LETTER TO SHAREHOLDERS
Dreyfus Strategic Income completed its fiscal year on October 31, 1994,
having provided shareholders with a distribution rate per share of 6.92%.*
Due to price changes, the total return of the Fund was -7.44% for the period,
based upon net asset value per share.**
We should go back to February 4, 1994 when reviewing the bond market. It
was on that date that the Federal Reserve Board first increased the Federal
Funds rate by 25 basis points. This was the first such increase in the
Federal Funds rate in five years. As of the date of this letter, there have
been five more. The most recent was on November 15 when the Federal Reserve
raised the Federal Funds rate by another 75 basis points and the discount
rate also by 75 basis points. In total, the Federal Reserve increased the
Federal Funds rate by 250 basis points in 1994. As a result of these
tightening moves, the 30-year Treasury bond has gone from a yield of 6.36% on
February 4 to an 8.13% yield on November 18, 1994, an increase of 177 basis
points.
The past year has been a period of high volatility and great uncertainty.
In times such as these, bond returns are sometimes negative. We anticipated a
market rally in August or September based on the fact that we felt the bond
market was oversold. At that time, the bond market was performing very
similarly to 1984 and 1987 when the markets sold off dramatically only to
rebound after a 25-week period. Unfortunately, the 1994 market continued to
trade lower for a much longer period of time. As a result, your Fund was hurt
by its policy earlier this year of owning securities of longer average
maturity. In October and November of this year, we took a more defensive
outlook and shortened the portfolio's average maturity. Over the past year,
due to defense cutbacks, we reduced our participation in the aerospace
industries from 4.7% to 1.3%. Our participation in utilities also declined
from 14.3% to 2.3% because of increased competition in that industry. We
increased our participation in the mortgage sector by approximately 10%.
Portfolio moves such as these enabled us to reduce volatility in the
portfolio by reducing duration and increasing quality.
As for the Fund's foreign holdings, we felt it was important to reduce
them from levels of earlier this year. The reason was that we recognized that
the European economy was about a year behind the U.S. in economic recovery,
which would mean higher interest rates, hence lower bond prices overseas.
With this outlook, we did not want to be heavily represented in foreign debt
instruments. And indeed their prices did decline as the pace of economic
activity quickened in Europe.
For the future, we continue to anticipate some additional volatility in
the U.S. market. As previously mentioned, we are structured defensively,
having a shorter average maturity than the Merrill Lynch Domestic Master
Index. This is an index that funds such as ours look to for comparative
return results. There is still a possibility of one or more Federal Reserve
tightenings. We do believe that the Federal Reserve Boards's stringent
policies will be effective in curbing domestic inflation. Over a period of
time, interest rates and prices of fixed income securities should reflect
realistic values, as determined in the marketplace.
We look forward to serving your future investment needs.
Very truly yours,
(Garitt A. Kono Signature Logo)
Garitt A. Kono
Portfolio Manager
November 29, 1994
New York, N.Y.
* Distribution rate per share is based upon dividends per share paid
from net investment income during the period divided by the maximum
offering price per share at the end of the period, adjusted for capital
gain distributions.
** Total return represents the change during the period in a
hypothetical account with dividends reinvested.
<TABLE>
<CAPTION>
PERFORMANCE
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS STRATEGIC INCOME
AND THE MERRILL LYNCH DOMESTIC MASTER INDEX
[Exhibit A]
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
AVERAGE ANNUAL TOTAL RETURNS
% RETURN
REFLECTING
% RETURN WITHOUT MAXIMUM INITIAL
PERIOD ENDED 10/31/94 SALES CHARGE SALES CHARGE (3.0%)
------------------------- ------------------- ---------------------
<S> <C> <C>
1 Year (7.44)% (10.25)%
5 Years 8.18 7.53
From Inception (10/3/86) 8.98 8.57
</TABLE>
Past performance is not predictive of future results.
The above graph compares a $10,000 investment made in Dreyfus Strategic
Income on October 3, 1986 (Inception Date) to a $10,000 investment made in
the Merrill Lynch Domestic Master Index on that date. For comparative
purposes, the value of the Index on 9/30/86 is used as the beginning value on
10/3/86. All dividends and capital gain distributions are reinvested.
