectus in order to make the statements therein not
misleading; and
(d) of all actions of the Securities and Exchange
Commission with respect to any amendments to any registration statement or
prospectus which may from time to time be filed with the Securities and Exchange
Commission.
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<PAGE>
2. Offering Price
Shares of any class of the Fund offered for sale by you shall
be offered for sale at a price per share (the "offering price") approximately
equal to (a) their net asset value (determined in the manner set forth in the
Fund's charter documents) plus (b) a sales charge, if any and except to those
persons set forth in the then-current prospectus, which shall be the percentage
of the offering price of such Shares as set forth in the Fund's then-current
prospectus. The offering price, if not an exact multiple of one cent, shall be
adjusted to the nearest cent. In addition, Shares of any class of the Fund
offered for sale by you may be subject to a contingent deferred sales charge as
set forth in the Fund's then-current prospectus. You shall be entitled to
receive any sales charge or contingent deferred sales charge in respect of the
Shares. Any payments to dealers shall be governed by a separate agreement
between you and such dealer and the Fund's then-current prospectus.
3. Term
This agreement shall continue until the date (the "Reapproval
Date") set forth on Exhibit A hereto, and thereafter shall continue
automatically for successive annual periods ending on the day (the "Reapproval
Day") of each year set forth on Exhibit A hereto, provided such continuance is
specifically approved at least annually by (i) the Fund's Board or (ii) vote
of a majority (as defined in the Investment Company Act of 1940) of the Shares
of the Fund, provided that in either event its continuance also is approved by
a majority of the Board members who are not "interested persons" (as defined in
said Act) of any party to this agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This agreement is terminable
without penalty, on 60 days' notice, by vote of holders of a majority of the
Fund's outstanding voting securities or by the Fund's Board. This agreement is
terminable by you, upon 270 days' notice, effective on or after the fifth
anniversary of the date hereof. This agreement also will terminate
automatically in the event of its assignment (as defined in said Act).
4. Exclusivity
So long as you act as the distributor of Shares, you shall not
perform any services for any entity other than investment companies advised or
administered by The Dreyfus Corporation. The Fund acknowledges that the persons
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<PAGE>
employed by you to assist in the performance of your duties under this agreement
may not devote their full time to such service and nothing contained in this
agreement shall be deemed to limit or restrict your or any of your affiliates
right to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
Please confirm that the foregoing is in accordance with your
understanding and indicate your acceptance hereof by signing below, whereupon it
shall become a binding agreement between us.
Very truly yours,
COMSTOCK PARTNERS FUNDS, INC., on
behalf of its Comstock Partners
Capital Value Fund
By: __________________________________
Accepted:
PREMIER MUTUAL FUND SERVICES, INC.
By: ________________________________
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<PAGE>
EXHIBIT A
Reapproval Date Reapproval Day
--------------- --------------
July 25, 1998 July 25th
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EXHIBIT (g)(1)
CUSTODY AGREEMENT
Custody Agreement, made as of July 25, 1996, between COMSTOCK
PARTNERS FUNDS, INC. ("CPF"), a corporation organized and existing under the
laws of the State of Maryland, having its principal office and place of business
at 10 Exchange Place, #2010, Jersey City, New Jersey 07302-3913, on behalf of
COMSTOCK PARTNERS CAPITAL VALUE FUND, a series thereof, and THE BANK OF NEW
YORK, a New York corporation authorized to do a banking business, having its
principal office and place of business at 48 Wall Street, New York, New York
10015 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth CPF,
on behalf of the Fund, and the Custodian 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. "Authorized Person" shall be deemed to include the
Treasurer, the Controller or any other person, whether or not any such person is
an Officer or employee of CPF, duly authorized by the Directors of CPF to give
Oral Instructions and Written Instructions on behalf of the Fund and listed in
the Certificate annexed hereto as Appendix A or such other Certificate as may be
received by the Custodian from time to time.
2. "Available Balance" shall mean for any given day during a
calendar year the aggregate amount of Federal Funds held in the Fund's custody
account(s) at The Bank of New York, or its successors, as of the close of such
day or, if such day is not a business day, the close of the preceding business
day.
3. "Bankruptcy" shall mean with respect to a party such
party's making a general assignment, arrangement or composition with or for the
benefit of its creditors, or instituting or having instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or the entry of an
order for relief under the Federal bankruptcy law or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors' rights,
or if a petition is presented for the winding up or liquidation of the party or
a resolution is passed for its winding up or liquidation, or it seeks, or
becomes subject to, the appointment of an administrator, receiver, trustee,
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custodian or other similar official for it or for all or substantially all of
its assets or its taking any action in furtherance of, or indicating its consent
to approval of, or acquiescence in, any of the foregoing.
4. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and Federal agency securities, its successor
or successors and its nominee or nominees.
5. "Call Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts and
Futures Contract Options entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from the writer thereof
the specified underlying Securities.
6. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian, which is actually received by the Custodian and signed and
delivered on behalf of the Fund by any two Officers of CPF.
7. "Clearing Member" shall mean a registered broker-dealer
which is a clearing member under the rules of O.C.C. and a member of a national
securities exchange qualified to act as a custodian for an investment company,
or any broker-dealer reasonably believed by the Custodian to be such a clearing
member.
8. "Collateral Account" shall mean a segregated account so
denominated and pledged to the Custodian as security for, and in consideration
of, the Custodian's issuance of (a) any Put Option guarantee letter or similar
document described in paragraph 8 of Article V herein, or (b) any receipt
described in Article V or VIII herein.
9. "Consumer Price Index" shall mean the U.S. Consumer Price
Index, all items and all urban consumers, U.S. city average 1982-84 equals 100,
as first published without seasonal adjustment by the Bureau of Labor
Statistics, the Department of Labor, without regard to subsequent revisions or
corrections by such Bureau.
10. "Covered Call Option" shall mean an exchange traded option
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
11. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission, its successor or successors and its nominee or nominees, provided
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the Custodian has received a certified copy of a resolution of CPF's Directors
specifically approving deposits in DTC. The term "Depository" shall further mean
and include any other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a resolution of CPF's
Directors specifically approving deposits therein by the Custodian.
12. "Earnings Credit" shall mean for any given day during a
calendar year the product of (a) the Federal Funds Rate for such date minus
.25%, and (b) 100% of the Available Balance (less deposit reserve requirements
and F.D.I.C. insurance).
13. "Federal Funds" shall mean immediately available same day
funds.
14. "Federal Funds Rate" shall mean, for any day, the Federal
Funds (Effective) interest rate so denominated as published in Federal Reserve
Statistical Release H.15 (519) and applicable to such day and each succeeding
day which is not a business day.
15. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities, including, without
limitation, U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds,
domestic bank certificates of deposit, and Eurodollar certificates of deposit,
during a specified month at an agreed upon price.
16. "Fund" shall mean Comstock Partners Capital Value Fund, a
series of CPF. As the context requires, "Fund" means CPF, acting on behalf of
the Fund.
17. "Futures Contract" shall mean a Financial Futures Contract
and/or Stock Index Futures Contracts.
18. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
19. "Margin Account" shall mean a segregated account in the
name of a broker, dealer, futures commission merchant or Clearing Member, or in
the name of the Fund for the benefit of a broker, dealer, futures commission
merchant or Clearing Member, or otherwise, in accordance with an agreement
between CPF, on behalf of the Fund, the Custodian and a broker, dealer, futures
commission merchant or Clearing Member (a "Margin Account Agreement"), separate
and distinct from the custody account, in which certain Securities and/or money
of the Fund shall be deposited and withdrawn from time to time in connection
with such transactions as the Fund may from time to time determine. Securities
held in the Book-Entry System or the Depository shall be deemed to have been
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<PAGE>
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry on its books and records.
20. "Merger" shall mean (a) with respect to the Fund,
the consolidation or amalgamation with, merger into, or transfer of all or
substantially all of its assets to, another entity, where the Fund is not the
surviving entity, and (b) with respect to the Custodian, any consolidation or
amalgamation with, merger into, or transfer of all or substantially all of its
assets to, another entity, except for any such consolidation, amalgamation,
merger or transfer of assets between the Custodian and The Bank of New York
Company, Inc. or any subsidiary thereof, or the Irving Bank Corporation or any
subsidiary thereof, provided that the surviving entity agrees to be bound by the
terms of this Agreement.
21. "Money Market Security" shall be deemed to include,
without limitation, debt obligations issued or guaranteed as to principal and
interest by the government of the United States or agencies or instrumentalities
thereof, commercial paper, certificates of deposit and bankers' acceptances,
repurchase and reverse repurchase agreements with respect to the same and bank
time deposits, where the purchase and sale of such securities normally requires
settlement in Federal funds on the same date as such purchase or sale.
22. "O.C.C." shall mean Options Clearing Corporation, a
clearing agency registered under Section 17A of the Securities Exchange Act of
1934, its successor or successors, and its nominee or nominees.
23. "Officers" shall be deemed to include the President, any
Vice President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer or any other person or persons duly
authorized by the Directors of CPF to execute any Certificate, instruction,
notice or other instrument on behalf of the Fund and listed in the Certificate
annexed hereto as Appendix B or such other Certificate as may be received by the
Custodian from time to time.
24. "Option" shall mean a Call Option, Covered Call Option,
Stock Index Option and/or a Put Option.
25. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person.
26. "Put Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts, and
Futures Contract Options entitling the holder, upon timely exercise and tender
of the specified underlying Securities, to sell such Securities to the writer
thereof for the exercise price.
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<PAGE>
27. "Reverse Repurchase Agreement" shall mean an agreement
pursuant to which the Fund sells Securities and agrees to repurchase such
Securities at a described or specified date and price.
28. "Security" shall be deemed to include, without limitation,
Money Market Securities, Call Options, Put Options, Stock Index Options, Stock
Index Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stock and other instruments or rights having characteristics similar to
common stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities (including, without limitation, general
obligation bonds, revenue bonds and industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
29. "Segregated Security Account" shall mean an account
maintained under the terms of this Agreement as a segregated account, by
recordation or otherwise, within the custody account in which certain Securities
and/or other assets of the Fund shall be deposited and withdrawn from time to
time in accordance with Certificates received by the Custodian in connection
with such transactions as the Fund may from time to time determine.
30. "Shares" shall mean the shares of each class of Common
Stock of the Fund.
31. "Stock Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the value of a particular stock index at the close of the last business day of
the contract and the price at which the futures contract is originally struck.
32. "Stock Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an amount of cash
determined by reference to the difference between the exercise price and the
value of the index on the date of exercise.
33. "Written Instructions" shall mean written communications
actually received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by telex or any
other such system whereby the receiver of such communications is able to verify
by codes or otherwise with a reasonable degree of certainty the authenticity of
the sender of such communication.
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ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund, hereby constitutes and appoints the Custodian as
custodian of all the Securities and moneys at any time owned by the Fund during
the period of this Agreement, except that (a) if the Custodian fails to provide
for the custody of any of the Fund's Securities and moneys located or to be
located outside the United States in a manner satisfactory to the Fund, the Fund
shall be permitted to arrange for the custody of such Securities and moneys
located or to be located outside the United States other than through the
Custodian at rates to be negotiated and borne by the Fund and (b) if the
Custodian fails to continue any existing sub-custodial or similar arrangements
on substantially the same terms as exist on the date of this Agreement, the Fund
shall be permitted to arrange for such or similar services other than through
the Custodian at rates to be negotiated and borne by CPF, on behalf of the Fund.
The Custodian shall not charge the Fund for any such terminated services after
the date of such termination.
2. The Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article
and in Article VIII, the Fund will deliver or cause to be delivered to the
Custodian all Securities and all moneys owned by it, including cash received for
the issuance of its shares, at any time during the period of this Agreement. The
Custodian will not be responsible for such Securities and such moneys until
actually received by it. The Custodian will be entitled to reverse any credits
made on the Fund's behalf where such credits have been previously made and
moneys are not finally collected. The Fund shall deliver to the Custodian a
certified resolution of the Directors of CPF approving, authorizing and
instructing the Custodian on a continuous and on-going basis to deposit in the
Book-Entry System all Securities eligible for deposit therein and to utilize the
Book-Entry System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and deliveries and
returns of Securities collateral. Prior to a deposit of Securities of the Fund
in the Depository the Fund shall deliver to the Custodian a certified resolution
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<PAGE>
of the Directors of CPF approving, authorizing and instructing the Custodian on
a continuous and ongoing basis until instructed to the contrary by a Certificate
actually received by the Custodian to deposit in the Depository all Securities
eligible for deposit therein and to utilize the Depository to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities collateral.
Securities and moneys of the Fund deposited in either the Book-Entry System or
the Depository will be represented in accounts which include only assets held by
the Custodian for customers, including, but not limited to, accounts in which
the Custodian acts in a fiduciary or representative capacity. Prior to the
Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options as provided in this
Agreement, the Custodian shall have received a certified resolution of CPF's
Board of Directors approving, authorizing and instructing the Custodian on a
continuous and on-going basis, until instructed to the contrary by a Certificate
actually received by the Custodian, to accept, utilize and act in accordance
with such confirmations as provided in this Agreement.
2. The Custodian shall credit to a separate account in the
name of the Fund all moneys received by it for the account of the Fund, and
shall disburse the same only:
(a) In payment for Securities purchased, as provided in
Article IV hereof;
(b) In payment of dividends or distributions, as provided in
Article XI hereof;
(c) In payment of original issue or other taxes, as provided
in Article XII hereof;
(d) In payment for Shares redeemed by it, as provided in
Article XII hereof;
(e) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, and the purpose for
which payment is to be made; or
(f) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian, as provided in Article XV hereof.
