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PROSPECTUS MARCH 1, 1995
DREYFUS STRATEGIC INCOME
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DREYFUS STRATEGIC INCOME (THE "FUND") IS AN OPEN-END, DIVERSIFIED,
MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. IT SEEKS TO MAXIMIZE
CURRENT INCOME BY INVESTING PRINCIPALLY IN DEBT SECURITIES OF DOMESTIC AND
FOREIGN ISSUERS.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THE FUND'S SHARES ARE SOLD WITH A SALES LOAD. THE FUND ALSO BEARS
CERTAIN COSTS OF ADVERTISING, ADMINISTRATION AND/OR DISTRIBUTION PURSUANT TO
A PLAN ADOPTED IN ACCORDANCE WITH RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT
OF 1940.
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THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 1, 1995, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY, WRITE TO THE FUND AT
144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK 11556-0144, OR CALL
1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 666.
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MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO
TIME.
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TABLE OF CONTENTS
PAGE
FEE TABLE......................................... 3
CONDENSED FINANCIAL INFORMATION................... 3
DESCRIPTION OF THE FUND........................... 4
MANAGEMENT OF THE FUND............................ 16
HOW TO BUY FUND SHARES............................ 17
SHAREHOLDER SERVICES.............................. 21
HOW TO REDEEM FUND SHARES......................... 24
SERVICE PLAN...................................... 26
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 27
PERFORMANCE INFORMATION........................... 29
GENERAL INFORMATION............................... 30
APPENDIX.......................................... 31
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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(Page 2)
<TABLE>
<CAPTION>
FEE TABLE
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............ 3.00%
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees........................................................................ .60%
12b-1 Fees (distribution and servicing)................................................ .25%
Other Expenses ........................................................................ .20%
Total Fund Operating Expenses.......................................................... 1.05%
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period: $40 $62 $86 $154
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE
EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY
AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the various costs and expenses that investors will bear, directly or
indirectly, the payment of which will reduce investors' return on an annual
basis. Long-term investors could pay more in 12b-1 fees than the economic
equivalent of paying a front-end sales charge. The information in the
foregoing table does not reflect any fee waivers or expense reimbursement
arrangements that may be in effect. Certain Service Agents (as defined below)
may charge their clients direct fees for effecting transactions in Fund
shares; such fees are not reflected in the foregoing table. See "Management
of the Fund," "How to Buy Fund Shares" and "Service Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose report thereon appears in
the Fund's Statement of Additional Information. Further financial data and
related notes are included in the Fund's Statement of Additional Information,
available upon request.
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.
<TABLE>
YEAR ENDED OCTOBER 31,
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1986(1) 1987 1988 1989 1990 1991 1992 1993 1994
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year $13.50 $13.51 $12.57 $12.94 $13.37 $12.35 $13.44 $14.02 $15.36
------ ------ ------ ------ ------ ------ ------ ------ ------
Investment Operations:
Investment income-net............ .06 1.19 1.24 1.21 1.18 1.16 1.07 1.01 .95
Net realized and unrealized gain (loss) on investments -_ (.95) .74 .44 (1.02) 1.09 .58 1.41 (2.04)
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TOTAL FROM INVESTMENT OPERATIONS. .06 .24 1.98 1.65 .16 2.25 1.65 2.42 (1.09)
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DISTRIBUTIONS:
Dividends from investment income-net (.05) (1.18) (1.24) (1.22) (1.18) (1.16) (1.07) (1.01) (.95)
Dividends from net realized gain on investments -_ -_ (.37) -_ -_ -_ -_ (.07) (.37)
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TOTAL DISTRIBUTIONS.............. (.05) (1.18) (1.61) (1.22) (1.18) (1.16) (1.07) (1.08) (1.32)
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Net asset value, end of year..... $13.51 $12.57 $12.94 $13.37 $12.35 $13.44 $14.02 $15.36 $12.95
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN (2)........ 5.03%(3) 1.74% 16.71% 13.44% 1.32% 18.93% 12.64% 17.93% (7.44%)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets -_ .26% .49% .50% .50% .72% .85% .84% .94%
Ratio of interest expense and dividends on
securities sold short to average net assets -_ .15% .17% .34% .32% .15% -_ -_ -_
Ratio of net investment income to average net assets 5.64%(3) 9.40% 9.72% 9.34% 9.24% 8.93% 7.58% 6.83% 6.84%
Decrease reflected in above expense ratios due
to undertakings by The Dreyfus Corporation
(limited to the expense
limitation provision of the Management Agreement) 1.50%(3) 1.24% 1.01% 1.00% 1.00% .78% .40% .24% .11%
Portfolio Turnover Rate.......... -_ 76.01% 154.73% 93.41% 16.40% 16.08% 72.82% 118.38% 161.35%
Net Assets, end of year (000's Omitted) $1,525 $31,809 $39,058 $41,679 $41,927 $57,336 $149,801 $375,459 $322,487
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(1) From October 1, 1986 (commencement of operations) to October 31, 1986.
(2) Exclusive of sales charge.
(3) Annualized.
</TABLE>
(Page 3)
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
DEBT OUTSTANDING
<TABLE>
YEAR ENDED OCTOBER 31,
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1986(1) 1987 1988 1989 1990 1991 1992 1993 1994
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount of debt outstanding at end of year (in thousands) -- __ __ $ 650 __ __ __ __ __
Average amount of debt outstanding throughout year
(in thousands)(2) __ $ 460 $ 739 $1,321 $1,408 $1,011 __ __ __
Average number of shares outstanding
throughout year (in thousands)(3) __ 2,077 2,737 3,093 3,260 3,661 __ __ __
Average amount of debt per share throughout year __ $ .22 $ .27 $ .43 $ .43 $ .28 __ __ __
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(1)From October 1, 1986 (commencement of operations) to October 31, 1986.
(2)Based upon daily outstanding borrowings.
(3)Based upon month-end balances.
</TABLE>
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund seeks to maximize current income by investing principally in
debt securities of domestic and foreign issuers. The Fund's investment
objective cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940) of the Fund's outstanding
voting shares. There can be no assurance that the Fund's investment objective
will be achieved.
MANAGEMENT POLICIES
At least 65% of the Fund's total assets ordinarily will be invested
in debt securities, such as bonds, debentures, notes, mortgage-related
securities, convertible debt obligations and convertible preferred stocks, of
domestic and foreign issuers. See "Certain Portfolio Securities" below. The
issuers of these obligations include governments, their political
subdivisions, agencies or municipalities, and corporations. It is a
fundamental policy of the Fund that at least 95% of these obligations when
purchased by the Fund will have a rating of at least Caa by Moody's Investors
Service, Inc. ("Moody's") or CCC by Standard & Poor's Corporation ("Standard
& Poor's") or will be of comparable quality as determined by The Dreyfus
Corporation. Debt securities rated Baa by Moody's and BBB by Standard &
Poor's Corporation are considered investment grade obligations which lack
outstanding investment characteristics and may have speculative
characteristics as well. Debt securities rated Caa by Moody's are of poor stan
ding and may be in default or there may be present elements of danger with
respect to principal or interest. Standard & Poor's typically assigns a CCC
rating to debt which has a current identifiable vulnerability to default and
is dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. See "Appendix"
in the Fund's Statement of Additional Information. The Fund may invest up to
5% of its total assets in lower rated securities but may not invest in
obligations rated lower than Ca by Moody's or C by Standard & Poor's which
indicates that no interest is being paid and that the obligations are in
default or have other marked shortcomings. The Fund intends to invest less
than 35% of its net assets in debt securities rated Ba or lower by Moody's
and BB or lower by Standard & Poor's. See "Risk Factors_Lower Rated
Securities" below for a discussion of certain risks. The Fund may hold
securities with ratings higher than those set forth above when the yield
differential between lower rated and higher rated fixed-income securities
narrows and the risk of loss may be reduced substantially with only a
relatively small reduction in yield and also when market or economic
conditions dictate a more defensive strategy. The Fund will be particularly
alert to favorable arbitrage opportunities (such as those resulting from
favorable interest rate differentials) arising from the relative yields of
the various types of securities in which the Fund may invest and market
conditions generally.
The Fund may invest up to 25% of its total assets in the securities
of issuers having their principal business activities in the same industry.
The Fund may invest up to 5% of its total assets in securities of companies
that have been in continuous operation for fewer than three years.
(Page 4)
The Fund may invest up to 30% of its total assets in debt securities
of foreign companies and foreign governments. Among the foreign securities in
which the Fund may invest are the foreign bank obligations described under
"Certain Portfolio Securities," as well as Eurodollar debt obligations, which
are U.S. dollar-denominated debt obligations issued by foreign issuers, often
guaranteed by subsidiaries of domestic companies.
In connection with its purchases of convertible securities, the Fund
from time to time may hold common stock received upon the conversion of the
security. The Fund does not intend to retain the common stock in its
portfolio and will sell it as promptly as it can and in a manner which it
believes will reduce the risk to the Fund of loss in connection with the
sale.
The Fund may invest in money market instruments consisting of U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as described below under
"Certain Portfolio Securities." Under normal market conditions, the Fund may
invest up to 35% of its assets in money market instruments. However, when The
Dreyfus Corporation determines that adverse market conditions exist, the Fund
may adopt a temporary defensive posture and invest its entire portfolio in
money market instruments. To the extent the Fund is so invested, the Fund's
investment objective may not be achieved.
In an effort to increase total return, the Fund may engage in various
investment techniques such as leveraging, short-selling, options and futures
transactions, currency transactions and lending portfolio securities, each of
which involves risk. See "Risk Factors_Other Investment Considerations"
below.