The Fund invests primarily in debt securities of domestic and foreign
issuers. The Fund's performance takes into account the maximum initial sales
charge and all other applicable fees and expenses. Unlike the Fund, the
Merrill Lynch Domestic Master Index is an unmanaged performance benchmark for
portfolios that include U.S. Government, mortgage and BBB or higher-rated
corporate securities with maturities greater than or equal to one year;
corporate and Treasury securities in the Index must have par amounts
outstanding greater than or equal to $25 million; for generic mortgage-backed
securities, $200 million per coupon. The Index does not take into account
charges, fees and other expenses. Further information relating to Fund
performance, including expense reimbursements, if applicable, is contained in
the Condensed Financial Information section of the Prospectus and elsewhere
in this report.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME
STATEMENT OF INVESTMENTS
OCTOBER 31, 1994
PRINCIPAL
BONDS AND NOTES--87.8% AMOUNT VALUE
-------------- --------------
<S> <C> <C> <C>
AEROSPACE--1.3% McDonnell Douglas,
Notes, 9 1/4%, 2002.................. $ 4,000,000 $ 4,099,164
--------------
AIRLINES--1.4% Qantas Airways,
Sr. Notes, 7 1/2%, 2003.............. 5,000,000 (a) 4,496,000
--------------
BANKING--6.5% BankAmerica,
Sub. Notes, 9.70%, 2000.............. 5,000,000 5,333,815
First Chicago,
Sub. Notes, 11 1/4%, 2001............ 3,500,000 3,983,788
Fleet Financial Group,
Sub. Notes, 8 1/8%, 2004............. 6,000,000 5,831,202
NationsBank,
Sub. Notes, 7 3/4%, 2004............. 5,000,000 4,731,250
Republic New York,
Sub. Notes, 7 7/8%, 2001............. 1,000,000 984,317
--------------
20,864,372
--------------
CONSUMER--15.1% Cablevision Systems,
Sr. Sub. Deb., 9 7/8%, 2023.......... 5,500,000 5,005,000
News America Holdings (Gtd. by News):
Sr. Deb., 9 1/4%, 2013............... 5,000,000 4,830,245
Sr. Notes, 9 1/8%, 1999.............. 3,000,000 3,068,388
Paramount Communications,
Sr. Notes, 7 1/2%, 2002.............. 5,000,000 4,513,475
Rite Aid,
Sr. Deb., 6 7/8%, 2013............... 8,000,000 6,488,688
Rogers Cablesystems,
Sr. Secured Second Priority Deb.,
10 1/8%, 2012........................ 5,000,000 4,837,500
Tele-Communications, Sr. Deb.:
7 7/8%, 2013......................... 3,500,000 2,975,781
9 7/8%, 2022......................... 5,500,000 5,584,376
9 1/4%, 2023......................... 5,000,000 4,708,810
Time Warner Entertainment, L.P.,
Sr. Deb., 8 3/8%, 2023............... 8,000,000 6,813,544
--------------
48,825,807
--------------
FINANCE--17.0% Abbey National First Capital B.V., Sub. Notes
(Gtd. by Abbey National plc), 8.20%, 2004 3,000,000 2,949,357
Associates Corp. Of North America:
Medium-Term Sr. Notes, Ser. G, 8 1/4%, 2004 5,000,000 4,915,910
Sr. Notes, 7 7/8%, 2001.............. 5,000,000 4,905,390
Chrysler Financial,
Floating Rate Notes, 5 1/4%, 1996.... 10,000,000 (b) 10,026,200
Commercial Credit,
Deb., 10%, 2009...................... 1,000,000 1,103,673
DREYFUS STRATEGIC INCOME
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
-------------- --------------
FINANCE (CONTINUED) Ford Motor Credit, Notes,
7 1/2%, 2004......................... $ 5,000,000 $ 4,679,725
General Motors Acceptance,
Medium-Term Notes, 7 1/2%, 2000...... 5,000,000 4,819,415
Great Western Financial,
Notes, 6 3/8%, 2000.................. 5,000,000 4,557,620
KfW International Finance,
Notes (Gtd. by KfW International), 7%, 2013 5,000,000 4,308,870