3. Promptly after the close of business on each day, the
Custodian shall furnish the Fund with confirmations and a summary of all
transfers to or from the account of the Fund during said day. Where Securities
are transferred to the account of the Fund, the Custodian shall also by
book-entry or otherwise identify as belonging to the Fund a quantity of
Securities in a fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account on the books of
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<PAGE>
the Book-Entry System or the Depository. At least monthly and from time to time,
the Custodian shall furnish the Fund with a detailed statement of the Securities
and moneys held for the Fund under this Agreement.
4. Except as otherwise provided in paragraph 7 of this Article
and in Article VIII, all Securities held for the Fund, which are issued or
issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held for the Fund may be registered in the name of the Fund, in the
name of any duly appointed registered nominee of the Custodian as the Custodian
may from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository, any Securities which it may hold for the account of the Fund and
which may from time to time be registered in the name of the Fund. The Custodian
shall hold all such Securities which are not held in the Book-Entry System or in
the Depository in a separate account in the name of the Fund physically
segregated at all times from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian by itself,
or through the use of the Book-Entry System or the Depository with respect to
Securities therein deposited, shall with respect to all Securities held for the
Fund in accordance with this Agreement:
(a) Collect all income due or payable and, in any event, if
the Custodian receives a written notice from the Fund specifying that an amount
of income should have been received by the Custodian within the last 90 days,
the Custodian will provide a conditional payment of income within 60 days from
the date the Custodian received such notice, unless the Custodian reasonably
concludes that such income was not due or payable to the Fund, provided that the
Custodian may reverse any such conditional payment upon its reasonably
concluding that all or any portion of such income was not due or payable, and
provided further that the Custodian shall not be liable for failing to collect
on a timely basis the full amount of income due or payable in respect of a
"floating rate instrument" or "variable rate instrument" (as such terms are
defined under Rule 2a-7 under the Investment Company Act of 1940, as amended) if
it has acted in good faith, without negligence or willful misconduct.
(b) Present for payment and collect the amount payable upon
such Securities which are called, but only if either (i) the Custodian receives
a written notice of such call, or (ii) notice of such call appears in one or
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more of the publications listed in Appendix C annexed hereto, which may be
amended at any time by the Custodian upon five business days' prior notification
to the Fund;
(c) Present for payment and collect the amount payable upon
all Securities which may mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of the
Fund all rights and similar securities issued with respect to any Securities
held by the Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or the
Depository, shall:
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities may be exercised;
(b) Deliver any Securities held for the Fund in exchange for
other Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any Securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund
and take such other steps as shall be stated in said order to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
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7. Notwithstanding any provision elsewhere contained herein,
the Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, Option or Futures Contract Option
until after it shall have determined, or shall have received a Certificate from
CPF, stating that any such instruments or certificates are available. CPF shall
deliver to the Custodian such a Certificate no later than the business day
preceding the availability of any such instrument or certificate. Prior to such
availability, the Custodian shall comply with Section 17(f) of the Investment
Company Act of 1940, as amended, in connection with the purchase, sale,
settlement, closing out or writing of Futures Contracts, Options or Futures
Contract Options by making payments or deliveries specified in Certificates
received by the Custodian in connection with any such purchase, sale, writing,
settlement or closing out upon its receipt from a broker, dealer or futures
commission merchant of a statement or confirmation reasonably believed by the
Custodian to be in the form customarily used by brokers, dealers, or futures
commission merchants with respect to such Futures Contracts, Options or Futures
Contract Options, as the case may be, confirming that such Security is held by
such broker, dealer or futures commission merchant, in book-entry form or
otherwise, in the name of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that payments to or deliveries from
the Margin Account shall be made in accordance with the terms and conditions of
the Margin Account Agreement. Whenever any such instruments or certificates are
available, the Custodian shall, notwithstanding any provision in this Agreement
to the contrary, make payment for any Futures Contract, Option or Futures
Contract Option for which such instruments or such certificates are available
only against the delivery to the Custodian of such instrument or such
certificate, and deliver any Futures Contract, Option or Futures Contract Option
for which such instruments or such certificates are available only against
receipt by the Custodian of payment therefor. Any such instrument or certificate
delivered to the Custodian shall be held by the Custodian hereunder in
accordance with, and subject to, the provisions of this Agreement.
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ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND OTHER THAN OPTIONS,
FUTURES CONTRACTS, FUTURES CONTRACT OPTIONS AND REVERSE
REPURCHASE AGREEMENTS
1. Promptly after each purchase of Securities by the Fund,
other than a purchase of any Option, Futures Contract, Futures Contract Option
or Reverse Repurchase Agreement, CPF shall deliver to the Custodian (i) with
respect to each purchase of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each purchase of Money Market Securities,
a Certificate, Oral Instructions or Written Instructions, specifying with
respect to each such purchase: (a) the name of the issuer and the title of the
Securities; (b) the number of shares or the principal amount purchased and
accrued interest, if any; (c) the date of purchase and settlement; (d) the
purchase price per unit; (e) the total amount payable upon such purchase; (f)
the name of the person from whom or the broker through whom the purchase was
made, and the name of the clearing broker, if any; and (g) the name of the
broker to which payment is to be made. The Custodian shall, upon receipt of
Securities purchased by or for the Fund, pay out of the moneys held for the
account of the Fund the total amount payable to the person from whom, or the
broker through whom, the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Certificate, Oral Instructions or
Written Instructions.
2. Promptly after each sale of Securities by the Fund, other
than a sale of any Option, Futures Contract, Futures Contract Option or Reverse
Repurchase Agreement, CPF shall deliver to the Custodian (i) with respect to
each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate,
Oral Instructions or Written Instructions, specifying with respect to each such
sale: (a) the name of the issuer and the title of the Security; (b) the number
of shares or principal amount sold, and accrued interest, if any; (c) the date
of sale; (d) the sale price per unit; (e) the total amount payable to the Fund
upon such sale; (f) the name of the broker through whom or the person to whom
the sale was made, and the name of the clearing broker, if any; and (g) the name
of the broker to whom the Securities are to be delivered. The Custodian shall
deliver the Securities upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as set
forth in such Certificate, Oral Instructions or Written Instructions. Subject to
the foregoing, the Custodian may accept payment in such form as shall be
satisfactory to it, and may deliver Securities and arrange for payment in
accordance with the customs prevailing among dealers in Securities.
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ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, CPF
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the type of Option (put or call); (b) the name of the
issuer and the title and number of shares subject to such Option or, in the case
of a Stock Index Option, the stock index to which such Option relates and the
number of Stock Index Options purchased; (c) the expiration date; (d) the
exercise price; (e) the dates of purchase and settlement; (f) the total amount
payable by the Fund in connection with such purchase; (g) the name of the
Clearing Member through which such Option was purchased; and (h) the name of the
broker to whom payment is to be made. The Custodian shall pay, upon receipt of a
Clearing Member's statement confirming the purchase of such Option held by such
Clearing Member for the account of the Custodian (or any duly appointed and
registered nominee of the Custodian) as custodian for the Fund, out of moneys
held for the account of the Fund, the total amount payable upon such purchase to
the Clearing Member through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund
pursuant to paragraph l hereof, CPF shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the type of Option (put or call);
(b) the name of the issuer and the title and number of shares subject to such
Option or, in the case of a Stock Index Option, the stock index to which such
Option relates and the number of Stock Index Options sold; (c) the date of sale;
(d) the sale price; (e) the date of settlement; (f) the total amount payable to
the Fund upon such sale; and (g) the name of the Clearing Member through which
the sale was made. The Custodian shall consent to the delivery of the Option
sold by the Clearing Member which previously supplied the confirmation described
in preceding paragraph l of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option
purchased by the Fund pursuant to paragraph 1 hereof, CPF shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
name of the issuer and the title and number of shares subject to the Call
Option; (b) the expiration date; (c) the date of exercise and settlement; (d)
the exercise price per share; (e) the total amount to be paid by the Fund upon
such exercise; and (f) the name of the Clearing Member through which such Call
Option was exercised. The Custodian shall, upon receipt of the Securities
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underlying the Call Option which was exercised, pay out of the moneys held for
the account of the Fund the total amount payable to the Clearing Member through
whom the Call Option was exercised, provided that the same conforms to the total
amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option
purchased by the Fund pursuant to paragraph 1 hereof, CPF shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the name
of the issuer and the title and number of shares subject to the Put Option; (b)
the expiration date; (c) the date of exercise and settlement; (d) the exercise
price per share; (e) the total amount to be paid to the Fund upon such exercise;
and (f) the name of the Clearing Member through which such Put Option was
exercised. The Custodian shall, upon receipt of the amount payable upon the
exercise of the Put Option, deliver or direct the Depository to deliver the
Securities, provided the same conforms to the amount payable to the Fund as set
forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index
Option purchased by the Fund pursuant to paragraph 1 hereof, CPF shall deliver
to the Custodian a Certificate specifying with respect to such Stock Index
Option: (a) the type of Stock Index Option (put or call); (b) the number of
Options being exercised; (c) the stock index to which such Option relates; (d)
the expiration date; (e) the exercise price (f) the total amount to be received
by the Fund in connection with such exercise; and (g) the Clearing Member from
which such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, CPF shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the name of the issuer and the title and number of
shares for which the Covered Call Option was written and which underlie the
same; (b) the expiration date; (c) the exercise price; (d) the premium to be
received by the Fund; (e) the date such Covered Call Option was written; and (f)
the name of the Clearing Member through which the premium is to be received. The
Custodian shall deliver or cause to be delivered, in exchange for receipt of the
premium specified in the Certificate with respect to such Covered Call Option,
such receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
Certificate such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not deposited with the
Depository underlying a Covered Call Option.
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7. Whenever a Covered Call Option written by the Fund and
described in the preceding paragraph of this Article is exercised, CPF shall
promptly deliver to the Custodian a Certificate instructing the Custodian to
deliver, or to direct the Depository to deliver, the Securities subject to such
Covered Call Option and specifying: (a) the name of the issuer and the title and
number of shares subject to the Covered Call Option; (b) the Clearing Member to
whom the underlying Securities are to be delivered; and (c) the total amount
payable to the Fund upon such delivery. Upon the return and/or cancellation of
any receipts delivered pursuant to paragraph 6 of this Article, the Custodian
shall deliver, or direct the Depository to deliver, the underlying Securities as
specified in the Certificate for the amount to be received as set forth in such
Certificate.
8. Whenever the Fund writes a Put Option, CPF shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the name of the issuer and the title and number of shares for which
the Put Option is written and which underlie the same; (b) the expiration date;
(c) the exercise price; (d) the premium to be received by the Fund; (e) the date
such Put Option is written; (f) the name of the Clearing Member through which
the premium is to be received and to whom a Put Option guarantee letter is to be
delivered; (g) the amount of cash, and/or the amount and kind of Securities, if
any, to be deposited in the Segregated Security Account; and (h) the amount of
cash and/or the amount and kind of Securities to be deposited into the
Collateral Account. The Custodian shall, after making the deposits into the
Collateral Account specified in the Certificate, issue a Put Option guarantee
letter substantially in the form utilized by the Custodian on the date hereof,
and deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in
the preceding paragraph is exercised, CPF shall promptly deliver to the
Custodian a Certificate specifying: (a) the name of the issuer and title and
number of shares subject to the Put Option; (b) the Clearing Member from which
the underlying Securities are to be received; (c) the total amount payable by
the Fund upon such delivery; (d) the amount of cash and/or the amount and kind
of Securities to be withdrawn from the Collateral Account; and (e) the amount of
cash and/or the amount and kind of Securities, if any, to be withdrawn from the
Segregated Security Account. Upon the return and/or cancellation of any Put
Option guarantee letter or similar document issued by the Custodian in
connection with such Put Option, the Custodian shall pay out of the moneys held
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for the account of the Fund the total amount payable to the Clearing Member
specified in the Certificate as set forth in such Certificate, and shall make
the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, CPF shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) whether such Stock Index Option is a put or a call; (b)
the number of Options written; (c) the stock index to which such Option relates;
(d) the expiration date; (e) the exercise price; (f) the Clearing Member through
which such Option was written; (g) the premium to be received by the Fund; (h)
the amount of cash and/or the amount and kind of Securities, if any, to be
deposited in the Segregated Security Account; (i) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in the Collateral
Account; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in a Margin Account, and the name in which such account is
to be or has been established. The Custodian shall, upon receipt of the premium
specified in the Certificate, make the deposits, if any, into the Segregated
Security Account specified in the Certificate, and either (1) deliver such
receipts, if any, which the Custodian has specifically agreed to issue, which
are in accordance with the customs prevailing among Clearing Members in Stock
Index Options and make the deposits into the Collateral Account specified in the
Certificate, or (2) make the deposits into the Margin Account specified in the
Certificate.