INVESTMENT TECHNIQUES
LEVERAGE THROUGH BORROWING -- The Fund may borrow for investment purposes up
to 331/3% 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 the 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 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 Fund may engage is the
entry into reverse repurchase agreements with banks, brokers or dealers.
These transactions involve the transfer by the Fund of an underlying debt
instrument in return for cash proceeds based on a percentage of the value of
the security. The Fund retains the right to receive interest and principal
payments on the security. At an agreed upon future date, the Fund repurchases
the security at principal, plus accrued interest.
SHORT-SELLING _ The 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 price at such time may be more or less
than the price at which the security was sold by the Fund.
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.
No securities will be sold short 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.
(Page 5)
In addition to the short sales discussed above, the Fund also may
make short sales "against the box," a transaction in which the Fund enters
into a short sale of a security which the Fund owns. The Fund at no time will
have more than 15% of the value of its net assets in deposits on short sales
against the box.
CALL AND PUT OPTIONS ON SPECIFIC SECURITIES -- The Fund may invest up to 5%
of its assets, represented by the premium paid, in the purchase of call and
put options in respect of specific securities (or groups or "baskets" of
specific securities) in which the Fund may invest. The Fund may write covered
call and put option contracts to the extent of 20% of the value of its net
assets at the time such option contracts are written. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security at the exercise price at any time during the option
period. Conversely, a put option gives the purchaser of the option the right
to sell, and obligates the writer to buy, the underlying security at the
exercise price at any time during the option period. A covered call option
sold by the Fund, which is a call option with respect to which the Fund owns
the underlying security, exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of th
e underlying security or to possible continued holding of a security which
might otherwise have been sold to protect against depreciation in its market
price. The principal reason for writing covered call options is to realize,
through the receipt of premiums, a greater return than would be realized on
the Fund's portfolio securities alone. A covered put option sold by the Fund
exposes the Fund during the term of the option to a decline in price of the
underlying security. Similarly, the principal reason for writing covered put
options is to realize income in the form of premiums. A put option sold by
the Fund is covered when, among other things, cash or liquid securities are
placed in a segregated account with the Fund's custodian to fulfill the obliga
tion undertaken.
To close out a position when writing covered options, the Fund may
make a "closing purchase transaction" by purchasing an option on the same
security with the same exercise price and expiration date as the option it
has previously written. To close out the position as a purchaser of an
option, the Fund may make a "closing sale transaction," which involves
liquidating the Fund's position by selling the option previously purchased.
The Fund will realize a profit or loss from a closing purchase or sale transac
tion depending upon the difference between the amount paid to purchase an
option and the amount received from the sale thereof.
The Fund intends to treat options in respect of specific securities
that are not traded on a national securities exchange and the securities
underlying covered call options written by the Fund as illiquid securities.
See "Certain Portfolio Securities_Illiquid Securities" below.
The Fund will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of the Fund
are qualified for offer and sale.
FUTURES TRANSACTIONS -- IN GENERAL --The Fund is not a commodity pool.
However, as a substitute for a comparable market position in the underlying
securities or for hedging purposes, the Fund may engage, in futures and
options on futures transactions, as described below.
The Fund may trade futures contracts and options on futures contracts
in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or, to the
extent permitted under applicable law, on exchanges located outside the
United States, such as the London International Financial Futures Exchange
and the Sydney Futures Exchange Limited. Foreign markets may offer advantages
such as trading in commodities that are not currently traded in the United
States or arbitrage possibilities not available in the United States. Foreign
markets, however, may have greater risk potential than domestic markets. See
"Risk Factors_Foreign Commodity Transactions."
The Fund's commodities transactions must constitute bona fide hedging
or other permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission (the "CFTC"). In addition, the Fund may
not engage in such transactions if the sum of the amount of initial margin
deposits and premiums paid for unexpired commodity options, other than for
bona fide hedging transactions, would exceed 5% of the liquidation value of
the Fund's assets, after taking into account unrealized profits and
unre-
(Page 6)
alized losses on such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase,
the in-the-money amount may be excluded in calculating the 5%. Pursuant to
regulations and/or published positions of the Securities and Exchange
Commission, the Fund may be required to segregate cash or high quality money
market instruments in connection with its commodities transactions in an
amount generally equal to the value of the underlying commodity. To the
extent the Fund engages in the use of futures and options on futures for
other than bona fide hedging purposes, the Fund may be subject to additional
risk.
Initially, when purchasing or selling futures contracts the Fund will
be required to deposit with its custodian in the broker's name an amount of
cash or cash equivalents up to approximately 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures position,
assuming all contractual obligations have been satisfied. Subsequent
payments, known as "variation margin," to and from the broker will be made
daily as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as "marking-to-market." At any time prior
to the expiration of a futures contract, the Fund may elect to close the
position by taking an opposite position at the then prevailing price, which
will operate to terminate the Fund's existing position in the contract.
Although the Fund intends to purchase or sell futures contracts only
if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move
to the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting the Fund to substantial losses. If it is not possible or the Fund
determines not to close a futures position in anticipation of adverse price
movements, the Fund will be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may offset partially or completely losses on
the futures contract. However, no assurance can be given that the price of
the securities being hedged will correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures
contract.
To the extent the Fund is engaging in a futures transaction as a
hedging device, because of the risk of an imperfect correlation between
securities in the Fund's portfolio that are the subject of a hedging
transaction and the futures contract used as a hedging device, it is possible
that the hedge will not be fully effective if, for example, losses on the
portfolio securities exceed gains on the futures contract or losses on the
futures contract exceed gains on the portfolio securities that were the
subject of the hedge. In futures contracts based on indexes, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
varies from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being
hedged and movements in the price of futures contracts, the Fund may buy or
sell futures contracts in a greater or lesser dollar amount than the dollar
amount of the securities being hedged if the historical volatility of the
futures contract has been less or greater than that of the securities. Such
"over hedging" or "under hedging" may adversely affect the Fund's net
investment results if the market does not move as anticipated when the hedge
is established.
Successful use of futures by the Fund also is subject to The Dreyfus
Corporation's ability to predict correctly movements in the direction of the
market or interest rates. For example, if the Fund has hedged against the
possibility of a decline in the market adversely affecting the value of
securities held in its portfolio and
(Page 7)
prices increase instead, the Fund will
lose part or all of the benefit of the increased value of securities which it
has hedged because it will have offsetting losses in its futures positions.
Furthermore, if in such circumstances the Fund has insufficient cash, it may
have to sell securities to meet daily variation margin requirements. The Fund
may have to sell such securities at a time when it may be disadvantageous to
do so.
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the option exercise
period. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a
long position if the option is a put). Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in the
writer's futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
on the futures contract.
Call options sold by the Fund with respect to futures contracts will
be covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of which
are expected to move relatively consistently with the instruments underlying,
the futures contract. Put options sold by the Fund with respect to futures
contracts will be covered in the same manner as put options on specific
securities as described above.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES
CONTRACTS _The Fund may invest in interest rate futures contracts and options
on interest rate futures contracts as a substitute for a comparable market
position or to hedge against adverse movements in interest rates.
To the extent the Fund has invested in interest rate futures
contracts or options on interest futures contracts as a substitute for a
comparable market position, the Fund will be subject to the investment risks
of having purchased the securities underlying the contract.
The Fund may purchase call options on interest rate futures contracts
to hedge against a decline in interest rates and may purchase put options on
interest rate futures contracts to hedge its portfolio securities against the
risk of rising interest rates.
The Fund may sell call options on interest rate futures contracts to
partially hedge against declining prices of portfolio securities. If the
futures price at expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the Fund's
portfolio holdings. The Fund may sell put options on interest rate futures
contracts to hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Fund will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Fund intends to
purchase. If a put or call option sold by the Fund is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing options on futures may to some
extent be reduced or increased by changes in the value of its portfolio
securities.
The Fund also may sell options on interest rate futures contracts as
part of closing purchase transactions to terminate its options positions. No
assurance can be given that such closing transactions can be effected or that
there will be a correlation between price movements in the options on
interest rate futures and price movements in the Fund's portfolio securities
which are the subject of the hedge. In addition, the Fund's purchase of such
options will be based upon predictions as to anticipated interest rate
trends, which could prove to be inaccurate.
(Page 8)
FUTURES CONTRACTS BASED ON AN INDEX OF DEBT SECURITIES AND OPTIONS ON SUCH
FUTURES CONTRACTS -- The Fund may purchase and sell futures contracts based
on an index of debt securities and options on such futures contracts to the
extent they currently exist and, in the future, may be developed. At least
one exchange trades futures contracts on an index of long-term municipal
bonds, and the Fund reserves the right to conduct futures and options
transactions based on an index which may be developed in the future to
correlate with price movements in certain categories of debt securities.
The Fund's investment strategy in employing futures contracts based
on an index of debt securities will be similar to that used by it in other
financial futures transactions. The Fund also may purchase and write put and
call options on such index futures and enter into closing transactions with
respect to such options.
CURRENCY FUTURES _ The Fund may purchase and sell currency futures contracts.
By selling foreign currency futures, the Fund can establish the number of
U.S. dollars it will receive in the delivery month for a certain amount of a
foreign currency. In this way, if the Fund anticipates a decline of a foreign
currency against the U.S. dollar, the Fund can attempt to fix the U.S. dollar
value of some or all of the securities held in its portfolio that are
denominated in that currency. By purchasing foreign currency futures, the
Fund can establish the number of dollars it will be required to pay for a
specified amount of a foreign currency in the delivery month. Thus, if the
Fund intends to buy securities in the future and expects the U.S. dollar to
decline against the relevant foreign currency during the period before the
purchase is effected, the Fund can attempt to fix the price in U.S. dollars
of the securities it intends to acquire.