McDonnell Douglas Finance:
Medium-Term Floating Rate Notes,
5 9/16%, 1998.................... 5,000,000 (b) 5,021,850
Medium-Term Notes, 9.90%, 2000....... 2,000,000 2,093,300
United States Leasing International,
Medium-Term Notes, Ser. A, 9.88%, 2001 5,000,000 5,375,000
--------------
54,756,310
--------------
INDUSTRIAL--3.4% Bowater,
Deb., 9 1/2%, 2012................... 5,000,000 5,086,455
Harnischfeger Industries,
Deb., 8.90%, 2022.................... 1,000,000 990,205
International Paper,
Notes, 7 5/8%, 2004.................. 5,000,000 4,756,865
--------------
10,833,525
--------------
INSURANCE--7.8% NAC Re,
Notes, 8%, 1999...................... 2,000,000 1,966,164
NWNL Cos.,
Notes, 6 5/8%, 2003.................. 5,000,000 4,372,895
New York Life Insurance,
Surplus Notes, 7 1/2%, 2023.......... 5,000,000 (a) 4,131,000
SunAmerica,
Notes, 9%, 1999...................... 5,000,000 5,159,075
USF&G,
Sr. Notes, 8 3/8%, 2001.............. 7,000,000 6,767,677
Western National,
Sr. Notes, 7 1/8%, 2004.............. 3,000,000 2,601,849
--------------
24,998,660
--------------
OIL AND GAS--3.9% Maxus Energy:
Notes, 9 1/2%, 2003.................. 2,000,000 1,830,000
Sinking Fund Deb., 11 1/4%, 2013..... 254,000 254,000
Occidental Petroleum:
Floating Rate Sr. Notes, 6 5/16%, 1999 6,000,000 (b) 6,000,000
Sr. Deb., 11 3/4%, 2011.............. 1,000,000 1,087,145
Texas Gas Transmission,
Notes, 9 5/8%, 1997.................. 1,000,000 1,032,500
Transcontinental Gas Pipe Line,
Sinking Fund Deb., 9 1/8%, 2017...... 1,000,000 914,098
DREYFUS STRATEGIC INCOME
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
-------------- --------------
OIL AND GAS (CONTINUED) Triton Energy,
Sr. Sub. Notes, Zero Coupon, 1997.... $ 2,000,000 $ 1,482,500
--------------
12,600,243
--------------
TELEPHONE--.6% GTE North,
First Mortgage, 8 1/2%, 2031......... 1,000,000 954,194
MCI Communications,
Sr. Deb., 8 1/4%, 2023............... 1,000,000 938,962
--------------
1,893,156
--------------
UTILITIES--2.3% Dayton Power and Light,
First Mortgage, 7 7/8%, 2024......... 3,000,000 2,704,824
GG1B Funding (System Energy Resources),
Secured Lease Obligation Bonds, 8.20%, 2014 5,000,000 4,286,035
Long Island Lighting,
Deb., 11 3/4%, 1994.................. 500,000 500,526
--------------
7,491,385
--------------
FOREIGN--14.8% Banco Nacional de Comercio Exterior, S.N.C.,
Notes, 7 1/4%, 2004.................. 7,000,000 5,752,607
Banco Rio de la Plata S.A., Cl. lll Negotiable
Obligations, 8 1/2%, 1998............ 3,000,000 (a) 2,763,750
German Government Unity Bonds,
8%, 2002............................. 1,994,681 (c) 2,031,183
Iberdrola International B.V.,
Notes (Gtd. by Iberdrola, S.A.), 7 1/8%, 2003 8,500,000 (a) 7,832,750
Province of British Columbia,
Deb., Ser. BCCG-1, 7 3/4%, 2003...... 1,478,197 (d) 1,350,776
Province of Newfoundland,
Sinking Fund Deb., 10%, 2020......... 1,000,000 1,070,340
Province of Quebec :
Deb., 11%, 2015...................... 1,000,000 1,137,250
Deb., Ser. NN, 7 1/8%, 2024.......... 5,000,000 4,022,500
Province of Saskatchewan,
Notes, 8%, 2004...................... 5,000,000 4,860,940
Republic of Argentina,
Bonds, 8 3/8%, 2003.................. 8,000,000 6,500,064
Swedish Export Credit,
Deb., 9 7/8%, 2038................... 1,500,000 1,556,193
Telefonica de Argentina SA,
Notes, 8 3/8%, 2000.................. 5,000,000 (a) 4,412,500
Tolmex, S.A. de C.V., Notes (Gtd. by Empresas
Tolteca de Mexico, S.A. de C.V.