11. Whenever a Stock Index Option written by the Fund and
described in the preceding paragraph of this Article is exercised, CPF shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) such information as may be necessary to identify the
Stock Index Option being exercised; (b) the Clearing Member through which such
Stock Index Option is being exercised; (c) the total amount payable upon such
exercise, and whether such amount is to be paid by or to the Fund; (d) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Margin Account; and (e) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Segregated Security Account and the
amount of cash and/or the amount and kind of Securities, if any, to be withdrawn
from the Collateral Account. Upon the return and/or cancellation of the receipt,
if any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay to the Clearing Member specified in the Certificate the
total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a
previously written Option described in paragraphs 6, 8 or 10 of this Article in
a transaction expressly designated as a "Closing Purchase Transaction" in order
to liquidate its position as a writer of an Option, CPF shall promptly deliver
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to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
name of the issuer and the title and number of shares subject to the Option, or,
in the case of a Stock Index Option, the stock index to which such Option
relates and the number of Options held; (c) the exercise price; (d) the premium
to be paid by the Fund; (e) the expiration date; (f) the type of Option (put or
call); (g) the date of such purchase; (h) the name of the Clearing Member to
which the premium is to be paid; and (i) the amount of cash and/or the amount
and kind of Securities, if any, to be withdrawn from the Collateral Account, a
specified Margin Account or the Segregated Security Account. Upon the
Custodian's payment of the premium and the return and/or cancellation of any
receipt issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to
the Option being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the previously
imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration or exercise of, or consummation of a
Closing Purchase Transaction with respect to, any Option purchased or written by
the Fund and described in this Article, the Custodian shall delete such Option
from the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and upon the return and/or cancellation of any receipts issued by the
Custodian, shall make such withdrawals from the Collateral Account, the Margin
Account and/or the Segregated Security Account as may be specified in a
Certificate received in connection with such expiration, exercise, or
consummation.
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ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, CPF
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract (or with respect to any number of identical Futures
Contract(s)): (a) the category of Futures Contract (the name of the underlying
stock index or financial instrument); (b) the number of identical Futures
Contracts entered into; (c) the delivery or settlement date of the Futures
Contract(s); (d) the date the Futures Contract(s) was (were) entered into and
the maturity date; (e) whether the Fund is buying (going long) or selling (going
short) on such Futures Contract(s); (f) the amount of cash and/or the amount and
kind of Securities, if any, to be deposited in the Segregated Security Account;
(g) the name of the broker, dealer or futures commission merchant through which
the Futures Contract was entered into; and (h) the amount of fee or commission,
if any, to be paid and the name of the broker, dealer or futures commission
merchant to whom such amount is to be paid. The Custodian shall make the
deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make payment of
the fee or commission, if any, specified in the Certificate and deposit in the
Segregated Security Account the amount of cash and/or the amount and kind of
Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer or futures commission
merchant with respect to an outstanding Futures Contract shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
(b) Any variation margin payment or similar payment from a
broker, dealer or futures commission merchant to the Fund with respect to an
outstanding Futures Contract shall be received and dealt with by the custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder
is retained by the Fund until delivery or settlement is made on such Futures
Contract, CPF shall deliver to the Custodian a Certificate specifying: (a) the
Futures Contract; (b) with respect to a Stock Index Futures Contract, the total
cash settlement amount to be paid or received, and with respect to a Financial
Futures Contract, the Securities and/or amount of cash to be delivered or
received; (c) the broker, dealer or futures commission merchant to or from which
payment or delivery is to be made or received; and (d) the amount of cash and/or
Securities to be withdrawn from the Segregated Security Account. The Custodian
shall make the payment or delivery specified in the Certificate and delete such
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Futures Contract from the statements delivered to the Fund pursuant to paragraph
3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to
offset a Futures Contract held by the Custodian hereunder, CPF shall deliver to
the Custodian a Certificate specifying: (a) the items of information required in
a Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment of the fee or
commission, if any, specified in the Certificate and delete the Futures Contract
being offset from the statements delivered to the Fund pursuant to paragraph 3
of Article III herein, and make such withdrawals from the Segregated Security
Account as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option
by the Fund, CPF shall deliver to the Custodian a Certificate specifying with
respect to such Futures Contract Option: (a) the type of Futures Contract Option
(put or call); (b) the type of Futures Contract and such other information as
may be necessary to identify the Futures Contract underlying the Futures
Contract Option purchased; (c) the expiration date; (d) the exercise price; (e)
the dates of purchase and settlement; (f) the amount of premium to be paid by
the Fund upon such purchase; (g) the name of the broker or futures commission
merchant through which such option was purchased; and (h) the name of the broker
or futures commission merchant to whom payment is to be made. The Custodian
shall pay the total amount to be paid upon such purchase to the broker or
futures commission merchant through whom the purchase was made, provided that
the same conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, CPF shall promptly deliver
to the Custodian a Certificate specifying with respect to each such sale: (a)
the type of Futures Contract Option (put or call); (b) the type of Futures
Contract and such other information as may be necessary to identify the Futures
Contract underlying the Futures Contract Option; (c) the date of sale; (d) the
sale price; (e) the date of settlement; (f) the total amount payable to the Fund
upon such sale; and (g) the name of the broker or futures commission merchant
through which the sale was made. The Custodian shall consent to the cancellation
of the Futures Contract Option being closed against payment to the Custodian of
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the total amount payable to the Fund, provided the same conforms to the total
amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund
pursuant to paragraph 1 is exercised by the Fund, CPF shall promptly deliver to
the Custodian a Certificate specifying: (a) the particular Futures Contract
Option (put or call) being exercised; (b) the type of Futures Contract
underlying the Futures Contract Option; (c) the date of exercise; (d) the name
of the broker or futures commission merchant through which the Futures Contract
Option is exercised; (e) the net total amount, if any, payable by the Fund; (f)
the amount, if any, to be received by the Fund; and (g) the amount of cash
and/or the amount and kind of Securities to be deposited in the Segregated
Security Account. The Custodian shall make the payments, if any, and the
deposits, if any, into the Segregated Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, CPF
shall promptly deliver to the Custodian a Certificate specifying with respect to
such Futures Contract Option: (a) the type of Futures Contract Option (put or
call); (b) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option; (c) the expiration date; (d) the exercise price; (e) the premium to be
received by the Fund; (f) the name of the broker or futures commission merchant
through which the premium is to be received; and (g) the amount of cash and/or
the amount and kind of Securities, if any, to be deposited in the Segregated
Security Account. The Custodian shall, upon receipt of the premium specified in
the Certificate, make the deposits into the Segregated Security Account, if any,
as specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund
which is a call is exercised, CPF shall promptly deliver to the Custodian a
Certificate specifying: (a) the particular Futures Contract Option exercised;
(b) the type of Futures Contract underlying the Futures Contract Option; (c) the
name of the broker or futures commission merchant through which such Futures
Contract Option was exercised; (d) the net total amount, if any, payable to the
Fund upon such exercise; (e) the net total amount, if any, payable by the Fund
upon such exercise; and (f) the amount of cash and/or the amount and kind of
Securities to be deposited in the Segregated Security Account. The Custodian
shall, upon its receipt of the net total amount payable to the Fund, if any,
specified in such Certificate make the payments, if any, and the deposits, if
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any, into the Segregated Security Account as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
6. Whenever a Futures Contract Option which is written by the
Fund and which is a Put Option is exercised, CPF shall promptly deliver to the
Custodian a Certificate specifying: (a) the particular Futures Contract Option
exercised; (b) the type of Futures Contract underlying such Futures Contract
Option; (c) the name of the broker or futures commission merchant through which
such Futures Contract Option is exercised; (d) the net total amount, if any,
payable to the Fund upon such exercise; (e) the net total amount, if any,
payable by the Fund upon such exercise; and (f) the amount and kind of
Securities and/or cash to be withdrawn from or deposited in the Segregated
Security Account, if any. The Custodian shall, upon its receipt of the net total
amount payable to the Fund, if any, specified in the Certificate make the
payments, if any, and the deposits, if any, into the Segregated Security Account
as specified in the Certificate. The deposits to and/or withdrawals from the
Margin Account, if any, shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option
identical to a previously written Futures Contract Option described in this
Article in order to liquidate its position as a writer of such Futures Contract
Option, CPF shall promptly deliver to the Custodian a Certificate specifying
with respect to the Futures Contract Option being purchased: (a) that the
transaction is a closing transaction; (b) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (c) the exercise price; (d) the premium
to be paid by the Fund; (e) the expiration date; (f) the name of the broker or
futures commission merchant to which the premium is to be paid; and (g) the
amount of cash and/or the amount and kind of Securities, if any, to be withdrawn
from the Segregated Security Account. The Custodian shall effect the withdrawals
from the Segregated Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
8. Upon the expiration or exercise of, or consummation of a
closing transaction with respect to, any Futures Contract Option written or
purchased by the Fund and described in this Article, the Custodian shall (a)
delete such Futures Contract Option from the statements delivered to the Fund
pursuant to paragraph 3 of Article III herein, and (b) make such withdrawals
from, and/or, in the case of an exercise, such deposits into, the Segregated
Security Account as may be specified in a Certificate. The deposits to and/or
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withdrawals from the Margin Account, if any, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise
of a Futures Contract Option described in this Article shall be subject to
Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sale, CPF shall deliver to the
Custodian a Certificate specifying: (a) the name of the issuer and the title of
the Security; (b) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (c) the dates of the sale and settlement; (d) the
sale price per unit; (e) the total amount credited to the Fund upon such sales,
if any; (f) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (g) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Segregated Security
Account; and (h) the name of the broker through which such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Segregated Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, CPF
shall promptly deliver to the Custodian a Certificate specifying with respect to
each such closing-out: (a) the name of the issuer and the title of the Security;
(b) the number of shares or the principal amount, and accrued interest or
dividends, if any, required to effect such closing-out to be delivered to the
broker; (c) the dates of the closing-out and settlement; (d) the purchase price
per unit; (e) the net total amount payable to the Fund upon such closing-out;
(f) the net total amount payable to the broker upon such closing-out; (g) the
amount of cash and the amount and kind of Securities to be withdrawn, if any,
from the Margin Account; (h) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Segregated Security Account; and
(i) the name of the broker through which the Fund is effecting such closing-out.
The Custodian shall, upon receipt of the net total amount payable to the Fund
upon such closing-out and the return and/or cancellation of the receipts, if
any, issued by the custodian with respect to the short sale being closed-out,
pay out of the moneys held for the account of the Fund to the broker the net
total amount payable to the broker, and make the withdrawals from the Margin
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Account and the Segregated Security Account, as the same are specified in the
Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters into a Reverse Repurchase
Agreement with respect to Securities and money held by the Custodian hereunder,
CPF shall deliver to the Custodian a Certificate or in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate, Oral
Instructions or Written Instructions specifying: (a) the total amount payable to
the Fund in connection with such Reverse Repurchase Agreement; (b) the broker or
dealer through or with which the Reverse Repurchase Agreement is entered; (c)
the amount and kind of Securities to be delivered by the Fund to such broker or
dealer; (d) the date of such Reverse Repurchase Agreement; and (e) the amount of
cash and/or the amount and kind of Securities, if any, to be deposited in a
Segregated Security Account in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable to the
Fund specified in the Certificate, Oral Instructions or Written Instructions
make the delivery to the broker or dealer, and the deposits, if any, to the
Segregated Security Account, specified in such Certificate, Oral Instructions or
Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement
described in paragraph l of this Article, CPF shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate, Oral instructions or Written Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being terminated; (b)
the total amount payable by the Fund in connection with such termination; (c)
the amount and kind of Securities to be received by the Fund in connection with
such termination; (d) the date of termination; (e) the name of the broker or
dealer with or through which the Reverse Repurchase Agreement is to be
terminated; and (f) the amount of cash and/or the amount and kind of Securities
to be withdrawn from the Segregated Security Account. The Custodian shall, upon
receipt of the amount and kind of Securities to be received by the Fund
specified in the Certificate, Oral Instructions or Written Instructions, make
the payment to the broker or dealer, and the withdrawals, if any, from the
Segregated Security Account, specified in such Certificate, Oral Instructions or
Written Instructions.
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ARTICLE X
CONCERNING MARGIN ACCOUNTS, SEGREGATED SECURITY
ACCOUNTS AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits
to, or withdrawals from, a Segregated Security Account as specified in a
Certificate received by the Custodian. Such Certificate shall specify the amount
of cash and/or the amount and kind of Securities to be deposited in, or
withdrawn from, the Segregated Security Account. In the event that CPF fails to
specify in a Certificate the name of the issuer, the title and the number of
shares or the principal amount of any particular Securities to be deposited by
the Custodian into, or withdrawn from, a Segregated Securities Account, the
Custodian shall be under no obligation to make any such deposit or withdrawal
and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a
Margin Account to the broker, dealer, futures commission merchant or Clearing
Member in whose name, or for whose benefit, the account was established as
specified in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin Account shall
be dealt with in accordance with the terms and conditions of the Margin Account
Agreement.
4. The Custodian shall have a continuing lien and security
interest in and to any property at any time held by the Custodian in any
Collateral Account described herein. In accordance with applicable law, the
Custodian may enforce its lien and realize on any such property whenever the
Custodian has made payment or delivery pursuant to any Put Option guarantee
letter or similar document or any receipt issued hereunder by the Custodian. In
the event the Custodian should realize on any such property net proceeds which
are less than the Custodian's obligations under any Put Option guarantee letter
or similar document or any receipt, such deficiency shall be a debt owed the
Custodian by the Fund within the scope of Article XIII herein.
5. On each business day, the Custodian shall furnish the Fund
with a statement with respect to each Margin Account in which money or
Securities are held specifying as of the close of business on the previous
business day: (a) the name of the Margin Account; (b) the amount and kind of
Securities held therein; and (c) the amount of money held therein. The Custodian
shall make available upon request to any broker, dealer or futures commission
merchant specified in the name of a Margin Account a copy of the statement
furnished the Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day
in which cash and/or Securities are maintained in a Collateral Account, the
Custodian shall furnish the Fund with a Statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
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Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, CPF shall furnish to the Custodian a
Certificate or Written Instructions specifying the then market value of the
securities described in such statement. In the event such then market value is
indicated to be less than the Custodian's obligation with respect to any
outstanding Put Option, guarantee letter or similar document, CPF shall promptly
specify in a Certificate the additional cash and/or Securities to be deposited
in such Collateral Account to eliminate such deficiency.