FOREIGN CURRENCY TRANSACTIONS _ The Fund may engage in currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, or through entering into forward contracts to
purchase or sell currencies. A forward currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which
must be more than two days from the date of the contract, at a price set at
the time of the contract. These contracts are entered into in the interbank
market conducted directly between currency traders (typically commercial
banks or other financial institutions) and their customers.
OPTIONS ON FOREIGN CURRENCY -- The Fund may purchase and sell call and put
options on foreign currency for the purpose of hedging against changes in
future currency exchange rates. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot
price of the currency at the time the option expires. Put options convey the
right to sell the underlying currency at a price which is anticipated to be
higher than the spot price of the currency at the time the option expires.
The Fund may use foreign currency options under the same circumstances that
it could use currency forward and futures transactions as described above.
See also "Call and Put Options on Specific Securities" above.
FUTURE DEVELOPMENTS _ The Fund may take advantage of opportunities in the
area of options and futures contracts and options on futures contracts and
any other derivative investment which are not presently contemplated for use
by the Fund or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before entering
into such transactions or making any such investment, the Fund will provide
appropriate disclosure in its prospectus.
LENDING PORTFOLIO SECURITIES -- From time to time, the Fund may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
Such loans may not exceed 331/3% of the value of the Fund's total assets. In
connection with such loans, the Fund will receive collateral consisting of
cash, U.S. Government securities or irrevocable letters of credit which will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Fund can increase its income
through the investment of such collateral. The Fund continues to be entitled
to payments in amounts equal to the interest or other distributions payable
on the loaned security and receives interest on the amount of the loan. Such
loans
(Page 9)
will be terminable at any time upon specified notice. The Fund might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund.
FORWARD COMMITMENTS -- The Fund may purchase securities on a when-issued or
forward commitment basis, which means that the price is fixed at the time of
commitment, but delivery and payment ordinarily take place a number of days
after the date of the commitment to purchase. The Fund will make commitments
to purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date
if it is deemed advisable. The Fund 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 the 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 Fund to risk 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 the Fund consisting of cash, cash
equivalents or U.S. Government securities or other high quality liquid debt
securities at least equal at all times to the amount of the when-issued or
forward commitments will be established and maintained at the Fund's
custodian bank. Purchasing securities on a when-issued or forward commitment
basis when the Fund is fully or almost fully invested may result in greater po
tential fluctuations in the value of the Fund's net assets and its net asset
value per share.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES _ The Fund may purchase convertible securities, which
are fixed-income securities, such as bonds or preferred stock, that may be
converted at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have general characteristics similar to
both fixed-income and equity securities. Although to a lesser extent than
with fixed-income securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends
to increase as interest rates decline. In addition, because of the conversion
feature, the market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stock, and,
therefore, also will react to variations in the general market for equity
securities. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As fixed-income securities, convertible securities are investments
that provide for a stable stream of income with generally higher yields than
common stocks. Of course, like all fixed-income securities, there can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation. A
convertible security, in addition to providing fixed income, offers the
potential for capital appreciation through the conversion feature, which
enables the holder to benefit from increases in the market price of the
underlying 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.
(Page 10)
Because of the subordination feature, however,
convertible securities typically have lower ratings than similar
non-convertible securities.
U.S. GOVERNMENT SECURITIES -- The Fund may purchase securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. 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.
ZERO COUPON SECURITIES -- The 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 Fund also may invest in zero coupon securities issued by
corporations and financial institutions which constitute a proportionate
ownership of the issuer's pool of underlying U.S. Treasury securities. A zero
coupon security pays no interest to its holder during its life and is sold at
a discount to its face value at maturity. The amount of the discount
fluctuates with the market price of the security. The market prices of zero
coupon securities generally are more volatile than the market prices of
securities that pay interest periodically and are likely to respond to a
greater degree to changes in interest rates than non-zero coupon securities
having similar maturities and credit qualities.
REPURCHASE AGREEMENTS -- Repurchase agreements involve the acquisition by the
Fund of an underlying debt instrument, subject to an obligation of the seller
to repurchase, and the Fund to resell, the instrument at a fixed price,
usually not more than one week after its purchase. Certain costs may be
incurred by the Fund in connection with the sale of the securities if the
seller does not repurchase them in accordance with the repurchase agreement.
In addition, if bankruptcy proceedings are commenced with respect to the
seller of the securities, realization on the securities by the Fund may be
delayed or limited.
BANK OBLIGATIONS -- The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, the Fund may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only
in debt obligations of U.S. domestic issuers. Such risks include possible
future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the securities, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of
principal and interest on these securities and the possible seizure or
nationalization of foreign deposits. See "Risk Factors_Investing in Foreign
Securities" below.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from insurance
(Page 11)
from
the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. The Fund will not
invest more than 15% of the value of its net assets in time deposits that are
illiquid and in other illiquid securities.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of
the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER _ Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's
or A-l by Standard & Poor's, (b) issued by companies having an outstanding
unsecured debt issue currently rated at least Aa3 by Moody's or AA by
Standard & Poor's, or (c) if unrated, determined by The Dreyfus Corporation
to be of comparable quality to those rated obligations which may be purchased
by the Fund.
MORTGAGE-RELATED SECURITIES _ The Fund may invest in mortgage-related
securities which are collateralized by pools of mortgage loans assembled for
sale to investors by various governmental agencies, such as the Government
National Mortgage Association and government-related organizations such as
the Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as well as by private issuers such as commercial banks, savings
and loan institutions, mortgage banks and private mortgage insurance
companies, and similar foreign entities. The mortgage-related securities in
which the Fund may invest include those with fixed, floating and variable
interest rates, those with interest rates that change based on multiples of
changes in interest rates and those with interest rates that change inversely
to changes in interest rates, as well as stripped mortgage-backed securities
which are derivative multiclass mortgage securities. Stripped mortgage-backed
securities usually are structured with two classes that receive different
proportions of interest and principal distributions on a pool of
mortgage-backed securities or whole loans. A common type of stripped
mortgage-backed security will have one class receiving some of the interest
and most of the principal from the mortgage collateral, while the other class
will receive most of the interest and the remainder of the principal. In the
most extreme case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). Although certain
mortgage-related securities are guaranteed by a third party or otherwise
similarly secured, the market value of the security, which may fluctuate, is
not so secured. If the Fund purchases a mortgage-related security at a
premium, all or part of the premium may be lost if there is a decline in the
market value of the security, whether resulting from changes in interest
rates or prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of certain mortgage-backed securities
are inversely affected by changes in interest rates, while others may not be.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages underlying the security are more
likely to prepay. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages, and, therefore, it is not possible to predict accurately the
security's return to the Fund. Moreover, with respect to stripped
mortgage-backed securities, if the underlying mortgage securities experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities even if the securities are
rated in the highest rating category by a nationally recognized statistical
rating organization. In addition, regular payments received in respect of
mortgage-related securities include both interest and principal. No assurance
can be given as to the return the Fund will receive when these amounts are
reinvested. The Fund also may invest in collateralized mortgage obligations
structured on pools of mortgage pass-through certificates or mortgage loans.
Collateralized mortgage obligations will be purchased only if rated in one of
the two highest rating categories by Moody's or Standard & Poor's, or, if unra
ted, deemed to be of comparable quality by The Dreyfus Corporation. For
further discussion concerning the investment consider-
(Page 12)
ations involved see
"Risk Factors_Other Investment Considerations" below, and "Investment
Objective and Management Policies_Portfolio Securities_Mortgage-Related
Securities" in the Fund's Statement of Additional Information.
ILLIQUID SECURITIES -- The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, certain options traded in
the over-the-counter market and securities used to cover such options, and
certain mortgage-backed securities, such as certain collateralized mortgage
obligations and stripped mortgage-backed securities. As to these securities,
the Fund is subject to a risk that should the Fund desire to sell them when a
ready buyer is not available at a price the Fund deems representative of
their value, the value of the Fund's net assets could be adversely affected.
CERTAIN FUNDAMENTAL POLICIES -- The Fund may: (i) with respect to 75% of the
Fund's assets, invest up to 5% of the value of its total assets in securities
of any one issuer or purchase up to 10% of the voting securities of any one
issuer; (ii) purchase securities of any company having less than three years'
continuous operation (including operations of any predecessors) if such
purchase does not cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its assets; (iii) borrow money to the
extent permitted under the Investment Company Act of 1940; and (iv) invest up
to 25% of its total assets in securities of issuers in a single industry,
provided that, when the Fund has adopted a temporary defensive posture, there
shall be no such limitation on investments in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities. This paragraph
describes fundamental policies that cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940) of
the Fund's outstanding voting shares.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES -- The Fund may (i) pledge,
mortgage, hypothecate or otherwise encumber its assets, to the extent
necessary to secure permitted borrowings; and (ii) invest up to 15% of the
value of its net assets in repurchase agreements providing for settlement in
more than seven days after notice and in other illiquid securities. See
"Investment Objective and Management Policies_Investment Restrictions" in the
Fund's Statement of Additional Information.
RISK FACTORS
CERTAIN INVESTMENT TECHNIQUES _ The use of speculative investment techniques
such as leveraging, short-selling, short-term trading, engaging in futures
and options and currency transactions and lending portfolio securities
involves greater risk than that incurred by many other funds with a similar
objective. These risks are described above under "Investment Techniques." In
addition, using these techniques may produce higher than normal portfolio
turnover and may affect the degree to which the Fund's 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. You should purchase Fund shares only as a supplement to an
overall investment program and only if you are willing to undertake the risks
involved in speculative investing.