and Cegusa, S. A.), 8 3/8%, 2003..... 5,200,000 4,550,000
--------------
47,840,853
--------------
DREYFUS STRATEGIC INCOME
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1994
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
-------------- --------------
OTHER--.6% GPA Holland B.V.,
Medium-Term Notes (Gtd. by GPA Group
PLC),Ser. B, 9.06%, 1999............. $ 1,000,000 (a) $ 787,500
Rural Electric Cooperative Grantor Trust Ctfs.
(Soyland), 9.70%, 2017............... 1,000,000 1,095,439
--------------
1,882,939
--------------
U.S. GOVERNMENT
AND AGENCIES--13.1% Federal Home Loan Mortage Corp.,
Multiclass Mortgage Participation Ctfs.,
Ser. 1166, Cl. 1166-PG, 8%, 2020..... 5,000,000 5,056,050
Federal National Mortage Association,
Real Estate Mortgage Investment Conduit
Trust, Pass-Through Ctfs. (Collateralized by
FNMA Pass-Through Ctfs.),
Ser. 1992-136, Cl. 136-PD, 6%, 2016.. 4,240,000 3,812,692
Government National Mortgage Association 1:
7%, 7/15/2023........................ 10,000,000 8,971,800
8%, 8/15/2024........................ 10,185,646 9,778,220
8%, 9/15/2024........................ 12,963,149 12,444,623
U.S. Treasury Coupon Strips,
Zero Coupon, 8/15/2012............... 10,000,000 2,349,700
--------------
42,413,085
--------------
TOTAL BONDS AND NOTES
(cost $307,021,204).................. $282,995,499
==============
SHORT-TERM INVESTMENTS--14.7%
TIME DEPOSITS:
Bankers Trust (London),
4 11/16%, 11/1/1994.................. $ 15,800,000 $ 15,800,000
Chemical Bank (London),
4 3/4%, 11/1/1994.................... 15,800,000 15,800,000
Republic National Bank of New York (London),
4 3/4%, 11/1/1994.................... 15,800,000 15,800,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $47,400,000)................... $ 47,400,000
==============
TOTAL INVESTMENTS (cost $354,421,204)....................................... 102.5% $330,395,499
====== ==============
LIABILITIES, LESS CASH AND RECEIVABLES.................. (2.5%) $ (7,908,751)
====== ==============
NET ASSETS.................................................................. 100.0% $322,486,748
====== ==============
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1994, these securities amounted to $24,423,500 or 7.6% of net assets.
(b) Variable rate security-interest rate subject to periodic change.
(c) Denominated in German Deutsche Marks.
(d) Denominated in Canadian Dollars.