ARTICLE XI
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. CPF shall furnish to the Custodian, on behalf of the Fund,
a copy of the resolution of the Directors, certified by the Secretary or any
Assistant Secretary, either (i) setting forth the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per share to the shareholders of record as of that date and the total amount
payable to the Dividend Agent of the Fund on the payment date, or (ii)
authorizing the declaration of dividends and distributions on a daily basis and
authorizing the Custodian to rely on Oral Instructions, Written Instructions or
a Certificate setting forth the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
share to the shareholders of record as of that date and the total amount payable
to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, as the case may be, the
Custodian shall pay out of the moneys held for the account of the Fund the total
amount payable to the Dividend Agent of the Fund.
ARTICLE XII
SALE AND REDEMPTION OF SHARES OF COMMON STOCK
1. Whenever the Fund shall sell any of its Shares, CPF shall
deliver to the Custodian a Certificate duly specifying:
(a) The number of Shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for
the sale of such Shares.
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2. Upon receipt of such money from the Transfer Agent, the
Custodian shall credit such money to the account of the Fund.
3. Upon issuance of any of the Fund's Shares in accordance
with the foregoing provisions of this Article, the Custodian shall pay, out of
the money held for the account of the Fund, all original issue or other taxes
required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund shall
hereafter redeem any of its Shares, CPF shall furnish to the Custodian a
Certificate specifying:
(a) The number of Shares redeemed; and
(b) The amount to be paid for the Shares redeemed.
5. Upon receipt from the Transfer Agent of an advice setting
forth the number of Shares received by the Transfer Agent for redemption and
that such Shares are valid and in good form for redemption, the Custodian shall
make payment to the Transfer Agent out of the moneys held for the account of the
Fund of the total amount specified in the Certificate issued pursuant to the
foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the
redemption of any of the Fund's Shares, whenever its Shares are redeemed
pursuant to any check redemption privilege which may from time to time be
offered by the Fund, the Custodian, unless otherwise instructed by a
Certificate; shall, upon receipt of an advice from the Fund or its agent setting
forth that the redemption is in good form for redemption in accordance with the
check redemption procedure, honor the check presented as part of such check
redemption privilege out of the money held in the account of the Fund for such
purposes.
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ARTICLE XIII
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance
funds on behalf of the Fund which results in an overdraft because the moneys
held by the Custodian for the account of the Fund shall be insufficient to pay
the total amount payable upon a purchase of Securities as set forth in a
Certificate or Oral Instructions issued pursuant to Article IV, or which results
in an overdraft for some other reason, or if the Fund is for any other reason
indebted to the Custodian (except a borrowing for investment or for temporary or
emergency purposes using Securities as collateral pursuant to a separate
agreement and subject to the provisions of paragraph 2 of this Article XIII),
such overdraft or indebtedness shall be deemed to be a loan made by the
Custodian to the Fund payable on demand and shall bear interest from the date
incurred at a rate per annum (based on a 360-day year for the actual number of
days involved) equal to the Federal Funds Rate plus 1/2%, such rate to be
adjusted on the effective date of any change in such Federal Funds Rate but in
no event to be less than 6% per annum, except that any overdraft resulting from
an error by the Custodian shall bear no interest. Any such overdraft or
indebtedness shall be reduced by an amount equal to the total of all amounts due
the Fund which have not been collected by the Custodian on behalf of the Fund
when due because of the failure of the Custodian to make timely demand or
presentment for payment. In addition, CPF hereby agrees that the Custodian shall
have a continuing lien and security interest in and to any property at any time
held by it for the benefit of the Fund or in which the Fund may have an interest
which is then in the Custodian's possession or control or in possession or
control of any third party acting in the Custodian's behalf. CPF authorizes the
Custodian, in its sole discretion, at any time to charge any such overdraft or
indebtedness together with interest due thereon against any balance of account
standing to the Fund's credit on the Custodian's books. For purposes of this
Section l of Article XIII, "overdraft" shall mean a negative Available Balance.
2. CPF will cause to be delivered to the Custodian, on behalf
of the Fund, by any bank (including, if the borrowing is pursuant to a separate
agreement, the Custodian) from which it borrows money for investment or for
temporary or emergency purposes using Securities as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. CPF shall promptly deliver to the
Custodian a Certificate specifying with respect to each such borrowing: (a) the
name of the bank; (b) the amount and terms of the borrowing, which may be set
forth by incorporating by reference an attached promissory note, duly endorsed
by CPF, or other loan agreement; (c) the time and date, if known, on which the
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loan is to be entered into; (d) the date on which the loan becomes due and
payable; (e) the total amount payable to the Fund on the borrowing date; (f) the
market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities; and (g) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act of
1940 and the Fund's prospectus. The Custodian shall deliver on the borrowing
date specified in a Certificate the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral shall
be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this paragraph. The Fund shall cause all
Securities released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that CPF fails to specify in a
Certificate the name of the issuer, the title and number of shares or the
principal amount of any particular Securities to be delivered as collateral by
the Custodian, the Custodian shall not be under any obligation to deliver any
Securities.
ARTICLE XIV
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. If the Fund is permitted by the terms of the Articles of
Incorporation of CPF and as disclosed in its most recent and currently effective
prospectus to lend its portfolio Securities, within 24 hours after each loan of
portfolio Securities CPF shall deliver or cause to be delivered to the Custodian
a Certificate specifying with respect to each such loan: (a) the name of the
issuer and the title of the Securities; (b) the number of shares or the
principal amount loaned; (c) the date of loan and delivery; (d) the total amount
to be delivered to the Custodian against the loan of the Securities, including
the amount of cash collateral and the premium, if any, separately identified;
and (e) the name of the broker, dealer or financial institution to which the
loan was made. The Custodian shall deliver the Securities thus designated to the
broker, dealer or financial institution to which the loan was made upon receipt
of the total amount designated as to be delivered against the loan of
Securities. The Custodian may accept payment in connection with a delivery
otherwise than through the Book-Entry System or Depository only in the form of a
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certified or bank cashier's check payable to the order of the Fund or the
Custodian drawn on New York Clearing House funds and may deliver Securities in
accordance with the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities
by the Fund, CPF shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the name of the issuer and the title of the Securities to be
returned; (b) the number of shares or the principal amount to be returned; (c)
the date of termination; (d) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate); and (e) the name of the broker, dealer or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor
its nominee shall be liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence or willful misconduct. The Custodian may, with respect
to questions of law arising hereunder or under any Margin Account Agreement,
apply for and obtain the advice and opinion of counsel to the Fund or of its own
counsel, at the expense of the Fund, and shall be fully protected with respect
to anything done or omitted by it in good faith in conformity with such advice
or opinion. The Custodian shall be liable to the Fund for any loss or damage
resulting from the use of the Book-Entry System or any Depository arising by
reason of any negligence, misfeasance or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the
Custodian shall be under no obligation to inquire into, and shall not be liable
for:
(a) The validity of the issue of any Securities purchased,
sold or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
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(b) The legality of the issue or sale of any of the Fund's
Shares, or the sufficiency of the amount to be received therefor;
(c) The legality of the redemption of any of the Fund's
Shares, or the propriety of the amount to be paid therefor;
(d) The legality of the declaration or payment of any dividend
by the Fund;
(e) The legality of any borrowing by the Fund using Securities
as collateral;
(f) The legality of any loan of portfolio Securities pursuant
to Article XIV of this Agreement, nor shall the Custodian be under any duty or
obligation to see to it that any cash collateral delivered to it by a broker,
dealer or financial institution or held by it at any time as a result of such
loan of portfolio Securities of the Fund is adequate collateral for the Fund
against any loss it might sustain as a result of such loan. The Custodian
specifically, but not by way of limitation, shall not be under any duty or
obligation periodically to check or notify the Fund that the amount of such cash
collateral held by it for the Fund is sufficient collateral for the Fund, but
such duty or obligation shall be the sole responsibility of the Fund. In
addition, the Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio Securities of the
Fund are lent pursuant to Article XIV of this Agreement makes payment to it of
any dividends or interest which are payable to or for the account of the Fund
during the period of such loan or at the termination of such loan, provided,
however, that the Custodian shall promptly notify the Fund in the event that
such dividends or interest are not paid and received when due; or
(g) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Segregated Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment; provided however that the Custodian, upon the
Fund's written request, shall, as Custodian, demand from any broker, dealer,
futures commission merchant or Clearing Member identified by the Fund the
payment of any variation margin payment or similar payment that the Fund asserts
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it is entitled to receive pursuant to the terms of a Margin Account Agreement or
otherwise from such broker, dealer, futures commission merchant or Clearing
Member.
3. The Custodian shall not be liable for, or considered to be
the Custodian of, any money, whether or not represented by any check, draft or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be
liable for ascertaining or acting upon any calls, conversions, exchange, offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
CPF, on behalf of the Fund, of an overdue amount on Securities held in the
Depository, the Custodian shall make a claim against the Depository on behalf of
the Fund, except that the Custodian shall not be under any obligation to appear
in, prosecute or defend any action, suit or proceeding in respect to any
Securities held by the Depository which in its opinion may involve it in expense
or liability, unless indemnity satisfactory to it against all expense and
liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount, if the Securities upon which
such amount is payable are in default, or if payment is refused after due demand
or presentation, unless and until (i) it shall be directed to take such action
by a Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any such action.
7. The Custodian may appoint one or more banking institutions
as Depository or Depositories or as Sub-Custodian or Sub-Custodians, including,
but not limited to, banking institutions located in foreign countries, of
Securities and moneys at any time owned by the Fund, upon terms and conditions
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approved in a Certificate, which shall, if requested by the Custodian, be
accompanied by an approving resolution of CPF's Board of Directors adopted in
accordance with Rule 17f-5 under the Investment Company Act of 1940, as amended.
Annually, the Custodian shall provide CPF with a certificate that, to the best
of the Custodian's knowledge, each such banking institution located in a foreign
country qualifies as an "eligible foreign custodian" under Rule 17f-5 and
provides a level of safeguards for maintaining the Fund's assets in a safe and
sound manner which is, subject to local market practice, consistent with the
requirements of Rule 17f-5. Notwithstanding anything to the contrary contained
in this agreement, the Custodian shall hold harmless and indemnify the Fund from
and against all losses, actions, claims, demands, expenses and proceedings,
including counsel fees, that occur as a result of any act or omission of any
foreign Sub-Custodian or Depository with regard to the safekeeping of moneys and
securities of the Fund.
8. The Custodian shall not be under any duty or obligation to
ascertain whether any Securities at any time delivered to or held by it for the
account of the Fund are such as properly may be held by the Fund under the
provisions of its Articles of Incorporation.
9. (a) The Custodian shall be entitled to receive and the Fund
agrees to pay to the Custodian all reasonable out-of-pocket expenses and such
compensation and fees as are specified on Schedule A hereto. The Custodian shall
not deem amounts payable in respect of foreign custodial services to be
out-of-pocket expenses, it being the parties' intention that all fees for such
services shall be as set forth on Schedule B hereto and shall be provided for
the term of this Agreement without any automatic or unilateral increase. The
Custodian shall have the right to unilaterally increase the figures on Schedule
A on or after July 25, 1998 and on or after each succeeding July 25 thereafter
by on amount equal to 50% of the increase in the Consumer Price Index for the
calendar year ending on the December 31 immediately preceding the calendar year
in which such July 25 occurs, provided, however, that during each such annual
period commencing on a July 25, the aggregate increase during such period shall
not be in excess of 10%. Any increase by the Custodian shall be specified in a
written notice delivered to the Fund at least thirty days prior to the effective
date of the increase. The Custodian may charge such compensation and any
expenses incurred by the Custodian in the performance of its duties pursuant to
such agreement against any money held by it for the account of the Fund. The
Custodian shall also be entitled to charge against any money held by it for the
account of the Fund the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to reimbursement under
the provisions of this Agreement. The expenses which the Custodian may charge
against the account of the Fund include, but are not limited to, the expenses of
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Sub-Custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
(b) The Fund shall receive a credit for each calendar month
against such compensation and fees of the Custodian as may be payable by the
Fund with respect to such calendar month in an amount equal to the aggregate of
its Earnings Credit for such calendar month. In no event may any Earnings
Credits be carried forward to any fiscal year other than the fiscal year in
which it was earned, or, unless permitted by applicable law, transferred to, or
utilized by, any other person or entity, provided that any such transferred
Earnings Credit can be used only to offset compensation and fees of the
Custodian for services rendered to such transferee and cannot be used to pay the
Custodian's out-of-pocket expenses. For purposes of this subsection (b), the
Fund is permitted to transfer Earnings Credits only to Comstock Partners, Inc.,
its affiliates and/or any investment company now or in the future sponsored by
Comstock Partners, Inc. or any of its affiliates or for which Comstock Partners,
Inc. or any of its affiliates acts as the sole investment adviser or as the
principal distributor. For purposes of this sub-section (b), a fiscal year shall
mean the twelve-month period commencing on the effective date of this Agreement
and on each anniversary thereof.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by the Custodian and
reasonably believed by the Custodian to be a Certificate. The Custodian shall be
entitled to rely upon any Oral Instructions and any Written Instructions
actually received by the Custodian pursuant to Article IV or XI hereof. CPF
agrees to forward to the Custodian a Certificate or facsimile thereof,
confirming such Oral Instructions or Written Instructions in such manner so that
such Certificate or facsimile thereof is received by the Custodian, whether by
hand delivery, telex or otherwise, by the close of business of the same day that
such Oral Instructions or Written Instructions are given to the Custodian. CPF
agrees that the fact that such confirming instructions are not received by the
Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized on behalf of the Fund. CPF
agrees that the Custodian shall incur no liability to CPF in acting upon Oral
Instructions given to the Custodian hereunder concerning such transactions,
provided such instructions reasonably appear to have been received from an
Authorized Person.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian and reasonably
believed by the Custodian to be given in accordance with the terms and
conditions of any Margin Account Agreement. Without limiting the generality of
the foregoing, the Custodian shall be under no duty to inquire into, and shall
not be liable for, the accuracy of any statements or representations contained
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in any such instrument or other notice including, without limitation, any
specification of any amount to be paid to a broker, dealer, futures commission
merchant or Clearing Member.