The Fund's ability to engage in certain short-term transactions may
be limited by the requirement that, to qualify as a regulated investment
company, the Fund must earn less than 30% of its gross income from the
disposition of securities held for less than three months. This 30% test
limits the extent to which the Fund may sell securities held for less than
three months, write options expiring in less than three months and invest in
certain futures contracts, among other strategies. However, portfolio turnover
will not otherwise be a limiting factor when making investment decisions.
Under normal market conditions, the Fund's portfolio turnover rate will not
exceed 150%. See "Portfolio Transactions" in the Statement of Additional
Information.
(Page 13)
LOWER RATED SECURITIES -- You should carefully consider the relative risks of
investing in the higher yielding (and, therefore, higher risk) debt
securities in which the Fund may invest. These are securities such as those
rated Ba by Moody's or BB by Standard & Poor's or as low as those rated Ca by
Moody's or C by Standard & Poor's. 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. Securities 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. Securities rated BB by Standard & Poor's 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 payments. Debt
securities rated Ca by Moody's are regarded as speculative in a high degree
and are often in default or have other marked shortcomings. Standard & Poor's
typically assigns a C rating to income bonds on which no interest is being
paid. Such securities, though high yielding, are characterized by great risk.
See "Appendix" in the Fund's Statement of Additional Information for a
general description of Moody's and Standard & Poor's ratings of debt
obligations. The ratings of Moody's and Standard & Poor's 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 Dreyfus Corporation also will
evaluate these securities and the ability of the issuers of such securities
to pay interest and principal. The Fund's ability to achieve its investment
objective may be more dependent on The Dreyfus Corporation's credit analysis
than might be the case for a fund that invested in higher rated securities.
Once the rating of a portfolio security has been changed, the Fund will
consider all circumstances deemed relevant in determining whether to continue
to hold the security.
The market price and yield of bonds rated Ba or lower by Moody's and
BB or lower by Standard & Poor's are more volatile than those of higher rated
bonds. Factors adversely affecting the market price and yield of these
securities will adversely affect the Fund's net asset value. In addition, the
retail secondary market for these bonds may be less liquid than that of
higher rated bonds; adverse conditions could make it difficult at times for
the Fund to sell certain securities or could result in lower prices than
those used in calculating the Fund's net asset value.
The market values of certain lower rated debt securities tend to
reflect individual corporate developments to a greater extent than do higher
rated securities, which react primarily to fluctuations in the general level
of interest rates, and tend to be more sensitive to economic conditions than
are higher rated securities. Companies that issue such bonds often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with higher rated
securities.
The Fund may invest in zero coupon securities and pay-in-kind bonds
(bonds which pay interest through the issuance of additional bonds), rated as
low as Ca by Moody's and as low as C by Standard & Poor's, which involve
special considerations. These securities may be subject to greater
fluctuations in value due to changes in interest rates than interest-bearing
securities and thus may be considered more speculative than comparably rated
interest-bearing securities. See "Other Investment Considerations" below, and
"Investment Objective and Management Policies_ Risk Factors_Lower Rated
Securities" and "Dividends, Distributions and Taxes" in the Fund's Statement
of Additional Information.
INVESTING IN FOREIGN SECURITIES _ In making foreign investments, the Fund
will give appropriate consideration to the following factors, among others.
(Page 14)
Foreign securities markets generally are not as developed or
efficient as those in the United States. Securities of some foreign issuers
are less liquid and more volatile than securities of comparable U.S. issuers.
Similarly, volume and liquidity in most foreign securities markets are less
than in the United States and, at times, volatility of price can be greater
than in the United States. The issuers of some of these securities, such as
foreign bank obligations, may be subject to less stringent or different
regulation than are U.S. issuers. In addition, there may be less publicly
available information about a non-U.S. issuer, and non-U.S. issuers generally
are not subject to uniform accounting and financial reporting standards,
practices and requirements comparable to those applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held
outside the United States, the Fund 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.
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 the 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 the
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 the Fund will reduce its net income available for
distributions to investors.
FOREIGN CURRENCY EXCHANGE _ Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks
or the failure to intervene or by currency controls or political developments
in the U.S. or abroad.
The foreign currency market offers less protection against defaults
in the forward trading of currencies than is available when trading in
currencies occurs on an exchange. Since a forward currency contract is not
guaranteed by an exchange or clearinghouse, a default on the contract would
deprive the Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
FOREIGN COMMODITY TRANSACTIONS -- Unlike trading on domestic commodity
exchanges, trading on foreign commodity 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 the 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 commodities which are
traded on domestic exchanges and those which are not.
OTHER INVESTMENT CONSIDERATIONS -- The Fund's net asset value is not fixed
and should be expected to fluctuate.
(Page 15)
Investors should be aware that equity securities fluctuate in value,
often based on factors unrelated to the value of the issuer of the
securities, and that fluctuations can be pronounced. Changes in the value of
the Fund's securities will result in changes in the value of the Fund's
shares and thus the Fund's yield and total return to investors.
No assurance can be given as to the liquidity of the market for
certain mortgage-backed securities, such as collateralized mortgage
obligations and stripped mortgage-backed securities. Determination as to the
liquidity of such securities are made in accordance with guidelines
established by the Fund's Board of Trustees. In accordance with such
guidelines, The Dreyfus Corporation monitors the Fund's investments in such
securities with particular regard to trading activity, availability of
reliable price information and other relevant information.
Federal income tax law requires the holder of a zero coupon security
or of certain pay-in-kind bonds to accrue income with respect to these
securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
Federal income taxes, the Fund may be required to distribute such income
accrued with respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements.
Investment decisions for the Fund are made independently from those
of the other investment companies advised by The Dreyfus Corporation.
However, if such other investment companies are prepared to invest in, or
desire to dispose of, securities of the type in which the Fund invests at the
same time as the Fund, available investments or opportunities for sales will
be allocated equitably to each investment company. In some cases, this
procedure may adversely affect the size of the position obtained for or
disposed of by the Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New York, New
York 10166, was formed in 1947 and serves as the Fund's investment adviser. Th
e Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As
of November 30, 1994, The Dreyfus Corporation managed or administered
approximately $71 billion in assets for approximately 1.9 million investor
accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the overall authority of the Fund's Trustees in accordance with
Massachusetts law. The Fund's primary portfolio manager is Garitt Kono. He
has held that position since June 1994 and has been employed by The Dreyfus
Corporation since September, 1992. For more than five years prior to joining
The Dreyfus Corporation, Mr. Kono was Vice President-Fixed Income at The
First Boston Corporation. The Fund's other portfolio managers are identified
under "Management of the Fund" in the Fund's Statement of Additional
Information. The Dreyfus Corporation also provides research services for the
Fund as well as for other funds advised by The Dreyfus Corporation through a
professional staff of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCOCredit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed
approximately $201 billion in assets as of September 30, 1994, including $76
billion in mutual fund assets. As of September 30, 1994, Mellon, through
various subsidiaries, provided non-investment services, such as custodial or
administration ser-
(Page 16)
vices, for approximately $659 billion in assets, including
approximately $108 billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to
pay The Dreyfus Corporation a monthly fee at the annual rate of .60 of 1% of
the value of the Fund's average daily net assets. For the fiscal year ended
October 31, 1994, the Fund paid The Dreyfus Corporation a monthly fee at the
effective annual rate of .60 of 1% of the value of the Fund's average daily
net assets. From time to time, The Dreyfus Corporation may waive receipt of
its fees and/or voluntarily assume certain expenses of the Fund, which would
have the effect of lowering the Fund's overall expense ratio and increasing
yield to investors at the time such amounts are waived or assumed, as the
case may be. The Fund will not pay The Dreyfus Corporation at a later time
for any amounts it may waive, nor will the Fund reimburse The Dreyfus
Corporation for any amounts it may assume. The Dreyfus Corporation or its
affiliates may pay certain entities, including banks, an account fee and also
a fee in connection with the servicing of Fund shareholders.
The Fund bears certain costs of distributing Fund shares in
accordance with a plan (the "Service Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940. See "Fee Table" and "Service Plan."
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor 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.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Bank of New York, 110 Washington Street, New York, New York 10286, is the Fund
's Custodian.
HOW TO BUY FUND SHARES
You can purchase Fund shares through the Distributor or certain
financial institutions (which may include banks), securities dealers and
other industry professionals (collectively, "Service Agents") that have
entered into service agreements with the Distributor. Share certificates are
issued only upon your written request. No certificates are issued for
fractional shares. The Fund reserves the right to reject any purchase order.
The minimum initial purchase 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 $500. The
initial investment must be accompanied by the Fund's Account Application. For
full-time or part-time employees of The Dreyfus Corporation or any of its
affiliates or subsidiaries, directors of The Dreyfus Corporation, Board
members of a fund advised by The Dreyfus Corporation, including members of
the Fund's Board, or the spouse or minor child of any of the foregoing, the
minimum initial investment is $1,000. For full-time or part-time employees of
The Dreyfus Corporation or any of its affiliates or subsidiaries who elect to
have a portion of their pay directly deposited into their Fund account, the
minimum initial investment is $50. The Fund reserves the right to offer Fund
shares without regard to minimum purchase requirements to employees
participating in certain qualified and 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 requir
ements at any time.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian." Payments to open new
(Page 17)
accounts which
are mailed should be sent to The Dreyfus Family of Funds, P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account Application.