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $354,421,204)_see statement..................................... $330,395,499
Cash.................................................................... 446,935
Receivable for investment securities sold............................... 9,799,954
Interest receivable..................................................... 5,519,780
Receivable for shares of Beneficial Interest subscribed................. 19,425
Prepaid expenses........................................................ 16,333
--------------
346,197,926
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 226,886
Payable for investment securities purchased............................. 21,501,489
Payable for shares of Beneficial Interest redeemed...................... 1,815,751
Accrued expenses........................................................ 167,052 23,711,178
------------- -------------
NET ASSETS ................................................................ $322,486,748
==============
REPRESENTED BY:
Paid-in capital......................................................... $360,098,071
Accumulated net realized capital losses and distributions
in excess of net realized gain on investments......................... (13,585,618)
Accumulated net unrealized (depreciation) on investments_Note 4(b)...... (24,025,705)
--------------
NET ASSETS at value applicable to 24,911,719 outstanding shares of
Beneficial Interest, equivalent to $12.95 per share (unlimited number of
$.001 par value shares authorized)...................................... $322,486,748
==============
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 27,974,897
EXPENSES:
Management fee_Note 3(a).............................................. $ 2,157,631
Shareholder servicing costs_Note 3(b)................................. 1,336,114
Registration fees..................................................... 68,330
Prospectus and shareholders' reports_Note 3(b)........................ 55,462
Custodian fees........................................................ 53,980
Professional fees..................................................... 51,053
Trustees' fees and expenses_Note 3(c)................................. 25,583
Miscellaneous......................................................... 20,082
--------------
3,768,235
Less_reduction in shareholder servicing costs due to
undertakings_Note 3(b)............................................ 391,394
--------------
TOTAL EXPENSES.................................................. 3,376,841
-------------
INVESTMENT INCOME--NET.......................................... 24,598,056
-------------
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS--Note 4(a):
Net realized (loss) on investments:
Long transactions (including options transactions).................... $(12,001,406)
Short sale transactions............................................... (138,215)
Net realized (loss) on forward currency exchange contracts;
Short transactions.................................................... (952,005)
Net realized (loss) on financial futures................................ (539,572)
--------------
NET REALIZED (LOSS)................................................... (13,631,198)
Net unrealized (depreciation) on investments............................ (39,799,142)
-------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (53,430,340)
-------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $(28,832,284)
==============
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
--------------------------------
1993 1994
-------------- --------------
<S> <C> <C>
OPERATIONS:
Investment income_net................................................... $ 17,478,134 $ 24,598,056
Net realized gain (loss) on investments................................. 9,177,002 (13,631,198)
Net unrealized appreciation (depreciation) on investments for the year.. 13,890,150 (39,799,142)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....... 40,545,286 (28,832,284)
-------------- --------------
DIVIDENDS TO SHAREHOLDERS:
From investment income_net.............................................. (17,466,360) (24,598,056)
From net realized gain on investments................................... (832,582) (9,045,367)
In excess of net realized gain on investments........................... ----- (122,223)
-------------- --------------
TOTAL DIVIDENDS....................................................... (18,298,942) (33,765,646)
-------------- --------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold........................................... 235,916,143 90,796,927
Dividends reinvested.................................................... 13,989,576 25,835,418
Cost of shares redeemed................................................. (46,493,330) (107,007,060)
-------------- --------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS.......... 203,412,389 9,625,285
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........................... 225,658,733 (52,972,645)
NET ASSETS:
Beginning of year....................................................... 149,800,660 375,459,393
-------------- --------------
End of year............................................................. $375,459,393 $322,486,748
============== ==============
SHARES SHARES
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 15,965,920 6,360,200
Shares issued for dividends reinvested.................................. 945,381 1,842,973
Shares redeemed......................................................... (3,143,003) (7,743,228)
-------------- --------------
NET INCREASE IN SHARES OUTSTANDING.................................... 13,768,298 459,945
============== ==============
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each year indicated. This
information has been derived from the Fund's financial statements.
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
PER SHARE DATA: 1990 1991 1992 1993 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........... $13.37 $12.35 $13.44 $14.02 $15.36
------- ------- ------- ------- -------
INVESTMENT OPERATIONS:
Investment income_net........................ 1.18 1.16 1.07 1.01 .95
Net realized and unrealized gain (loss) on investments (1.02) 1.09 .58 1.41 (2.04)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS........... .16 2.25 1.65 2.42 (1.09)
------- ------- ------- ------- -------
DISTRIBUTIONS:
Dividends from investment income_net......... (1.18) (1.16) (1.07) (1.01) (.95)
Dividends from net realized gain on investments -_ -_ -_ (.07) (.37)
Dividends in excess of net realized gain on investments -_ -_ -_ -_ -_
------- ------- ------- ------- ------
TOTAL DISTRIBUTIONS........................ (1.18) (1.16) (1.07) (1.08) (1.32)
------- ------- ------- ------- -------
Net asset value, end of year................. $12.35 $13.44 $14.02 $15.36 $12.95
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN* 1.32% 18.94% 12.64% 17.93% (7.44%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets .50% .72% .85% .84% .94%
Ratio of interest expense to average net assets .32% .15% -_ -_ -_
Ratio of net investment income to average net assets 9.24% 8.93% 7.58% 6.83% 6.84%
Decrease reflected in above expense ratios due to
undertakings by the Manager (limited to the expense
limitation provision of the management agreement) 1.00% .78% .40% .24% .11%
Portfolio Turnover Rate...................... 16.40% 16.08% 72.82% 118.38% 161.35%
Net assets, end of year (000's Omitted)...... $41,927 $57,336 $149,801 $375,459 $322,487
</TABLE>
- -----------------------
*Exclusive of sales load.