12. The books and records pertaining to the Fund which are in
the possession of the Custodian shall be the property of the Fund. Such books
and records shall be prepared and maintained as required by the Investment
Company Act of 1940, as amended, and other applicable securities laws and rules
and regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative at the Fund's expense.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting control of the
Book-Entry System or the Depository, or O.C.C., and with such reports on its own
systems of internal accounting control as the Fund may reasonably request from
time to time.
14. CPF agrees to indemnify the Custodian against and hold the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with the Custodian's payment or non-payment of checks pursuant to
paragraph 6 of Article XII as part of any check redemption privilege program of
the Fund, except for any such liability, claim, loss and demand arising out of
the Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement, the
Custodian may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian in
accordance with the customs prevailing from time to time among brokers or
dealers in such Securities.
16. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
ARTICLE XVI
TERMINATION
1. (a) Except as provided in subparagraphs (b) and (c) herein,
either party may terminate this Agreement only by the terminating party giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than 270 days after the date of giving of such notice.
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(b) CPF may at any time terminate this Agreement if the
Custodian has materially breached its obligations under this Agreement
and such breach has remained uncured for a period of thirty days after the
Custodian's receipt from CPF of written notice specifying such breach.
(c) Either party, immediately upon written notice to the other
party, may terminate this Agreement upon the Merger or Bankruptcy of the other
party.
In the event notice of termination is given by CPF, it shall
be accompanied by a copy of a resolution of the Directors of CPF, certified by
the Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating a successor custodian or custodians, each of which shall be a
bank or trust company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. In the event notice of termination is given by the
Custodian, CPF shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of its Directors, certified by the Secretary or
any Assistant Secretary, designating a successor custodian or custodians. In the
absence of such designation by CPF, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice, this Agreement shall terminate and the Custodian shall, upon
receipt of a notice of acceptance by the successor custodian, on that date
deliver directly to the successor custodian all Securities and moneys then owned
by the Fund and held by it as Custodian, after deducting all fees, expenses and
other amounts for the payment or reimbursement of which it shall then be
entitled.
2. If a successor custodian is not designated by CPF or the
Custodian in accordance with the preceding paragraph, CPF shall, upon the date
specified in the notice of termination of this Agreement and upon the delivery
by the Custodian of all Securities (other than Securities held in the Book-Entry
System which cannot be delivered to the Fund) and moneys then owned by the Fund,
be deemed to be the Fund's custodian, and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book-Entry System, in any
Depository or by a Clearing Member which cannot be delivered to the Fund, to
hold such Securities hereunder in accordance with this Agreement.
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ARTICLE XVII
MISCELLANEOUS
1. Appendix A attached hereto sets forth the names of the
present Authorized Persons. CPF agrees to furnish to the Custodian a new
Certificate in similar form in the event that any such present Authorized Person
ceases to be an Authorized Person or in the event that other or additional
Authorized Persons are elected or appointed. Until such new Certificate shall be
received, the Custodian shall be fully protected in acting under the provisions
of this Agreement upon Oral Instructions or signatures of the present Authorized
Persons as set forth in the last delivered Certificate.
2. Annexed hereto as Appendix B is a Certificate signed by two
of the present Officers of CPF under its seal, setting forth the names and the
signatures of the present Officers of CPF. CPF agrees to furnish to the
Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of CPF, or in the event that other or additional
Officers are elected or appointed. Until such new Certificate shall be received,
the Custodian shall be fully protected in acting under the provisions of this
Agreement upon the signatures of the Officers as set forth in the last delivered
Certificate.
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at its offices
at 90 Washington Street, New York, New York 10015, or at such other place as the
Custodian may from time to time designate in writing.
4. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund, shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its office at 10
Exchange Place, #2010, Jersey City, New Jersey 07302-3913, or at such other
place as the Fund may from time to time designate in writing.
5. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the same formality
as this Agreement and approved by a resolution of the Directors of CPF.
6. 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 CPF without the written
consent of the Custodian, or by the Custodian without the written consent of
CPF, authorized or approved by a resolution of its Directors.
7. This Agreement shall be construed in accordance with the
laws of the State of New York.
35
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8. 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.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers, thereunto duly
authorized, and their respective corporate seals to be hereunto affixed, as of
the day and year first above written.
COMSTOCK PARTNERS FUNDS, INC.,
on behalf of Comstock Partners
Capital Value Fund
By:_____________________________
Attest:
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THE BANK OF NEW YORK
By:______________________________
Attest:
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36
EXHIBIT (g)(3)
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
COMSTOCK PARTNERS STRATEGY FUND, INC.
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TABLE OF CONTENTS
1.Employment of Custodian 1
2. Powers and Duties of the Custodian with respect to
Property of the Fund held by the Custodian 1
A. Safekeeping 2
B. Manner of Holding Securities 2
C. Registered Name; Nominee 2
D. Purchases 2
E. Exchanges 3
F. Sales of Securities 4
G. Depositary Receipts 5
H. Exercise of Rights; Tender Offers 5
I. Stock Dividends, Rights, Etc. 6
J. Options 6
K. Borrowings 7
L. Demand Deposit Bank Accounts 7
M. Interest Bearing Call or Time Deposits 8
N. Foreign Exchange Transactions
and Futures Contracts 9
O. Stock Loans 10
P. Collections 10
Q. Dividends, Distributions and Redemptions 11
R. Proxies, Notices, Etc. 12
S. Nondiscretionary Details 12
T. Bills 13
U. Deposit of Fund Assets in Securities Systems 13
V. Other Transfers 15
W. Investment Limitations 16
X. Proper Instructions 16
Y. Segregated Account 18
3. Powers and Duties of the Custodian with
Respect to the Appointment of Subcustodians 19
4. Assistance by the Custodian as to Certain Matters 26
5. Powers and Duties of the Custodian with
Respect to its Role as Financial Agent 26
A. Records 26
B. Accounts 27
C. Access to Records 27
D. Disbursements 27
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6. Reporting Responsibilities 27
7. Standard of Care and Related Matters 28
A. Liability of the Custodian with Respect to Proper
Instructions; Evidence of Authority; Etc. 28
B. Liability of the Custodian with
Respect to Use of Securities System 29
C. Liability of the Custodian with respect to
Subcustodians 30
D. Standard of Care; Liability;
Indemnification 31
E. Reimbursement of Advances 33
F. Security for Obligations to Custodian 33
G. Appointment of Agents 34
H. Powers of Attorney 34
8. Compensation of the Custodian 34
9. Termination; Successor Custodian 35
10. Amendment 35
11. Governing Law 36
12. Notices 36
13. Binding Effect 37
14. Amendment and Restatement of Existing Custodian Agreement 37
15. Counterparts 37
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AMENDED AND RESTATED CUSTODIAN AGREEMENT
AGREEMENT made this ______ day of ________, 1991, between COMSTOCK
PARTNERS STRATEGY FUND, INC., a Maryland corporation (the "Fund") and Brown
Brothers Harriman & Co. a New York limited partnership (the "Custodian");
WITNESSETH: That in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment of Custodian: The Fund hereby employs and appoints the
Custodian as a custodian for the term and subject to the provisions of this
Agreement. The Custodian shall not be under any duty or obligation to require
the Fund to deliver to it any securities or funds owned by the Fund and shall
have no responsibility or liability for or on account of securities or funds not
so delivered. The Fund will deposit with the Custodian copies of the Declaration
of Trust or Certificate of Incorporation and By-Laws (or comparable documents)
of the Fund and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to the Custodian
in the performance of its duties.
2. Powers and Duties of the Custodian with respect to Property of the
Fund held by the Custodian: Except for securities and funds held by any
Subcustodians appointed pursuant to the provisions of Section 3 hereof, the
Custodian shall have and perform the following powers and duties:
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A. Safekeeping - To keep safely the securities and other assets of the
Fund that have been delivered to the Custodian and, on behalf of the Fund, from
time to time to receive delivery of securities for safekeeping.
B. Manner of Holding Securities - To hold securities of the Fund (1) by
physical possession of the share certificates or other instruments representing
such securities in registered or bearer form, or (2) in book-entry form by a
Securities System (as said term is defined in Section 2U) or a foreign
securities depository utilized directly by the Custodian as permitted by Section
3. The Custodian shall segregate, keep and maintain the assets of the Fund
separate and apart from the assets of the Custodian. The Custodian shall
maintain complete and accurate records identifying all securities held by it on
behalf of the Fund.
C. Registered Name; Nominee - To hold registered securities of the Fund
(1) in the name or any nominee name of the Custodian or the Fund, or in the name
or any nominee name of any Agent appointed pursuant to Section 7G, or (2) in
street certificate form, so-called, and in any case with or without any
indication of fiduciary capacity, provided that securities are held in an
account of the Custodian containing only assets of the Fund or only assets held
as fiduciary or custodian for customers.
D. Purchases - Upon receipt of proper instructions, as defined in
Section 2X, insofar as funds are available for the
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purpose, to pay for and receive securities purchased for the account of the
Fund, payment being made only upon receipt of the securities; provided, however,
that the Custodian may make payment, which may be prior to receipt of
securities, and may accept delivery of securities, including the form of
securities received, in accordance with governmental regulations, or the rules
of Securities Systems or other U.S. or, subject to compliance by BBH to the
provisions of the last sentence of the fifth paragraph of Section 3, foreign
securities depositories and clearing agencies, or generally accepted trade
practice in the applicable U.S. or, subject to compliance by BBH to the last
sentence of the fifth paragraph of Section 3, foreign market, or the terms of
the instrument representing the security. Receipt of securities on behalf of the
Fund shall be by the Custodian or a Subcustodian or by credit to an account
which one of them may have with a bank, Securities System, other U.S. or,
subject to compliance by BBH to the provisions of the last sentence of the fifth
paragraph of Section 3, foreign securities depositary or clearing agency, or
other financial institution approved by the Fund.
E. Exchanges - Upon receipt of proper instructions, to exchange
securities held by it for the account of the Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event relating to the securities or the
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issuer of such securities and to deposit any such securities in accordance with
the terms of any reorganization or protective plan. Without proper instructions,
the Custodian may surrender securities in temporary form for definitive
securities, may surrender securities for transfer into a name or nominee name as
permitted in Section 2C, and may surrender securities for a different number of
certificates or instruments representing the same number of shares or same
principal amount of indebtedness, provided the securities to be issued are to be
delivered to the Custodian.
F. Sales of Securities - Upon receipt of proper instructions, to make
delivery of securities which have been sold for the account of the Fund but only
against payment therefor; provided, however, that the Custodian may make
delivery, which may be prior to receipt of payment, and may accept payment,
including the form of payment received, in accordance with governmental
regulations, or the rules of Securities Systems or other U.S. or, subject to
compliance by BBH to the provisions of the last sentence of the fifth paragraph
of Section 3, foreign securities depositories and clearing agencies, or
generally accepted trade practice in the applicable U.S. or, subject to
compliance by BBH to the provisions of the last sentence of the fifth paragraph
of Section 3, foreign market, or the terms of the instrument representing the
security. Receipt of payment on behalf of the Fund shall be by the Custodian or
a Subcustodian or
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by credit to an account which one of them may have with a bank, Securities
System, other U.S. or foreign securities depositary or clearing agency, or other
financial institution approved by the Fund.
G. Depositary Receipts - Upon receipt of proper instructions, to
instruct a Subcustodian or an Agent to surrender securities to the depositary
used by an issuer of American Depositary Receipts or International Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the Subcustodian or Agent that the depositary
has acknowledged receipt of instructions to issue with respect to such
securities ADRs in the name of the Custodian, or a nominee of the Custodian, for
delivery to the Custodian in Boston, Massachusetts, or at such other place as
the Custodian may from time to time designate.
Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or an Agent.
H. Exercise of Rights; Tender Offers - Upon timely receipt of proper
instructions, to deliver to the issuer or trustee
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thereof, or to the agent of either, warrants, puts, calls, rights or similar
securities for the purpose of being exercised or sold, provided that the new
securities and cash, if any, acquired by such action are to be delivered to the
Custodian, and, upon receipt of proper instructions, to deposit securities upon
invitations for tenders of securities, provided that the consideration is to be
paid or delivered or the tendered securities are to be returned to the
Custodian.
I. Stock Dividends, Rights, Etc. - To receive and collect all stock
dividends, rights and other items of like nature; and to deal with the same
pursuant to proper instructions relative thereto.
J. Options - Upon receipt of proper instructions, to receive and retain
confirmations or other documents evidencing the purchase of writing of an option
on a security or securities index by the Fund, to deposit and maintain in a
segregated account, either physically or by book-entry in a Securities System or
foreign securities depository utilized directly by the Custodian, securities
subject to a covered call option written by the Fund; and to release and/or
transfer such securities or other assets only in accordance with the provisions
of any agreement among the Fund, the Custodian and a broker-dealer relating to
such securities or other assets a notice or other communication evidencing the
expiration, termination or exercise of such covered option furnished by The
Options Clearing Corporation, the
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securities or options exchange on which such covered option is traded or such
other organization as may be responsible for handling such options
transactions.