For subsequent investments, your Fund account number should appear on the
check and an investment slip should be enclosed and sent to The Dreyfus
Family of Funds, P.O. Box 105, Newark, New Jersey 07101-0105. For Dreyfus
retirement plan accounts, both initial and subsequent investments should be
sent to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Neither initial nor subsequent investments should be
made by third party check. Purchase orders may be delivered in person only to
a Dreyfus Financial Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND
WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the nearest
Dreyfus Financial Center, please call one of the telephone numbers listed
under "General Information."
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. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA #8900119330/Dreyfus
Strategic Income, for purchase of Fund shares in your name. The wire must
include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Fund's Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the
Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made in
U.S. dollars and, to avoid fees and delays, should be drawn only on U.S.
banks. A charge will be imposed if any check used for investment in your
account does not clear. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
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."
If an order is received by the Transfer Agent or other agent by the
close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m., New York time) on a business day, Fund shares will be purchased at the
public offering price (i.e., net asset value plus the applicable sales load
set forth below) determined as of the close of trading on the floor of the
New York Stock Exchange on that day. Otherwise, Fund shares will be purchased
at the public offering price determined as of the close of trading on the
floor of the New York Stock Exchange on the next business day, except where
shares are purchased through a dealer as provided below.
Orders for the purchase of Fund shares received by dealers by the
close of trading on the Floor of the New York Stock Exchange on a business
day and transmitted to the Distributor 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 as of the close of trading on the floor of the New
York Stock Exchange on that day. Otherwise, the orders will be based on the
next determined public offering price. It is the dealers' responsibility to
transmit orders so that they will be received by the Distributor before the
close of its business day.
The public offering price is the net asset value per share plus a
sales load as shown below:
(Page 18)
<TABLE>
Total Sales Load
As a % of As a % of
offering price net asset value
per share per share
<S> <C> <C>
Amount of Transaction
Less than $100,000..................................... 3.00 3.10
$100,000 to less than $250,000......................... 2.75 2.80
$250,000 to less than $500,000......................... 2.25 2.30
$500,000 to less than $1,000,000....................... 2.00 2.00
$1,000,000 and over.................................... 1.00 1.00
</TABLE>
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 Fund shares (or
otherwise have a brokerage-related or clearing
arrangement with an NASD member firm or other financial institution with
respect to the sale of Fund shares) may purchase Fund shares 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 that 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 Fund
shares at net asset value. In addition, Fund shares are offered at net asset
value to full-time or part-time employees of The Dreyfus Corporation or any
of its affiliates or subsidiaries, directors of The Dreyfus Corporation, Board
members of a fund advised by The Dreyfus Corporation, including members of
the Fund's Board, or the spouse or minor child of any of the foregoing. Fund
shares purchased in connection with the Dreyfus Managed Portfolio program
will be purchased at net asset value.
Fund shares will be offered at net asset value without a sales load
to employees participating in qualified or nonqualified 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 investment in the Dreyfus Family of Funds or certain other products
made available by the Distributor to such plans or programs exceeds one
million dollars ("Eligible Benefit Plans"). Plan sponsors, administrators or
trustees, as applicable, are responsible for notifying the Distributor when
the relevant requirement is satisfied. The Distributor may pay dealers a fee
of up to .5% of the amount invested through such dealers in Fund shares at
net asset value by employees participating in Eligible Benefit Plans. All
present holdings of shares of funds in the Dreyfus Family of Funds by an
Eligible Benefit Plan will be aggregated to determine the fee payable with
respect to each such purchase of Fund shares. 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.
Fund shares also may be purchased (including by exchange) at net
asset value without a sales load for Dreyfus-sponsored IRA "Rollover
Accounts" with the distribution proceeds from a qualified retirement plan or
a Dreyfus-sponsored 403(b)(7) plan, provided that, at the time of such
distribution, such qualified retirement plan or Dreyfus-sponsored 403(b)(7)
plan (a) satisfied the requirements set forth under either clause (i) or
clause (ii) in the preceding paragraph and all or a portion of such plan's ass
ets were invested in funds in the Dreyfus Family of Funds or certain other
products made available by the Distributor to such plans, or (b) invested all
of its assets in funds in the Dreyfus Family of Funds or certain other
products made available by the Distributor to such plans which funds or other
products were sold with a sales load.
For the period November 1, 1993 through August 24, 1994, the Dreyfus
Service Corporation, a wholly-owned subsidiary of The Dreyfus Corporation and
the Fund's distributor during such period retained $2,061,758 from sales
loads on Fund shares. The dealer reallowance may be changed from time to time
(Page 19)
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 advised by The Dreyfus Corporation which are sold with a sales load,
such as the Fund. In some instances, these incentives may be offered only to
certain dealers who have sold or may sell significant amounts of shares.
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in this
Prospectus, and, to the extent permitted by applicable regulatory authority,
may charge their clients direct fees for Servicing (as defined under "Service
Plan"). These fees would be in addition to any amounts which might be
received under the Service Plan. Each Service Agent has agreed to transmit to
its clients a schedule of such fees. You should consult your Service Agent in
this regard.
Fund shares are sold on a continuous basis. Net asset value per share
is determined as of the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m., New York time), on each day the New York Stock
Exchange is open for business. For purposes of determining net asset value
per share, options and futures contracts will be valued 15 minutes after the
close of trading on the floor of the New York Stock Exchange. Net asset value
per share is computed by dividing the value of the Fund's net assets (i.e.,
the value of its assets less liabilities) by the total number of shares
outstanding. The 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 Trustees. For further information
regarding the methods employed in valuing Fund investments, see
"Determination of Net Asset Value" in the Fund's Statement of Additional
Information.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
RIGHT OF ACCUMULATION -- Reduced sales loads apply to any purchase of Fund
shares, shares of other funds advised by The Dreyfus Corporation which are
sold with a sales load or shares acquired by a previous exchange of shares
purchased with a sales load (hereinafter referred to as "Eligible Funds") by
you and any related "purchaser" as defined in the Statement of Additional
Information, where the aggregate investment, including such purchase, is
$100,000 or more. If, for example, you previously purchased and still hold
shares of the Fund, or of any other Eligible Fund, or combination thereof,
with an aggregate current market value of $90,000 and subsequently purchase
shares of the Fund or an Eligible Fund having a current value of $20,000, the
sales load applicable to the subsequent purchase would be reduced to 2.75% 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.
DREYFUS TELETRANSFER PRIVILEGE -- You may purchase Fund shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Fund's Account Application
or have filed an Optional 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 Fund may modify or terminate this Privilege at any time or
charge a service fee upon notice to shareholders. No such fee currently is
contemplated.
(Page 20)
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents may
impose certain conditions on their clients which are different from those
described in this Prospectus. You should consult your Service Agent in this
regard.
FUND EXCHANGES _ You may purchase, in exchange for shares of the Fund, shares
of certain other funds managed or administered by The Dreyfus Corporation, to
the extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
Fund exchanges may be exercised twice during the calendar year as described
below. If you desire to use this service, you should consult your Service
Agent or call 1-800-645-6561 to determine if it is available and whether any
other conditions are imposed on its use.
To request an exchange, you or your Service Agent acting on your
behalf must give exchange instructions to the Transfer Agent in writing or by
telephone. Before any exchange, you must obtain and should review a copy of
the current prospectus of the fund into which the exchange is being made.
Prospectuses may be obtained by calling 1-800-645-6561. Except in the case of
Personal Retirement Plans, the shares being exchanged must have a current
value of at least $500; furthermore, when establishing a new account by
exchange, the shares being exchanged must have a value of at least the
minimum initial investment required for the fund into which the exchange is
being made. The ability to issue exchange instructions by telephone is given
to all Fund shareholders automatically, unless you check the relevant "NO"box
on the Account Application, indicating that you specifically refuse this
Privilege. The Telephone Exchange Privilege may be established for an
existing account by written request, signed by all shareholders on the
account, or by a separate signed Shareholder Services Form, also available by
calling 1-800-645-6561. If you established the Telephone Exchange Privilege,
you may telephone exchange instructions by calling 1-800-221-4060 or, if you
are calling from overseas, call 1-401-455-3306. See "How to Redeem Fund
Shares_Procedures." Upon an exchange into a new account, the following
shareholder services and privileges, as applicable and where available, will
be automatically carried over to the fund into which the exchange is made:
Telephone Exchange Privilege, Wire Redemption Privilege, Dreyfus TELETRANSFER
Privilege and the dividend/capital gain distribution option (except for the
Dreyfus Dividend Sweep) selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the Fund from
which you are exchanging were: (a) purchased with a sales load, (b) acquired
by a previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestments of dividends or distributions paid with
respect to the foregoing categories of shares. To qualify, at the time of
your exchange you must notify the Transfer Agent or your Service Agent must
notify the Distributor. Any such qualification is subject to confirmation of
your holdings through a check of appropriate records. See "Shareholder
Services" in the Fund's Statement of Additional Information. No fees
currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal fee in accordance with rules
promulgated by the Securities and Exchange Commission. The Fund reserves the
right to reject any exchange request in whole or in part. The availability of
Fund exchanges may be modified or terminated at any time upon notice to
shareholders.
With respect to any investor who has exchanged out of the Fund twice
during the calendar year, further purchase orders (including those pursuant
to exchange instructions) relating to any shares of the Fund will be
(Page 21)
rejected
for the remainder of the calendar year. Management believes that this policy
will enable shareholders to change their investment program, while protecting
the Fund against disruptions in portfolio management resulting from frequent
transactions by those seeking to time market fluctuations. Exchanges made
through omnibus accounts for various retirement plans are not subject to such
limit on exchanges.
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.