See notes to financial statements.
DREYFUS STRATEGIC INCOME
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 ("Act")
as a diversified open-end management investment company. Dreyfus Service
Corporation, until August 24, 1994, acted as the distributor of the Fund's
shares. Dreyfus Service Corporation is a wholly-owned subsidiary of The
Dreyfus Corporation ("Manager"). Effective August 24, 1994, the Manager
became a direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of Institutional Administration Services, Inc., a provider of
mutual fund administration services, the parent company of which is Boston
Institutional Group, Inc.
(A) PORTFOLIO VALUATION: The Fund's investments (excluding short-term
investments and U.S. Government obligations) are valued each business day by
an independent pricing service ("Service") approved by the Board of Trustees.
Investments for which quoted bid prices are readily available and are
representative of the bid side of the market in the judgment of the Service
are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. Securities for which there are no such
valuations are valued at fair value as determined in good faith under the dire
ction of the Board of Trustees. Investments in U.S. Government obligations
are valued at the mean between quoted bid and asked prices. Short-term
investments are carried at amortized cost, which approximates value.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income including, where applicable, amortization of discount on investments,
is recognized on the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
The Fund has an unused capital loss carryover of approximately
$13,753,000 available for Federal income tax purposes to be applied against
future net securities profits, if any, realized subsequent to October 31,
1994. If not applied, the carryover expires in fiscal 2002.
DREYFUS STRATEGIC INCOME
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BANK LINE OF CREDIT:
In accordance with an agreement with a bank, the Fund may borrow up to
$10 million under a short-term unsecured line of credit. Interest on
borrowings is charged at rates which are related to Federal Funds rates in
effect from time to time.
There were no borrowings during the year ended October 31, 1994.
NOTE 3--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .60 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, interest on borrowings (which, in the
view of Stroock & Stroock & Lavan, counsel to the Fund, also contemplates
interest on securities sold short), brokerage and extraordinary expenses,
exceed the expense limitation of any state having jurisdiction over the Fund.
The most stringent state expense limitation applicable to the Fund presently
requires reimbursement of expenses in any full fiscal year that such expenses
(exclusive of distribution expenses and certain expenses as described above)
exceed 2 1/2% of the first $30 million, 2% of the next $70 million and 1 1/2%
of the excess over $100 million of the average value of the Fund's net assets
in accordance with California "blue sky" regulations. There was no expense
reimbursement for the year ended October 31, 1994.
Dreyfus Service Corporation retained $2,061,758 during the year ended
October 31, 1994 from commissions earned on sales of Fund shares.
(B) On August 3, 1994, Fund shareholders approved a revised Service Plan
(the "Plan") pursuant to Rule 12b-1 under the Act. Pursuant to the Plan,
effective August 24, 1994, the Fund (a) reimburses the Distributor for
payments to certain Service Agents for distributing the Fund's shares and
servicing shareholder accounts and (b) pays the Manager, Dreyfus Service
Corporation or any affiliate (collectively "Dreyfus") for advertising and
marketing relating to the Fund and servicing shareholder accounts, at an aggre
gate annual rate of .25 of 1% of the value of the Fund's average daily net
assets. Each of the Distributor and Dreyfus may pay Service Agents (a
securities dealer, financial institution or other industry professional) a
fee in respect of the Fund's shares owned by shareholders with whom the
Service Agent has a servicing relationship or for whom the Service Agent is
the dealer or holder of record. Each of the Distributor and Dreyfus determine
the amounts to be paid to Service Agents to which it will make payments and
the basis on which such payments are made. The Plan also separately provides
for the Fund to bear the costs of preparing, printing and distributing
certain of the Fund's prospectuses and statements of additional information
and costs associated with implementing and operating the Plan, not to exceed
the greater of $100,000 or .005 of 1% of the Fund's average daily net assets
for any full fiscal year.