K. Borrowings - Upon receipt of proper instructions, to deliver
securities of the Fund to lenders or their agents as collateral for borrowings
effected by the Fund, provided that such borrowed money is payable to or upon
the Custodian's order as Custodian for the Fund.
L. Demand Deposit Bank Accounts - To open and operate a separate
account or accounts in the name of the Fund on the Custodian's books subject
only to draft or order by the Custodian. All funds received by the Custodian
from or for the account of the Fund shall be deposited in said account(s). The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U. S. bank for a similar deposit.
If and when authorized by proper instructions, the Custodian may open
and operate an additional account(s) in such other banks or trust companies as
may be designated by the Fund in such instructions (any such bank or trust
company so designated by the Fund being referred to hereafter as a "Banking
Institution"), provided that such account(s) (hereinafter collectively referred
to as "demand deposit bank accounts") shall be in the name of the Custodian for
account of the Fund and subject only to the Custodian's draft or order. Such
demand deposit accounts may be
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opened with Banking Institutions in the United States and in other countries and
may be denominated in either U. S. Dollars or other currencies as the Fund may
determine. All such deposits shall be deemed to be portfolio securities of the
Fund and accordingly the responsibility of the Custodian therefore shall be the
same as and no greater than the Custodian's responsibility in respect of other
portfolio securities of the Fund.
M. Interest Bearing Call or Time Deposits - To place interest bearing
fixed term and call deposits with such banks and in such amounts as the Fund may
authorize pursuant to proper instructions. Such deposits may be placed, as the
Fund may determine, with the Custodian or with Subcustodians or other Banking
Institutions. Deposits may be denominated in U. S. Dollars or other currencies
and need not be evidenced by the issuance or delivery of a certificate to the
Custodian, provided that the Custodian shall include in its records with respect
to the assets of the Fund appropriate notation as to the amount and currency of
each such deposit, the accepting Banking Institution and other appropriate
details, and shall retain such forms of advice or receipt evidencing the
deposit, if any, as may be forwarded to the Custodian by the Banking
Institution. Such deposits, other than those placed with the Custodian, shall be
deemed portfolio securities of the Fund and the responsibilities of the
Custodian therefor shall be the same as those for other portfolio securities of
the Fund. The responsibility of the
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Custodian for such deposits accepted on the Custodian's books shall be that of
a U. S. bank for a similar deposit.
N. Foreign Exchange Transactions and Futures Contracts - Pursuant to
proper instructions, to enter into foreign exchange contracts or options to
purchase and sell foreign currencies for spot and future delivery on behalf and
for the account of the Fund. Such transactions may be undertaken by the
Custodian with such Banking Institutions, including the Custodian and
Subcustodian(s) as principals, as approved and authorized by the Fund. Foreign
exchange contracts and options other than those executed with the Custodian,
shall be deemed to be portfolio securities of the Fund and the responsibilities
of the Custodian therefor shall be the same as those for other portfolio
securities of the Fund. Upon receipt of proper instructions to receive and
retain confirmations evidencing the purchase or sale of a futures contract or an
option on a futures contract by the Fund; to deposit and maintain in a
segregated account, for the benefit of any futures commission merchant or to pay
to such futures commission merchant, assets designated by the fund as initial,
maintenance or variation "margin" deposits intended to secure the Fund's
performance of its obligations under any futures contracts purchased or sold or
any options on futures contracts written by the Fund, in accordance with the
provisions of any agreement or agreements among any of the Fund, the Custodian
and such futures commission merchant, designated to
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comply with the rules of the Commodity Futures Trading Commission and/or any
contract market, or any similar organization or organizations, regarding such
margin deposits; and to release and/or transfer assets in such margin accounts
only in accordance with any such agreements or rules.
O. Stock Loans - Upon receipt of proper instructions, to deliver
securities of the Fund, in connection with loans of securities by the Fund, to
the borrower thereof prior to receipt of the collateral, if any, for such
borrowing, provided that for stock loans secured by cash collateral the
Custodian's instructions to the Securities System or foreign securities
depository utilized directly by the Custodian require that such Securities
System or foreign securities depository may deliver the securities to the
borrower thereof only upon receipt of the collateral for such borrowing.
P. Collections - (i) To collect and receive all income, payments of
principal and other payments with respect to the securities held hereunder, and
in connection therewith to deliver the certificates or other instruments
representing the securities to the issuer thereof or its agent when securities
are called, redeemed, retired, mature or otherwise become payable; provided that
the payment is to be made in such form and at such time, as is in accordance
with the terms of the agreement relating to the security, or such proper
instructions as the Custodian may receive, or governmental regulations, the
rules of Securities
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Systems or other U.S. or, subject to compliance by BBH to the provisions of the
last sentence of the fifth paragraph of Section 3, foreign securities
depositories and clearing agencies, or generally accepted trade practice in the
applicable U.S. or, subject to compliance by BBH to the provisions of the last
sentence of the fifth paragraph of Section 3, foreign market; (ii) to execute
ownership and other certificates and affidavits for all federal and state or
foreign tax purposes in connection with receipt of income, principal or other
payments with respect to securities of the Fund or in connection with transfer
of securities; and (iii) pursuant to proper instructions to take such other
actions with respect to the collection or receipt of funds or transfer of
securities which involve an investment decision.
Q. Dividends, Distributions and Redemptions - Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from the Fund's
shareholder servicing agent or agent with comparable duties (the "Shareholder
Servicing Agent") (given by such person or persons and in such manner on behalf
of the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities to the Shareholder Servicing Agent
or otherwise apply funds or securities, insofar as available, for the payment of
dividends or other distributions to Fund shareholders. Upon receipt of proper
instructions from the Fund, or upon receipt of instructions from
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the Shareholder Servicing Agent (given by such person or persons and in such
manner on behalf of the Shareholder Servicing Agent as the Fund shall have
authorized), the Custodian shall release funds or securities, insofar as
available, to the Shareholder Servicing Agent or as such Agent shall otherwise
instruct for payment to Fund shareholders who have delivered to such Agent a
request for repurchase or redemption of their shares of capital stock of the
Fund.
R. Proxies, Notices, Etc. - Promptly to deliver or mail to the Fund all
forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, and upon receipt of proper instructions, to execute
and deliver or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its nominee shall
vote upon any of such securities or execute any proxy to vote thereon or give
any consent or take any other action with respect thereto (except as otherwise
herein provided) unless ordered to do so by proper instructions.
S. Nondiscretionary Details - Without the necessity of express
authorization from the Fund, (1) to attend to all nondiscretionary details in
connection with the sale, exchange, substitution, purchase, transfer or other
dealings with securities, funds or other property of the Portfolio held by the
Custodian except as otherwise directed from time to time by the
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Directors or Trustees of the Fund, and (2) to make payments to itself or others
for minor expenses of handling securities or other similar items relating to the
Custodian's duties under this Agreement, provided that all such payments shall
be accounted for to the Fund.
T. Bills - Upon receipt of proper instructions, to pay or cause to be
paid, insofar as funds are available for the purpose, bills, statements, or
other obligations of the Fund.
U. Deposit of Fund Assets in Securities Systems - The Custodian may
deposit and/or maintain securities owned by the Fund in (i) The Depository Trust
Company, (ii) any book-entry system as provided in Subpart O of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, or the book-entry
regulations of federal agencies substantially in the form of Subpart O, or (iii)
any other domestic clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 which acts
as a securities depository and whose use the Fund has previously approved in
writing (each of the foregoing being referred to in this Agreement as a
"Securities System"). Utilization of a Securities System shall be in accordance
with applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents (as
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said term is defined in Section 7G) appointed by the Custodian (provided that
any such agent shall be qualified to act as a custodian of the Fund pursuant to
the Investment Company Act of 1940 and the rules and regulations thereunder), in
a Securities System provided that such securities are represented in an account
("Account") of the Custodian or such Agent in the Securities System which shall
not include any assets of the Custodian or Agent other than assets held as a
fiduciary, custodian, or otherwise for customers;
2) The records of the Custodian with respect to securities of the Fund
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer securities sold for the
account of the Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the Securities
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by
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the Custodian or an Agent as referred to above, and be provided to the Fund at
its request. The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of the Fund on the
next business day;
4) The Custodian shall provide the Fund with any report obtained by the
Custodian or any Agent as referred to above on the Securities System's
accounting system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System; and the Custodian and such Agents
shall send to the Fund such reports on their own systems of internal accounting
control as the Fund may reasonably request from time to time.
5) At the written request of the Fund, the Custodian will terminate the
use of any such Securities System on behalf of the Fund as promptly as
practicable.
V. Other Transfers - Upon receipt of proper instructions, to deliver
securities, funds and other property of the Fund to a Subcustodian or another
custodian of the Fund; and, upon receipt of proper instructions, to make such
other disposition of securities, funds or other property of the Fund in a manner
other than or for purposes other than as enumerated elsewhere in this Agreement,
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provided that the instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
securities to be delivered and the name of the person or persons to whom
delivery is to be made.
W. Investment Limitations - In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, the Custodian may assume unless and until
notified in writing to the contrary that proper instructions received by it are
not in conflict with or in any way contrary to any provisions of the Fund's
Declaration of Trust or Certificate of Incorporation or By-Laws (or comparable
documents) or votes or proceedings of the shareholders or Directors of the Fund.
The Custodian shall in no event be liable to the Fund and shall be indemnified
by the Fund for any violation which occurs as a result of carrying out
instructions given by the Fund of any investment limitations to which the Fund
is subject or other limitations with respect to the Fund's powers to make
expenditures, encumber securities, borrow or take similar actions affecting the
Fund.
X. Proper Instructions - Proper instructions shall mean a tested telex
from the Fund, or a telecopy from the Fund by which the receiver is able to
verify by codes or otherwise with a reasonable degree of certainty that the Fund
is the sender of the telecopy, or a written request, direction, instruction or
certification signed or initialled on behalf of the Fund by one
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or more person or persons as the Board of Directors or Trustees of the Fund
shall have from time to time authorized, provided, however, that no such
instructions directing the delivery of securities or the payment of funds to an
authorized signatory of the Fund shall be signed by such person. Those persons
authorized to give proper instructions may be identified by the Board of
Directors or Trustees by name, title or position and will include at least one
officer empowered by the Board to name other individuals who are authorized to
give proper instructions on behalf of the Fund. Telephonic or other oral
instructions given by any one of the above persons will be considered proper
instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. Oral instructions will be confirmed by tested telex or in writing in
the manner set forth above but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral
instructions. The Fund authorizes the Custodian to tape record any and all
telephonic or other oral instructions given to the Custodian by or on behalf of
the Fund (including any of its officers, Directors, Trustees, employees or
agents) and will deliver to the Custodian a similar authorization from any
investment manager or adviser or person or entity with similar reponsibilities
which is authorized to give proper instructions on behalf of the Fund to the
Custodian. Proper instructions may
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relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
Proper instructions may include communications effected directly
between electro-mechanical or electronic devices or systems, in addition to
tested telex, provided that the Fund and the Custodian agree to the use of such
device or system.
Y. Segregated Account - The Custodian shall upon receipt of proper
instructions establish and maintain on its books a segregated account or
accounts for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities of the Fund, including securities maintained
by the Custodian pursuant to Section 2U hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. (or any futures commission
merchant registered under the Commodity Exchange Act) relating to compliance
with the rules of the Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or securities in connection with
options purchased, sold or written by the Fund or commodity futures contracts or
options thereon purchased or sold by the
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Fund, (iii) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies, and (iv)
as mutually agreed from time to time between the Fund and the Custodian.
3. Powers and Duties of the Custodian with Respect to the Appointment
of Subcustodians: Securities, funds and other property of the Fund may be held
by subcustodians and secondary subcustodians appointed pursuant to the
provisions of this Section 3. The Custodian may, at any time and from time to
time, appoint any bank or trust company (meeting the requirements of a custodian
or an "eligible foreign custodian" under the Investment Company Act of 1940 as
amended (The "1940 Act") and the rules and regulations thereunder) to act as a
subcustodian for the Fund, and any such Subcustodian may, at any time and from
time to time, appoint any bank or trust company (meeting the requirements of a
custodian or an "eligible foreign custodian" under the 1940 Act and the rules
and regulations thereunder) to act as a secondary subcustodian for the Fund (any
such subcustodian or secondary subcustodian being herein referred to as a
"Subcustodian"); and the Custodian may also utilize directly and any
Subcustodian may utilize such securities depositories located outside the United
States (as shall be approved in writing by Fund) and as meet the requirements of
an "eligible foreign custodian" as aforesaid;
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provided that the Fund shall have approved in writing (1) any such bank or trust
company (including any secondary Subcustodian) and the subcustodian agreement to
be entered into between such bank or trust company and the Custodian or, in the
case of a secondary Subcustodian, the subcustodian agreement to be entered into
between the Subcustodian and the secondary Subcustodian, and (2) if the
Subcustodian is a bank organized under the laws of a country other than the
United States, the country or countries in which the Subcustodian is authorized
to hold securities, cash and other property of the Fund, and (3) the securities
depositories, if any, through which the Subcustodian or the Custodian is
authorized to hold securities, cash and other property of the Fund. Upon such
approval by the Fund, the Custodian is authorized on behalf of the Fund to
notify each Subcustodian of its appointment as such.
Those Subcustodians, and the countries where and the securities
depositories through which they or the Custodian may hold securities, cash and
other property of the Fund which the Fund has approved to date are set forth on
Appendix A hereto. Such Appendix shall be amended from time to time as
Subcustodians, and/or countries and/or securities depositories are changed,
added or deleted. The Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held in a
country not listed on Appendix A, in order that there shall be sufficient time
for the
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Fund to give the approval required by the preceding paragraph and for the
Custodian to put the appropriate arrangements in place with such Subcustodian,
including negotiation of a subcustodian agreement and submission of such
subcustodian agreement to the Fund for approval.