DREYFUS AUTO-EXCHANGE PRIVILEGE -- Dreyfus Auto-Exchange Privilege enables
you to invest regularly (on a semi-monthly, monthly, quarterly or annual
basis), in exchange for shares of the Fund, in shares of other funds in the
Dreyfus Family of Funds of which you are currently an investor. The amount
you designate, which can be expressed either in terms of a specific dollar or
share amount ($100 minimum), will be exchanged automatically on the first
and/or fifteenth of the month according to the schedule you have selected.
Shares will be exchanged at the then current net asset value; however, a
sales load may be charged with respect to exchanges into funds sold with a
sales load. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
cancelled by the Fund or the Transfer Agent. You may modify or cancel your
exercise of this Privilege at any time by writing to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. The Fund may
charge a service fee for the use of this Privilege. No such fee currently is
contemplated. The exchange of shares of one fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss. For more information concerning this
Privilege and the funds in the Dreyfus Family of Funds eligible to
participate in this Privilege, or to obtain a Dreyfus Auto-Exchange
Authorization Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER -- Dreyfus-AUTOMATIC Asset Builder permits
you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund 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 Fund shares will be purchased, once a month, on either the first
or fifteenth 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 a Dreyfus-AUTOMATIC Asset Builder
account, you must file an authorization form with the Transfer Agent. You may
obtain the necessary authorization form by calling 1-800-645-6561. You may
cancel your participation in this Privilege or change the amount of purchase
at any time by mailing written notification to The Dreyfus Family of Funds,
P.O. Box 6527, Providence, Rhode Island 02940-6527, or, if for Dreyfus
Retirement Plan accounts, to The Dreyfus Trust Company, Custodian, P.O. Box
6427, Providence, Rhode Island 02940-6427, and the notification will be
effective three business days following receipt. The Fund may modify or
terminate this Privilege at any time or charge a service fee. No such fee
currently is contemplated.
DREYFUS DIVIDEND OPTIONS -- Dreyfus Dividend Sweep enables you to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you are
investing in a fund that charges a sales load, you may qualify for share price
s which do not include the sales load or which reflect a reduced sales load.
If you are investing in a fund that charges a contingent deferred sales
charge, the shares purchased will be subject on redemption to the contingent
deferred sales charge, if any, applicable to the purchased shares. See
"Shareholder Services" in the Statement of Additional Information. Dreyfus
Dividend ACH permits you to transfer electronically dividends or dividends
and capital gain distributions, if any, from the Fund to a designated bank
account. Only such an account maintained at a domestic financial institution
which is an Automated Clearing House member may be so designated. Banks may
charge a fee for this service.
(Page 22)
For more information concerning these privileges and the funds in the
Dreyfus Family of Funds eligible to participate in these privileges, or to
request a Dividend Options Form, please call toll free 1-800-645-6561. You
may cancel these privileges by mailing written notification to The Dreyfus
Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To
select a new fund after cancellation, you must submit a new Dividend Options
Form. Enrollment in or cancellation of these privileges is effective three
business days following receipt. These privileges are available only for
existing accounts and may not be used to open new accounts. Minimum
subsequent investments do not apply for Dreyfus Dividend Sweep. The Fund may
modify or terminate these privileges at any time or charge a service fee. No
such fee currently is contemplated. Shares held under Keogh Plans, IRAs or
other retirement plans are not eligible for Dreyfus Dividend Sweep.
DREYFUS PAYROLL SAVINGS PLAN -- Dreyfus Payroll Savings Plan permits you to
purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your Employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the Automated Clearing House system at each
pay period. To establish a Dreyfus 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 The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
You may obtain the necessary authorization form by calling
1-800-645-6561. You may change the amount of purchase or cancel the
authorization only by written notification to your employer. It is the sole
responsibility of your employer, not the Distributor, The Dreyfus
Corporation, the Fund, the Transfer Agent or any other person, to arrange for
transactions under the Dreyfus Payroll Savings Plan. The Fund may modify or
terminate this Privilege at any time or charge a service fee. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans are not eligible for this Privilege.
AUTOMATIC WITHDRAWAL PLAN -- The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. An
application for the Automatic Withdrawal Plan can be obtained by calling
1-800-645-6561. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which certificates have been issued
may not be redeemed through the Automatic Withdrawal Plan.
RETIREMENT PLANS -- The 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 also
are available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; for SEP-IRAs,
401(k) Salary Reduction Plans and 403(b)(7) Plans, please call 1-800-322-7880.
LETTER OF INTENT _ By signing a Letter of Intent form, available from the
Distributor, you become eligible for the reduced sales load applicable to the
total number of Eligible Fund shares purchased in a 13-month period pursuant
to the terms and under the conditions set forth in the Letter of Intent. A
minimum initial purchase of $5,000 is required. To compute the applicable
sales load, the offering price of shares you hold (on the date of submission
of the Letter of Intent) in any Eligible Fund that may be used toward "Right
of Accumulation" benefits described above may be used as a credit toward
completion of the Letter of Intent. However, the reduced sales load will be
applied only to new purchases.
The Transfer Agent will hold in escrow 5% of the amount indicated in
the Letter of Intent for payment of a higher sales load if you do not
purchase the full amount indicated in the Letter of Intent. The escrow will
be released when you fulfill the terms of the Letter of Intent by purchasing
the specified amount. If your purchases qualify for a further sales load
reduction, the sales load will be adjusted to reflect your total purchase at
the end of 13 months. If total purchases are less than the amount specified,
you will be requested to remit an
(Page 23)
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 shares held in escrow to
realize the difference. Signing a Letter of Intent does not bind you to
purchase, or the 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 Fund shares, 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.
HOW TO REDEEM FUND SHARES
GENERAL -- You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent, as described below.
When a request is received in proper form, the Fund will redeem the shares at
the next determined net asset value.
The Fund imposes no charges when shares are redeemed directly through
the Distributor. Service Agents may charge a nominal fee for effecting
redemptions of Fund shares. Any certificates representing Fund 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 Fund's then-current net asset value.
The Fund ordinarily will make payment 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 FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER OR THROUGH DREYFUS-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, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC ASSET
BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN ADDITION,
THE FUND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR TELEPHONE OR
PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT BUSINESS
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE DREYFUS
TELETRANSFER PURCHASE OR THE DREYFUS-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.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES _ You may redeem shares by using the regular redemption procedure
through the Transfer Agent or through the Wire Redemption Privilege, the
Telephone Redemption Privilege, or Dreyfus TELETRANSFER Privilege. Other
redemption procedures may be in effect for investors who effect transactions
in Fund shares through Service Agents. The Fund makes available to certain
large institutions the ability to issue redemption instructions through
compatible computer facilities.
In addition, the Distributor will accept orders from dealers with
which it has sales agreements for the repurchase of shares held by
shareholders. Repurchase orders received by the dealer prior to the close of
trading on the New York Stock Exchange on a business day and transmitted to
the Distributor prior to the close of its business day (normally 5:15 p.m.,
New York time) are effected at the price determined as of the close of
trading on the floor of the New York Stock Exchange on that day. Otherwise,
the shares will be redeemed at the next determined net asset value. It is the
responsibility of
(Page 24)
the dealer to transmit orders on a timely basis. The dealer
may charge the shareholder a fee for executing the order. This repurchase
arrangement is discretionary and may be withdrawn at any time.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select the Dreyfus TELETRANSFER
Privilege, the Telephone Redemption Privilege or Telephone Exchange Privilege
(which is granted automatically unless you refuse it), you authorize the
Transfer Agent to act on telephone instructions from any person representing
himself or herself to be you, or a representative of your Service Agent, and
reasonably believed by the Transfer Agent to be genuine. The Fund 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 Fund or the Transfer Agent
may be liable for any losses due to unauthorized or fraudulent instructions.
Neither the Fund 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 Dreyfus TELETRANSFER redemption or exchange of Fund shares. 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
Dreyfus TELETRANSFER redemption had been used. During the delay, the Fund's
net asset value may fluctuate.
REGULAR REDEMPTION -- Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
6527, Providence, Rhode Island 02940-6527. Redemption requests for Dreyfus
Retirement Plan accounts should be sent to The Dreyfus Trust Company,
Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427. Redemption
requests may be delivered in person only to a Dreyfus Financial Center. THESE
REQUESTS WILL BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON
RECEIPT THEREBY. For the location of the nearest Dreyfus Financial Center,
please call one of the telephone numbers listed under "General Information."
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 Program ("STAMP"), and the Stock
Exchanges Medallion Program.. If you have any questions with respect to
signature-guarantees, please call one of the telephone numbers listed under
"General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
WIRE REDEMPTION PRIVILEGE -- You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. To establish the Wire Redemption Privilege, you must
check the appropriate box and supply the necessary information on the Fund's
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 not more than $250,000 wired within any 30-day period.
You may telephone redemption requests by calling 1-800-221-4060 or, if you
are calling from overseas, call 1-401-455-3306. The Fund reserves the right
to refuse any redemption request, including requests made shortly after a chan
ge 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 Fund. The Fund's Statement of Additional Information
sets forth instructions for transmit-
(Page 25)
ting redemption requests by wire. Shares
held under Keogh Plans, IRAs or other retirement plans, and shares for which
certificates have been issued, are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE -- You may redeem Fund shares (maximum
$150,000 per day) by telephone if you have checked the appropriate box on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. The
Fund 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 Fund.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares for
which certificates have been issued, are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE _ You may redeem Fund shares (minimum $500 per
day) by telephone if you have checked the appropriate box and supplied the
necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between your Fund account and the bank account designated in one
of these documents. Only such an account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request or, at your request, paid by check (maximum $150,000 per
day) and mailed to your address. Holders of jointly registered Fund or bank
accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account not more than $250,000 within any 30-day period. The
Fund 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 Fund may modify or terminate
this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares
issued in certificate form, are not eligible for this Privilege.