Prior to August 24, 1994, the Fund's Service Plan ("prior Service Plan")
provided that the Fund pay Dreyfus Service Corporation at an annual rate of
.25 of 1% of the value of the Fund's average daily net assets, for costs and
expenses in connection with advertising, marketing and distributing the
Fund's shares and for servicing shareholder accounts. Dreyfus Service
Corporation made payments to one or more Service Agents based on the value of
the Fund's shares owned by clients of the Service Agent. The prior Service
Plan also separately provided for the Fund to bear the costs of preparing,
printing and distributing certain of the Fund's prospectuses and statements
of additional information and costs associated with implementing and
operating the prior Service Plan, not to exceed the greater of $100,000 or
.005 of 1% of the Fund's average daily net assets for any full fiscal year.
DREYFUS STRATEGIC INCOME
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the year ended October 31, 1994, $155,810 was charged to the Fund
pursuant to the Plan and $760,609 was charged to the Fund pursuant to the
prior Service Plan, of which $391,394 was waived pursuant to an undertaking
by the Manager.
(C) Prior to August 24, 1994 certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives an annual fee of $2,500 and an attendance fee of $250 per meeting.
NOTE 4--SECURITIES TRANSACTIONS:
(A) The following summarizes the aggregate amount of purchases and sales
of investment securities and securities sold short, excluding short-term
securities, forward currency exchange contracts and options transactions,
during the year ended October 31, 1994:
<TABLE>
<CAPTION>
PURCHASES SALES
---------------- ------------------
<S> <C> <C>
Long transactions................................................ $552,298,250 $575,824,875
Short sale transactions.......................................... 150,820,989 130,235,899
---------------- ------------------
Total.......................................................... $703,119,239 $706,060,774
================ ==================
</TABLE>
The Fund is engaged in short-selling which obligates the Fund to replace
the security borrowed by purchasing the security at current market value.
The Fund would incur a loss if the price of the security increases between
the date of the short sale and the date on which the Fund replaces the
borrowed security. The Fund would realize a gain if the price of the security
declines between those dates. Until the Fund replaces the borrowed security,
the Fund will maintain daily, a segregated account with a broker and custodian,
consisting of cash and/or U.S. Government securities sufficient to cover its
short position. At October 31, 1994, there were no securities sold short
outstanding.
When executing forward currency exchange contracts, the Fund is obligated
to buy or sell a foreign currency at a specified rate on a certain date in
the future. With respect to sales of forward currency exchange contracts, the
Fund would incur a loss if the value of the contract increases between the
date the forward contract is opened and the date the forward contract is
closed. The Fund realizes a gain if the value of the contract decreases
between those dates. With respect to purchases of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract decreases
between the date the forward contract is opened and the date the forward
contract is closed. The Fund realizes a gain if the value of the contract
increases between those dates. At October 31, 1994, no forward currency
exchange contracts were outstanding.
In addition, the following table summarizes the Fund's call/put options
written transactions for the year ended October 31, 1994:
<TABLE>
<CAPTION>
OPTIONS TERMINATED
----------------------------
NET
OPTIONS WRITTEN: NUMBER OF PREMIUMS REALIZED
- --------------- CONTRACTS RECEIVED COST GAIN
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Contracts outstanding October 31, 1993...... _ $ _
Contracts written........................... 1240 778,047
------ ------------
1240 778,047
------ ------------
Contracts terminated:
Closed.................................... 990 617,891 $293,594 $324,297
Expired................................... 250 160,156 ___ 160,156
------------ ------------ ----------- -----------
Total contracts terminated............ 1240 778,047 $293,594 $484,453
----------- ------------- =========== ===========
Contracts outstanding October 31, 1994...... _ $ _
=========== =============
</TABLE>
DREYFUS STRATEGIC INCOME
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As a writer of call options, the Fund receives a premium at the outset
and then bears the market risk of unfavorable changes in the price of the
financial instrument underlying the option. Generally, the Fund would incur a
gain, to the extent of the premiums, if the price of the underlying financial
instrument decreases between the date the option is written and the date on
which the option is terminated. Generally, the Fund would realize a loss, if
the price of the financial instrument increases between those dates. At
October 31, 1994, there were no call options written outstanding.