If the Fund shall have invested in a security to be held in a country
before the foregoing procedures have been completed, such security shall be held
by such agent as the Custodian may appoint. In any event, the Custodian shall be
liable to the Fund for the actions of such agent if and only to the extent the
Custodian shall have recovered from such agent for any damages caused the Fund
by such agent. At the request of the Fund, Custodian agrees to remove any
securities held on behalf of the Fund by such agent, if practical, to an
approved Subcustodian. Under such circumstances Custodian will collect income
and respond to corporate actions on a best efforts basis.
The Fund hereby directs the Custodian and each approved Subcustodian,
until instructed to the contrary by proper instructions, to deposit in non-U.S.
securities depositories that have been approved by the Fund all securities of
the Fund that are eligible for deposit therein and to utilize such securities
depositories to the extent possible in connection with settlements of purchases
and sales of securities and other deliveries and returns of securities. Where
securities are deposited by the Custodian or an approved Subcustodian in a
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securities depository, the Custodian or Subcustodian, as the case may be, shall
identify as belonging to such Custodian or Subcustodian as agent for the Fund a
quantity of securities in a fungible bulk of securities shown in such
Custodian's or Subcustodian's account on the books of such securities
depository. Securities and moneys deposited in a securities depository will be
represented in accounts which include only assets held by the Custodian or
Subcustodians for customers, including but not limited to, accounts in which the
Custodian or Subcustodians act in a fiduciary or agency capacity. The Custodian
and each Subcustodian shall hold securities of the Fund which are not held in a
securities depository physically segregated at all times from those of the
Custodian or such Subcustodian.
With respect to securities and funds held by the Custodian or a
Subcustodian, either directly, or indirectly by a securities depository or
clearing agency approved by the Fund, notwithstanding any provision of this
Agreement to the contrary, the Custodian or such Subcustodian may act in
accordance with the prevailing customs and practices and the governmental
regulations of, or the rules of securities depositories and clearing agencies
located in, jurisdictions where custodial or subcustodial services are provided
hereunder in connection with securities and custody transactions, including, but
not limited to, settlements of securities transactions (such as with respect to
the form in
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which securities or payment may be received and whether payment for securities
purchased and delivery of securities sold may be made prior to receipt of the
securities or payment, respectively). The Custodian agrees periodically to
advise the Fund of the nature of such customs, practices, regulations and rules
and periodically to update such information, including by means of the
Custodian's Country Practices Settlement Manual or other communication sent to
clients from time to time and to notify the Fund as promptly as practicable of
any change in such customs, practices, rules or regulations, provided, that if
prior notice is not practicable, the Custodian and any Subcustodian may act in
accordance with such customs, practices, rules and regulations prior to advising
the Fund of such change.
In the event that any Subcustodian appointed pursuant to the provisions
of this Section 3 fails to perform any of its obligations under the terms and
conditions of the applicable subcustodian agreement, the Custodian shall use its
best efforts to cause such Subcustodian to perform such obligations and shall
notify the Fund as promptly as practicable of any failure of a Subcustodian to
perform its obligations in any material respect. In the event that the Custodian
is unable promptly to cause such Subcustodian to perform fully its obligations
thereunder, the Custodian shall forthwith upon the Fund's request terminate such
Subcustodian in accordance with the termination provisions under the applicable
subcustodian agreement and, if necessary or
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desirable, appoint another subcustodian in accordance with the provisions of
this Section 3. At the election of the Fund, it shall have the right to enforce,
to the extent permitted by the subcustodian agreement and applicable law, the
Custodian's rights against any such Subcustodian for loss or damage caused the
Fund by such Subcustodian.
At the written request of the Fund, the Custodian will terminate any
subcustodian appointed pursuant to the provisions of this Section 3 in
accordance with the termination provisions under the applicable subcustodian
agreement. The Custodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder except upon the prior written approval
of the Fund.
The Custodian may (a) in its discretion, remove any Subcustodian not
holding assets of the Fund, directly or indirectly, and (b) remove any
Subcustodian holding assets of the Fund if the Custodian determines in good
faith that prompt removal of such Subcustodian is required to protect the assets
of the Fund, provided that in either case the Custodian will so notify the Fund
as promptly as practicable following the Custodian's decision to so terminate a
Subcustodian. The Custodian may otherwise, in its discretion, remove any
Subcustodian if the Custodian advises the Fund of its desire to remove such
Subcustodian and, upon the Fund's request, the Custodian appoints a successor
subcustodian approved by the Fund,
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such removal not to take effect, if the Fund has requested a successor, until
the appointment and approval of such successor.
In the event the Custodian receives a claim from a Subcustodian under
the indemnification provisions of any subcustodian agreement, the Custodian
shall promptly give written notice to the Fund of such claim. No more than
thirty days after written notice to the Fund of the Custodian's intention to
make such payment to a Subcustodian in respect of a valid claim for
indemnification arising out of such Subcustodian's acting as a custodian of the
Fund's assets pursuant to a Subcustodian agreement approved by the Fund, the
Fund will reimburse the Custodian the amount of such payment except in respect
of any negligence or misconduct of the Custodian.
The Custodian represents and warrants that each Subcustodian is as of
the date hereof either a bank as defined in Section 2(a)(5) of the 1940 Act or
an "Eligible Foreign Sub-Custodian" as defined in Rule 17f-5 under the 1940 Act
or as granted by an exemption pursuant to Section 6(c) under the 1940 Act.
The Custodian agrees to furnish to the Fund such information which the
Custodian shall be able to obtain with reasonably diligent efforts with respect
to each Subcustodian and which the Custodian believes is reasonably required to
enable the Fund and its directors to fulfill their obligations as set forth in
Rule 17f-5 under the 1940 Act or, in the event the Custodian is unable to obtain
such information with reasonably diligent efforts, the Custodian shall promptly
go notify the Fund.
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The Custodian shall monitor the foreign custodial arrangements
involving each Subcustodian to determine compliance with the requirements of
Rule 17f-5 under the 1940 Act and agrees as promptly as practicable to inform
the Fund of any failure of such arrangements to comply with rule 17f-5 under the
1940 Act and any failure of such arrangements to comply with rule 17f-5 under
the 1940 Act and of any material changes of which the Custodian shall become
aware adversely affecting the ability of the Subcustodian to so comply.
4. Assistance by the Custodian as to Certain Matters: The Custodian may
assist generally in the preparation of reports to Fund shareholders and others,
audits of accounts, and other ministerial matters of like nature.
5. Powers and Duties of the Custodian with Respect to its Role as
Financial Agent: The Fund hereby also appoints the Custodian as the Fund's
financial agent. With respect to the appointment as financial agent, the
Custodian shall have and perform the following powers and duties:
A. Records - To create, maintain and retain such records relating to
its activities and obligations under this Agreement as are required under the
Investment Company Act of 1940 and the rules and regulations thereunder
(including Section 31 thereof and Rules 31a-1 and 31a-2 thereunder) and under
applicable Federal and State tax laws. All such records will be the property of
the Fund and in the event of termination of this Agreement shall be delivered to
the successor Custodian.
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B. Accounts - To keep books of account and render statements, including
interim monthly and complete quarterly financial statements, or copies thereof,
from time to time as reasonably requested by proper instructions.
C. Access to Records - The books and records maintained by the
Custodian pursuant to Sections 5A and 5B shall at all times during the
Custodian's regular business hours be open to inspection and audit by officers
of, agents of, attorneys for and auditors employed by the Fund and by employees
and agents of the Securities and Exchange Commission, provided that all such
individuals shall observe all security requirements of the Custodian applicable
to its own employees having access to similar records within the Custodian and
such regulations as may be reasonably imposed by the Custodian.
D. Disbursements - Upon receipt of proper instructions, to pay or cause
to be paid, insofar as funds are available for the purpose, bills, statements
and other obligations of the Fund (including but not limited to interest
charges, taxes, management fees, compensation to Fund officers and employees,
and other operating expenses of the Fund).
6. Reporting Responsibilities - The Custodian shall furnish the Fund or
its designee, on each business day in Boston, Massachusetts and New York, New
York, confirmations and a summary of all transactions and entries for the Fund
from the prior business day involving the Custodian or any Subcustodian or any
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arrangements implemented by the Custodian or any Subcustodian involving a
Securities System, Banking Institution, securities depository or clearing
agency, specifying the Custodian or Subcustodian responsible for such
transactions and entries; and the Custodian shall, at least monthly and from
time to time, deliver to the Fund or its designee a detailed statement of the
securities and monies held for the Fund by the Custodian and each Subcustodian
(whether held directly or indirectly by a Securities System, Banking
Institution, securities depository or clearing agency), specifying the Custodian
or Subcustodian holding such securities or moneys.
7. Standard of Care and Related Matters:
A. Liability of the Custodian with Respect to Proper Instructions;
Evidence of Authority, Etc. The Custodian shall not be liable for any action
taken or omitted in reliance upon proper instructions believed by it to be
genuine or upon any other written notice, request, direction, instruction,
certificate or other instrument believed by it to be genuine and signed by the
proper party or parties.
The Secretary or Assistant Secretary of the Fund shall certify to the
Custodian the names, signatures and scope of authority of all persons authorized
to give proper instructions or any other such notice, request, direction,
instruction, certificate or instrument on behalf of the Fund, the names and
signatures of the officers of the Fund, the name and address of
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the Shareholder Servicing Agent, and any resolutions, votes, instructions or
directions of the Fund's Board of Directors or Trustees or shareholders. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and may be considered in full force and
effect until receipt of a similar certificate to the contrary.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement.
The Custodian shall be entitled, at the expense of the Fund, to receive
and act upon advice of (i) counsel regularly retained by the Custodian in
respect of custodian matters, (ii) counsel for the Fund, subject to the
following sentence, or (iii) such other counsel as the Fund and the Custodian
may agree upon, with respect to all legal matters, and the Custodian shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. The Custodian shall be entitled, at the expense of the Fund, to receive
advice of counsel for the Fund only upon the approval of an officer of the Fund,
which approval shall not be unreasonably withheld.
B. Liability of the Custodian with Respect to Use of Securities System
- - With respect to the portfolio securities, cash and other property of the Fund
held by a Securities System,
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the Custodian shall be liable to the Fund only for any loss or damage to the
Fund resulting from use of the Securities System if caused by any negligence,
misfeasance or misconduct of the Custodian or any of its agents or of any of its
or their employees or from any failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the Securities System. At
the election of the Fund, it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the Securities System or any
other person which the Custodian may have as a consequence of any such loss or
damage to the Fund if and to the extent that the Fund has not been made whole
for any such loss or damage.
C. Liability of the Custodian with Respect to Subcustodians The
Custodian shall indemnify against and hold harmless the Fund from any losses,
actions, claims, demands, expenses and proceedings, including counsel fees,
arising out of or resulting from the acts or omissions of any Subcustodian to
the extent that under the terms set forth in the subcustodian agreement between
the Custodian and the Subcustodian (or in the subcustodian agreement between a
Subcustodian and any secondary Subcustodian), the Subcustodian (or secondary
Subcustodian) has failed to perform in accordance with the standard of conduct
imposed under such subcustodian agreement as determined in accordance with the
law which is adjudicated to govern such agreement and in accordance with any
determination of any court as to the duties
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of said Subcustodian pursuant to said agreement. The Custodian shall also be
liable to the Fund for its own negligence in transmitting any instructions
received by it from the Fund and for its own negligence in connection with the
delivery of any securities or funds held by it to any Subcustodian.
D. Standard of Care; Liability; Indemnification - The Custodian shall
be held only to the exercise of reasonable care and diligence in carrying out
the provisions of this Agreement, provided that the Custodian shall not thereby
be required to take any action which is in contravention of any applicable law.
The Fund agrees to indemnify and hold harmless the Custodian and its nominees
from any losses, actions, claims, demands, expenses and proceedings including
counsel fees, incurred or assessed against it or its nominees in connection with
the performance of this Agreement, except such as may arise from its or its
nominee's breach of the relevant standard of conduct set forth in this
Agreement. Without limiting the foregoing indemnification obligation of the
Fund, the Fund agrees to indemnify the Custodian and any nominee in whose name
portfolio securities or other property of the Fund is registered against any
liability the Custodian or such nominee may incur by reason of taxes assessed to
the Custodian or such nominee or other costs, liability or expense incurred by
the Custodian or such nominee resulting directly or indirectly from the fact
that portfolio securities or other property of the Fund is registered in the
name of the Custodian or such nominee.
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It is understood that the Custodian shall not be liable for any loss
involving any securities, currencies, deposits or other property of the Fund,
whether maintained by it, a Subcustodian, a securities depository, an agent of
the Custodian or a Subcustodian, a Securities System, or a Banking Institution,
or for any loss arising from a foreign currency transaction or contract, where
the loss results from a Sovereign Risk or where the entity maintaining such
securities, currencies, deposits or other property of the Fund, whether the
Custodian, a Subcustodian, a securities depository, an agent of the Custodian or
a Subcustodian, a Securities System or a Banking Institution, has exercised
reasonable care maintaining such property or in connection with the transaction
involving such property. A "Sovereign Risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions exchange controls, taxes, levies
or other charges affecting the Fund's property; or acts of war, terrorism,
insurrection or revolution; or any other act or event beyond the Custodian's
control.