REINVESTMENT PRIVILEGE _ You may reinvest up to the number of shares you have
redeemed, within 30 days of redemption, at the then-prevailing net asset
value without a sales load, or reinstate your account for the purpose of
exercising the Exchange Privilege. The Reinvestment Privilege may be
exercised only once.
SERVICE PLAN
Under the Service Plan, adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund has undertaken to pay the
Distributor for advertising, marketing and distributing the Fund's shares and
for servicing Fund shareholders at an annual rate of .25 of 1% of the value
of the Fund's average daily net assets. Under the Service Plan, the
Distributor may make payments to Service Agents for administration, for
servicing Fund shareholders who are also their clients and/or for
distribution. The Distributor determines the amounts to be paid to Service
Agents. Service Agents receive such fees in respect of the average daily
value of the Fund's shares owned by shareholders for whom the Service Agent
performs Servicing (as defined below) or for whom the Service Agent is the
dealer or holder of record. The Service Plan also provides that The Dreyfus
Corporation may pay Service Agents for servicing out of its management fee,
its past profits or any other sources available to it. From time to time, the
Distributor may defer or waive receipt of fees under the Service Plan while
retaining the ability to be paid by the Fund under the Service Plan
thereafter. The fees payable to the Distributor under the Service Plan for
advertising, marketing and distributing the Fund's shares and payments to
Service Agents are payable without regard to actual expenses incurred.
(Page 26)
The Fund also bears the costs of preparing and printing prospectuses
and statements of additional information used for regulatory purposes and for
distribution to existing shareholders. Under the Service Plan, the Fund bears
(a) the costs of preparing, printing and distributing prospectuses and
statements of additional information used for other purposes and (b) the
costs associated with implementing and operating the Service Plan (such as
costs of printing and mailing service agreements), the aggregate of such
amounts not to exceed in any fiscal year of the Fund the greater of $100,000
or .005 of 1% of the value of the Fund's average daily net assets for such
fiscal year. Each item for which a payment may be made under the Service Plan
may constitute an expense of distributing Fund shares as the Securities and
Exchange Commission construes such term under Rule 12b-1.
Expenses under the Service Plan may be carried forward from one year
to another to the extent they remain unpaid. All or a part of any such amount
carried forward will be paid at such time, if ever, as the Board determines
to pay it. The Fund will not be charged for interest, carrying or other
finance charges on any unreimbursed distribution or other expense incurred
and not paid in a prior year.
Servicing 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
sub-accounting; 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.
The Glass-Steagall Act and other applicable laws prohibit Federally
chartered or supervised banks from engaging in certain aspects of the
business of issuing, underwriting, selling and/or distributing securities.
Accordingly, banks will be engaged to act as Service Agents only to perform
administrative and shareholder servicing functions. While the matter is not
free from doubt, the Fund's Board of Trustees believe that such laws should
not preclude a bank from acting as a Service Agent. However, judicial or
administrative decisions or interpretations of such laws, as well as changes
in either Federal or state statutes or regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, could
prevent a bank from continuing to perform all or a part of its Servicing
activities. If a bank were prohibited from so acting, its shareholder clients
would be permitted to remain Fund shareholders and alternative means for
continuing the Servicing of such shareholders would be sought. In such event,
changes in the operation of the Fund might occur and shareholders serviced by
such bank might no longer be able to avail themselves of any automatic
investment or other services then being provided by such bank. The Fund does
not expect that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares dividends from its net investment income
on each day that the New York Stock Exchange is open for business. The Fund's
earnings for Saturdays, Sundays and holidays are declared as dividends on the
preceding business day. Dividends usually are paid on the last business day
of each month and automatically reinvested in additional Fund shares at net
asset value, without a sales load, unless you elect payment in cash. If you
redeem all shares in your account at any time during the month, all dividends
to which you are entitled will be paid to you along with the proceeds of the
redemption. Distributions of net realized securities gains, if any, generally
are declared and paid once a year, but the Fund may make distributions on a
more frequent basis to comply with the distribution requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), in all events in a
manner consistent with the Investment Company Act of 1940. The Fund will not
make distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. You may choose
whether to receive distributions in cash or to rein-
(Page 27)
vest such amounts in
additional Fund shares at net asset value without a sales load. All expenses
are accrued daily and deducted before declaration of dividends.
Fund shares begin earning income dividends on the day immediately
available funds ("Federal Funds" (monies of member banks within the Federal
Reserve System which are held on deposit at a Federal Reserve Bank)) are
received by the Transfer Agent in written or telegraphic form. If a purchase
order is not accompanied by remittance in Federal Funds, there may be a delay
between the time the purchase order becomes effective and the time the shares
purchased start earning dividends. If your payment is not made in Federal
Funds, it must be converted into Federal Funds. This usually occurs within
one business day of receipt of a bank wire and within two business days of
receipt of a check drawn on a member bank of the Federal Reserve System.
Checks drawn on banks which are not members of the Federal Reserve System may
take considerably longer to convert into Federal Funds.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to U.S. shareholders
as ordinary income whether received in cash or reinvested in additional Fund
shares. Distributions from net realized long-term capital gains of the Fund
to U.S. shareholders generally are taxable as long-term capital gains for
Federal income tax purposes, regardless of how long shareholders have held
their Fund shares and whether such distributions are received in cash or
reinvested in additional Fund shares. The Code provides that the net capital
gain of an individual generally will not be subject to Federal income tax at
a rate in excess of 28%. Dividends and distributions may be subject to state
and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Fund to a foreign investor, as well as the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gain or
loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of your dividends and distributions is
mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
The Code provides for the "carryover" of some or all of the sales
load imposed on Fund shares, if you exchange your Fund shares for shares of
another fund advised by The Dreyfus Corporation within 91 days and such other
fund reduces or eliminates its otherwise applicable sales load charge for the
purpose of the exchange. In this case, the amount of your sales load charge
for Fund shares, up to the amount of the reduction of the sales load charge
on the exchange, is not included in the basis of your Fund shares for
purposes of computing gain or loss on the exchange, and instead is added to
the basis of the fund shares received on the exchange.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains of the Fund and the proceeds of any
redemption, regardless of the extent to which gain or loss may be realized,
paid to a shareholder if such shareholder fails to certify either that the
TIN furnished in connection with opening an account is correct, or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if
(Page 28)
the IRS determines that a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report dividend and interest income on your Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Fund believes that the Fund has qualified for the
fiscal year ended October 31, 1994 as a "regulated investment company" under
the Code. The Fund intends to continue to so qualify if such qualification is
in the best interests of its shareholders. Such qualification relieves the
Fund of any liability for Federal income taxes to the extent its earnings are
distributed in accordance with applicable provisions of the Code. In
addition, the Fund is subject to a non-deductible 4% excise tax, measured
with respect to certain undistributed amounts of taxable investment income
and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state and local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return, and/or total
return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the maximum
offering price per share at the end of the period. For purposes of
calculating current yield, the amount of net investment income per share
during that 30-day period, computed in accordance with regulatory
requirements, is compounded by assuming that it is reinvested at a constant
rate over a six-month period. An identical result is then assumed to have
occurred during a second six-month period which, when added to the result for
the first six months, provides an "annualized" yield for an entire one-year
period. Calculations of the Fund's current yield may reflect absorbed
expenses pursuant to expense limitations in effect. See "Management of the
Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the 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 the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, 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 maximum
offering price 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 may also be calculated
by using the net asset value per share at the beginning of the period instead
of the maximum offering price per share at the beginning of the period.
Calculations based on the net asset value per share do not reflect the
deduction of the sales load 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. Investors 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.
(Page 29)
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Moody's Bond Survey Bond Index, Lehman Brothers
Municipal Bond Index, Morningstar, Inc., Value Line Mutual Fund Survey and
other industry publications.
GENERAL INFORMATION
The Fund was organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated July 24, 1985, and
commenced operations on October 1, 1986. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, par value $.001 per share.
Each share has one vote.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Fund in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund. As described under "Management of the Fund" in the
Fund's Statement of Additional Information, the Fund ordinarily will not hold
shareholder meetings; however, shareholders under certain circumstances may
have the right to call a meeting of shareholders for the purpose of voting to
remove Trustees.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call 1-718-895-1206; on Long Island, call
794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
(Page 30)
APPENDIX
The average distribution of investments in corporate bonds by ratings
for the fiscal year ended October 31, 1993, calculated monthly on a dollar
weighted basis, was as follows:
<TABLE>
MOODY'S INVESTORS STANDARD & POOR'S
SERVICE, INC. OR CORPORATION PERCENTAGE
--------------------- ---------------------- -----------------
<S> <C> <C>
Aaa AAA 22.92%
Aa AA 8.16
A A 24.39
Baa BBB 27.05
Ba BB 11.68
B B 2.77
Caa CCC .22
Unrated Unrated 2.81*
----------
100.00%
========
The actual distribution of the Fund's corporate bond investments by
ratings on any given date will vary. In addition, the distribution of the
Fund's investments by ratings as set forth above should not be considered as
representative of the Fund's future portfolio composition.
* Included under the Unrated category are securities comprising 2.81%,
while unrated, have been determined by The Dreyfus Corporation to be of
comparable quality to securities rated Ba/BB.
(Page 31)
Strategic
Income
Prospectus
Registration Mark
Copy Rights1995 Dreyfus Service Corporation
031p14030195
DREYFUS STRATEGIC INCOME
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MARCH 1, 1995
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus Strategic Income (the "Fund"), dated March 1, 1995, as it may be
revised from time to time. To obtain a copy of the Fund's Prospectus, please
write to the Fund at 144 Glenn Curtiss Boulevard, Uniondale, New York
11556-0144, or call the following numbers:
Outside New York State -- Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
On Long Island -- Call 794-5452
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Premier Mutual Fund Services, Inc., (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . B-12
Management Agreement. . . . . . . . . . . . . . . . . . . . B-15
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . B-17
Service Plan. . . . . . . . . . . . . . . . . . . . . . . . B-18
Redemption of Fund Shares . . . . . . . . . . . . . . . . . B-19
Shareholder Services. . . . . . . . . . . . . . . . . . . . B-20
Determination of Net Asset Value. . . . . . . . . . . . . . B-23
Dividends, Distributions and Taxes. . . . . . . . . . . . . B-24
Portfolio Transactions. . . . . . . . . . . . . . . . . . . B-26
Performance Information . . . . . . . . . . . . . . . . . . B-26
Information About the Fund. . . . . . . . . . . . . . . . . B-28
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors . . . . . . . . . . . B-28
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . B-29
Financial Statements. . . . . . . . . . . . . . . . . . . . B-35
Report of Independent Auditors. . . . . . . . . . . . . . . B-47
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Description of the Fund."
Portfolio Securities
Mortgage-Related Securities
Government Agency Securities. Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage Pass-
Through Certificates (also known as "Ginnie Maes") which are guaranteed as to
the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. Ginnie Maes also are supported by the authority of GNMA
to borrow funds from the U.S. Treasury to make payments under its guarantee.
Government-Related Securities. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constitute a debt
or obligation of the United States or of any Federal Home Loan Bank. Freddie
Macs entitle the holder to timely payment of interest, which is guaranteed by
FHLMC. FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on
account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after
it becomes payable.
Bank Obligations
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to be insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks
whose certificates of deposit ("Cds") may be purchased by the Fund are insured
by the Bank Insurance Fund administered 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, and 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 foreign branches of foreign banks, such as Cds and time
deposits ("Tds"), may be general obligations of the parent banks in addition
to the issuing branches, or may be limited by the terms of a specific
obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that
may adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding and other taxes on interest
income. Foreign branches and subsidiaries are not necessarily subject to the
same or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial recordkeeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a
foreign bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent banks in addition to the issuing branches or may be
limited by the terms of a specific obligation and by Federal or state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A domestic branch of a foreign bank with assets in
excess of $1 billion may or may not 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 its 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 Manager carefully evaluates such investments on a
case-by-case basis.
The Fund may purchase Cds issued by banks, savings and loan associations
and similar institutions with less than $1 billion in assets, whose deposits
are insured by the FDIC, provided the Fund purchases any such CD in a
principal amount of not more than $100,000, which amount would be fully
insured by the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the FDIC. Interest payments on such a CD are not so insured.
The Fund will not own more than one such CD per such issuer.
Municipal Obligations
Municipal obligations are debt obligations issued by states, territories
and possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate agencies
or authorities. While in general, municipal obligations are tax exempt
securities having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain issues of municipal obligations, both
taxable and non-taxable, offer yields comparable and in some cases greater
than the yields available on other permissible Fund investments. Municipal
obligations generally include debt obligations issued to obtain funds for
various public purposes as well as certain industrial development bonds issued
by or on behalf of public authorities. Municipal obligations are classified
as general obligation bonds, revenue bonds and notes. General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing power
for the payment of principal and interest. Revenue bonds are payable from the
revenue derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source,
but not from the general taxing power. Industrial development bonds, in most
cases, are revenue bonds and generally do not carry the pledge of the credit
of the issuing municipality, but generally are guaranteed by the corporate
entity on whose behalf they are issued. Notes are short-term instruments
which are obligations of the issuing municipalities or agencies and are sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues. Municipal obligations include municipal lease/purchase agreements
which are similar to installment purchase contracts for property or equipment
issued by municipalities. Municipal obligations bear fixed, variable or
floating rates of interest, which are determined in some instances by formulas
under which the municipal obligation's interest rate will change directly or
inversely to changes in interest rates or an index, or multiples thereof, in
many cases subject to a maximum and minimum. Certain municipal obligations
are subject to redemption at a date earlier than their stated maturity
pursuant to call options, which may be separated from the related municipal
obligation and purchased and sold separately. Dividends received by
shareholders on Fund shares which are attributable to interest income received
by the Fund from municipal obligations generally will be subject to Federal
income tax. It is currently the Fund's intention to invest no more than 25%
of its assets in municipal obligations. However, this percentage may be
varied from time to time without shareholder approval.
Investment Techniques
Leverage Through Borrowing. The Fund may borrow for investment purposes.
The Investment Company Act of 1940 requires the 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 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 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 Fund
enters into a reverse repurchase agreement, the Fund will maintain in a
segregated custodial account, cash equivalents or U.S. Government securities
or other high quality liquid debt securities at least equal to the aggregate
amount of its reverse repurchase obligations, plus accrued interest, in
certain cases, in accordance with releases promulgated by the Securities and
Exchange Commission. The Securities and Exchange Commission views reverse
repurchase transactions as collateralized borrowings by the Fund. These
agreements, which are treated as if reestablished each day, are expected to
provide the Fund with a flexible borrowing tool.
Short Sales. Until the Fund replaces a borrowed security in connection
with a short sale, the Fund will: (a) maintain daily a segregated account,
containing cash or U.S. Government Securities, 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.
Options Transactions. The Fund may engage in options transactions, such
as purchasing or writing covered call or put options. In return for a
premium, the writer of a covered call option forfeits the right to any
appreciation in the value of the underlying security above the strike price
for the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the risk of a decline in the
price of the underlying security. The writer of a covered put option accepts
the risk of a decline in the price of the underlying security. The size of
the premiums that the Fund may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
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
times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-
money," respectively. The Fund may write (a) in-the-money call options when
the Manager 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 Manager 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 Manager 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 the Fund's obligation as the writer of an option continues,
the 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. The Fund can no
longer effect a closing purchase transaction with respect to an option once
it has been assigned an exercise notice.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized national securities
exchange or in the over-the counter market. Because of this fact and current
trading conditions, the Fund expects to purchase only call or put options
issued by the Options Clearing Corporation. The Fund expects to write options
on national securities exchanges and in the over-the-counter market.
While it may choose to do otherwise, the Fund generally will purchase or
write only those options for which the Manager 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 the 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.
Futures Contracts and Options on Futures Contracts. Upon exercise of an
option, the writer of the option delivers to the holder of the option the
futures position and the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract. The potential
loss related to the purchase of options on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because the value of
the option is fixed at the time of sale, there are no daily cash payments to
reflect changes in the value of the underlying contract; however, the value
of the option does change daily and that change would be reflected in the net
asset value of the Fund.
Foreign Currency Transactions. If the Fund enters into a currency
transaction, the Fund will deposit, if so required by applicable regulations
with its custodian or subcustodian cash or readily marketable securities in
a segregated account of the Fund in an amount at least equal to the value of
the Fund's total assets committed to the consummation of the forward contract.
If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value
of the account will equal the amount of the Fund's commitment with respect to
the contract.
At or before the maturity of a forward contract, the Fund either may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing
a second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If
the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in
forward contract prices. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a currency
and the date it enters into an offsetting contract for the purchase of the
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell.
The cost to the 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 usually are conducted on a principal basis, no fees or commissions
are involved. The use of forward currency 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
generally is anticipated, the Fund may not be able to contract to sell the
currency at a price above the devaluation level it anticipates. The
requirements for qualification as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), may cause the Fund to
restrict the degree to which it engages in currency transactions. See
"Dividends, Distributions and Taxes."
Lending Portfolio Securities. To a limited extent, the 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, the Fund can increase its income
through the investment of the cash collateral. For the purposes of this
policy, the Fund considers collateral consisting of U.S. Government securities
or irrevocable letters of credit issued by banks whose securities meet the
standards for investment by the Fund to be the equivalent of cash. From time
to time, the Fund may return to the borrower or a third party which is
unaffiliated with the Fund, and which is acting as a "placing broker," a part
of the interest earned from the investment of collateral received for
securities loaned. Such loans may not exceed 33 1/3% of the value of the
Fund's total assets.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Fund must be able
to terminate the loan at any time; (4) 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; and (5) the Fund may pay only reasonable custodian fees in connection
with the loan. These conditions may be subject to future modification.
When purchasing securities that have not been registered under the
Securities Act of 1933, as amended, and are not readily marketable, the Fund
will endeavor to obtain the right to registration at the expense of the
issuer. Generally, there will be a lapse of time between the Fund's decision
to sell any such security and the registration of the security permitting
sale. During any such period, the price of the securities will be subject to
market fluctuations. However, if a substantial market of qualified
institutional buyers develops pursuant to Rule 144A under the Securities Act
of 1933, as amended, for certain unregistered securities held by the Fund, the
Fund intends to treat such securities as liquid securities in accordance with
procedures approved by the Fund's Board of Trustees. Because it is not
possible to predict with assurance how the market for restricted securities
pursuant to Rule 144A will develop, the Fund's Board of Trustees has directed
The Dreyfus Corporation to monitor carefully the Fund's investments in such
securities with particular regard to trading activity, availability of
reliable price information and other relevant information. To the extent
that, for a period of time, qualified institutional buyers cease purchasing
restricted securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of illiquidity in the
Fund's portfolio during such period.
Risk Factors
Lower Rated Securities. The Fund is permitted to invest in securities
rated below Baa by