As a writer of put options, the Fund receives a premium at the outset and
then bears the market risk of unfavorable changes in the price of the
financial instrument underlying the option. Generally, the Fund would incur a
gain, to the extent of the premiums, if the price of the underlying financial
instrument increases between the date the option is written and the date on
which the option is terminated. Generally, the Fund would realize a loss, if
the price of the financial instrument declines between those dates. At
October 31, 1994, there were no put options written outstanding.
The Fund is engaged in trading financial futures contracts. The Fund is
exposed to market risk as a result of changes in the value of the underlying
financial instruments. Investments in financial futures require the Fund to
"mark to market" on a daily basis, which reflects the change in market value
of the contract at the close of each day's trading. Accordingly, variation
margin payments are made or received to reflect daily unrealized gains or
losses. When the contracts are closed, the Fund recognizes a realized gain or
loss. These investments require initial margin deposits with a custodian,
which consist of cash or cash equivalents, up to approximately 10% of the
contract amount. The amount of these deposits is determined by the exchange
or Board of Trade on which the contract is traded and is subject to change.
At October 31, 1994 there were no financial futures contracts outstanding.
(B) At October 31, 1994, accumulated net unrealized depreciation on
investments was $24,025,705 consisting of $498,636 gross unrealized
appreciation and $24,524,341 gross unrealized depreciation.
At October 31, 1994, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS STRATEGIC INCOME
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS STRATEGIC INCOME
We have audited the accompanying statement of assets and liabilities of
Dreyfus Strategic Income, including the statement of investments, as of
October 31, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in
the period then ended, and financial highlights for each of the years
indicated therein. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1994 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Strategic Income at October 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the indicated years, in conformity with generally accepted accounting
principles.
(Ernst & Young LLP Signature Logo)
New York, New York
December 5, 1994
IMPORTANT TAX INFORMATION (UNAUDITED)
For Federal Tax purposes the Fund hereby designates $.1525 per share as a
long-term capital gain distribution of the $.366 per share paid on November
30, 1993.
(Dreyfus `D' Logo)
DREYFUS STRATEGIC INCOME
144 Glenn Curtiss Boulevard
Uniondale, NY 11556
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
The Shareholder Services Group, Inc.
P.O. Box 9671
Providence, RI 02940
Further information is contained
in the Prospectus, which must
precede or accompany this report.
Printed in U.S.A. 031AR9410
(Dreyfus Logo)
Strategic
Income
Annual Report
October 31, 1994
(Dreyfus Lion Logo)
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS STRATEGIC INCOME AND THE
MERRILL LYNCH DOMESTIC MASTER INDEX
EXHIBIT A:
___________________________________________
| | MERRILL LYNCH | |
| | DOMESTIC | DREYFUS |
| PERIOD | MASTER | STRATEGIC |
| | INDEX * | INCOME |
|----------- | ------------- | ------------|
| 10/3/86 | 10,000 | 9,698 |
| 10/31/86 | 10,141 | 9,737 |
| 10/31/87 | 10,360 | 9,907 |
| 10/31/88 | 11,543 | 11,562 |
| 10/31/89 | 12,891 | 13,117 |
| 10/31/90 | 13,711 | 13,290 |
| 10/31/91 | 15,867 | 15,806 |
| 10/31/92 | 17,479 | 17,804 |
| 10/31/93 | 19,580 | 20,998 |
| 10/31/94 | 18,871 | 19,435 |
|------------------------------------------|
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