The Custodian shall indemnify against and hold harmless the Fund from
any losses, actions, claims, demands, expenses and proceedings, including
counsel fees, arising out of the
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negligence, misfeasance or misconduct of the Custodian with respect to the
safekeeping of the securities and assets of the Fund and the performance of its
duties under this Agreement.
E. Reimbursement of Advances - The Custodian shall be entitled to
receive reimbursement from the Fund on demand, in the manner provided in Section
8, for its cash disbursements, expenses and charges (including the fees and
expenses of any Subcustodian or any Agent) in connection with this Agreement,
but excluding salaries and usual overhead expenses.
F. Security for Obligations to Custodian - If the Fund shall require
the Custodian to advance cash or securities for any purpose for the benefit of
the Fund, including in connection with foreign exchange contracts or options
(collectively, an "Advance"), or if the Custodian or any nominee thereof shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement (collectively a
"Liability"), except such as may arise from its or such nominee's breach of the
relevant standard of conduct set forth in this Agreement, then in such event any
property at any time held for the account of the Fund by the Custodian or a
Subcustodian shall be security for such Advance or Liability and if the Fund
shall fail to repay or indemnify the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund's property,
including securities, to the extent necessary to obtain reimbursement or
indemnification.
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G. Appointment of Agents - The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank or trust
company as its agent (an "Agent") to carry out such of the provisions of this
Agreement as the Custodian may from time to time direct, the action of any Agent
to be deemed the action of the Custodian for all purposes of this Agreement,
provided, however, that the appointment of such Agent (other than an Agent
appointed pursuant to the third paragraph of Section 3) shall not relieve the
Custodian of any of its responsibilities under this Agreement, and provided
further, that the Custodian shall not appoint any Agent to hold securities
outside of the United States without the Fund's prior consent, except as
otherwise permitted in the third paragraph of Section 3.
H. Powers of Attorney - Upon request, the Fund shall deliver to the
Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.
8. Compensation of the Custodian: The Fund shall pay the Custodian a
custody fee based on such fee schedule as may from time to time be agreed upon
in writing by the Custodian and the Fund. Such fee, together with all amounts
for which the Custodian is to be reimbursed in accordance with Section 7E, shall
be billed to the Fund in such a manner as to permit payment by a direct cash
payment to the Custodian.
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9. Termination; Successor Custodian: This Agreement shall continue in
full force and effect until terminated by either party by an instrument in
writing delivered or mailed, postage prepaid, to the other party, such
termination to take effect not sooner than seventy five (75) days after the date
of such delivery or mailing. In the event of termination the Custodian shall be
entitled to receive prior to delivery of the securities, funds and other
property held by it all accrued fees and unreimbursed expenses the payment of
which is contemplated by Sections 7E and 8, upon receipt by the Fund of a
statement setting forth such fees and expenses.
In the event of the appointment of a successor custodian, it is agreed
that the funds and securities owned by the Fund and held by the Custodian or any
Subcustodian shall be delivered to the successor custodian, and the Custodian
agrees to cooperate with the Fund in execution of documents and performance of
other actions necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement.
10. Amendment: This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof. No
provision of this Agreement may be amended or terminated except by a statement
in writing signed by the party against which enforcement of the amendment or
termination is sought.
In connection with the operation of this Agreement, the
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Custodian and the Fund may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
The section headings in this Agreement are for the convenience of the
parties and in no way alter, amend, limit or restrict the contractual
obligations of the parties set forth in this Agreement.
11. Governing Law: This instrument is executed and delivered in The
Commonwealth of Massachusetts and shall be governed by and construed according
to the laws of said Commonwealth.
12. Notices: Notices and other writings delivered or mailed postage
prepaid to the Fund addressed to the Fund at 45 Broadway, New York, New York
10006, Attention: Chairman of the Board or to such other address as the Fund may
have designated to the Custodian in writing, or to the Custodian at 40 Water
Street, Boston, Massachusetts 02109, Attention: Manager, Securities Department,
or to such other address as the Custodian may have designated to the Fund in
writing, shall be deemed to have been properly delivered or given hereunder to
the respective addressee.
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13. Binding Effect: This Agreement shall be binding on and shall inure
to the benefit of the Fund and the Custodian and their respective successors and
assigns, provided that neither party hereto may assign this Agreement or any of
its rights or obligations hereunder without the prior written consent of the
other party.
14. Amendment and Restatement of Existing Custodian Agreement: This
Agreement amends and restates the existing Custodian Agreement, dated as of
August 21, 1991 between the Fund and the Custodian (the "Existing Custodian
Agreement"), and the Existing Custodian Agreement as restated herein shall
continue hereunder, effective as of the date of the Exisiting Custodian
Agreement.
15. Counterparts: This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
COMSTOCK PARTNERS BROWN BROTHERS HARRIMAN & CO.
STRATEGY FUND, INC.
By per pro
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EXHIBIT (h)
AMENDED
AND RESTATED
ADMINISTRATION AGREEMENT
AGREEMENT made this 31st day of August, 1999 by and between Comstock
Partners Funds, Inc., a series investment company (hereinafter called the
"Company") consisting of two series, the Comstock Partners Strategy Fund (the
"Strategy Fund") and the Comstock Partners Capital Value Fund (the "Capital
Value Fund") (the Strategy Fund and the Capital Value Fund are hereinafter
jointly referred to as the "Funds"), and Princeton Administrators, L.P. a
Delaware limited partnership (hereinafter called the "Administrator");
W I T N E S S E T H
WHEREAS, the Company and the Administrator have amended the
Administration Agreement a number of times, it was desirable to enter into an
Amended and Restated Administration Agreement containing all the terms in one
document; and
WHEREAS, the Company desires to continue to retain the Administrator to
render certain administrative services for the Strategy Fund in the manner and
on the terms and conditions hereafter set forth; and
WHEREAS, the Company desires also to retain the Administrator to render
certain administrative services for the Capital Value Fund in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Administrator desires to be retained to perform services
on said terms and conditions.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the Company and the Administrator agree as
follows:
1. Duties of the Administrator. The Company hereby retains the
Administrator to act as administrator of the Funds, subject to the supervision
and direction of the Board of Directors of the Company, as hereinafter set
forth. The Administrator shall perform or arrange for the performance of the
following administrative services and clerical services: (i) maintain and keep
the books and records of the Funds; (ii) prepare and file reports and other
documents required by U.S. Federal, state, and other applicable laws and
regulations to maintain the Funds' registrations as separate portfolios of an
open-end investment company; (iii) prepare proxy materials and periodic reports
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<PAGE>
to the Funds' shareholders; (iv) provide reports and periodic information
regarding the Funds to Merrill Lynch Service Agent representatives; (v)
calculate, or arrange for the calculation of, the net asset value of the Funds'
shares; (vi) oversee the performance of administrative and professional services
rendered to the Funds by others, including their respective custodians,
registrar, transfer agent, dividend disbursing agent and dividend reinvestment
plan agent, as well as accounting, auditing and other services; (vii) provide
the Funds with the services of persons competent to perform such administrative
and clerical functions as are necessary to provide effective operation of the
Funds; and (viii) provide the Funds with administrative office and data
processing facilities. The Company agrees to cause the transfer agent, the
custodian and Investment Adviser to deliver, on a timely basis, such information
to the Administrator as may be necessary or appropriate for the Administrator's
performance of its duties and responsibilities hereunder, including but not
limited to, records of purchases and redemptions of shares of the Funds, records
of transactions, assistance in valuation of investments in United States dollars
(which may be based on information provided by a pricing service) and
information or materials for the shareholder reports and expenses borne by the
Funds and the Administrator shall be entitled to rely on the accuracy and
completeness of such information in performing its duties hereunder.
2. Expenses of the Administrator. The Administrator will bear all
expenses necessary to perform its obligations under this Agreement, except that
the Company shall pay reasonable travel expenses of persons who perform
administrative, clerical and bookkeeping functions on behalf of the Company. The
Company and the Investment Adviser assume and shall pay or cause to be paid all
other expenses of the Company as set forth in the Investment Advisory
Agreements. The expenses of the legal counsel and accounting experts retained by
the Administrator, subject to approval of an officer of the Fund which shall not
be unreasonably withheld, after consulting with the Company's counsel and
independent auditors, as may be necessary or appropriate for the Administrator's
performance of its duties and responsibilities under this Agreement are deemed
expenses of, and shall be paid by, the Company.
3. Compensation of the Administrator. For the services rendered to the
Funds by the Administrator pursuant to this Agreement, the Company shall pay to
the Administrator on the first business day of each calendar month a separate
fee on behalf of each Fund for the previous month at an annual rate equal to the
greater of (i) $125,000 per annum (for each Fund), or (ii) an annual rate equal
to 0.25% of each of the Fund's average daily net assets up to U.S. $100 million,
0.225% of each of the Fund's average daily net assets on the next U.S. $100
million, 0.20% of each of the Fund's average daily net assets on the next U.S.
$400 million and 0.175% of each of the Fund's average daily net assets in excess
of U.S. $600 million. For the purposes of determining fees payable to the
Administrator, the value of each of the Fund's net assets shall be computed at
the times and in the manner specified in the Funds' registration statement on
Form N-1A, as amended from time to time (the "Registration Statement"). Upon
termination of this Agreement before the end of a month, the fee for such part
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of that month shall be pro-rated according to the proportion that such period
bears to the full monthly period and shall be payable within seven (7) days
after the date of termination of this Agreement.
4. Limitation of Liability of the Administrator; Indemnification.
(a) The Administrator shall exercise its best judgment in rendering its
services pursuant to this Agreement. The Administrator shall not be liable to
the Company or the Investment Adviser for any error of judgment or mistake of
law or for any loss arising out of any act or omission by the Administrator in
the performance of its duties hereunder. In addition, the Administrator shall
not be liable to the company or the Investment Adviser for any loss arising out
of any act or omission by the Dreyfus Corporation in the performance of its
duties as the previous administrator of the Capital Value Fund pursuant to a
Sub-Investment Advisory and Administration Agreement dated July 25, 1996 (the
"Dreyfus Agreement") between the Company, on behalf of the Capital Value Fund,
and The Dreyfus Corporation. Nothing herein contained shall be construed to
protect the Administrator against any liability to the Company, its
shareholders, the Investment Adviser or any sub-investment adviser to which the
Administrator shall otherwise by subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reckless
disregard of its obligations and duties hereunder.
(b) The Administrator may, with respect to questions of law, apply for
and obtain the advice and opinion of counsel to the Company or of its own
counsel upon approval of an officer of the Company, which shall not be
unreasonably withheld, at the expense of the Company, and with respect to the
application of generally accepted accounting principles or Federal tax
accounting principles, apply for and obtain the advice or opinion of accounting
experts at the expense of the Company. The Administrator shall be fully
protected with respect to any action taken or omitted by it in good faith in
conformity with such advice or opinion.
(c) The Company agrees to indemnify and hold harmless the Administrator
from and against all charges, claims, expenses (including legal fees) and
liabilities reasonably incurred by the Administrator in or by reason of any
action, suit, investigation or other proceeding arising out of or based upon (i)
any action actually taken or allegedly taken or omitted by the Administrator in
connection with the performance of its duties hereunder or (ii) any action
actually taken or omitted by the Dreyfus Corporation in connection with the
performance of its duties as previous administrator of the Capital Value Fund
pursuant to the Dreyfus Agreement. Notwithstanding the preceding sentence,
nothing contained herein shall protect or be deemed to protect the Administrator
against or entitle or be deemed to entitle the Administrator to indemnification
by reason of the Administrator's willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties hereunder. Such expenses shall be paid
by the Company in advance of the final disposition of such matter upon invoice
by the Administrator and receipt by the Company of an undertaking from the
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Administrator to repay such amounts if it shall ultimately be established that
the Administrator is not entitled to payment of such expenses hereunder.
(d) As used in this Paragraph 4, the term "Administrator" shall include
any affiliates of the Administrator performing services for the Funds
contemplated hereby and directors, officers, agents and employees of the
Administrator and such affiliates.
5. Activities of the Administrator. The services of the Administrator
under this Agreement are not to be deemed exclusive, and the Administrator and
any person controlled by or under common control with the Administrator shall be
free to render similar services to others.
6. Duration and Termination of this Agreement. This Agreement shall
become effective as of the date first above written, shall supersede any other
written agreement between the parties hereto, and shall remain in force until
terminated as provided herein. This Agreement may be terminated at any time,
without the payment of any penalty, by the Company or the Administrator, on
sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
7. Amendments of this Agreement. This Agreement may be amended by the
parties hereto only if such amendment is specifically approved by the Board of
Directors of the Company and such amendment is set forth in a written instrument
executed by each of the parties hereto.
8. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New York as at the
time in effect and the applicable provisions of the Investment Company Act of
1940, as amended ("1940 Act"). To the extent that the applicable law of the
State of New York, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
9. Counterparts. This Agreement may be executed by the parties hereto
in counterparts and if executed in more than one counterpart the separate
instruments shall constitute one agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
COMSTOCK PARTNERS FUNDS, INC.
By
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PRINCETON ADMINISTRATORS, L.P.
By Princeton Services, Inc., General Partner
By
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EXHIBIT (i)(2)
[Letterhead of Venable, Baetjer and Howard, LLP]
August 26, 1999
We consent to the incorporation by reference as Exhibit (i)(1) to
Post-Effective Amendment No. 15 to the Registration Statement (Form N-1A No.
31-40771) of Comstock Partners Funds, Inc. ("Registrant") of our opinion dated
June 26, 1997 that was filed with Registrant's Rule 24f-2 Notice on June 27,
1997.
/s/ Venable, Baetjer and Howard, LLP
Exhibit j
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 11, 1999
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 25, 1999
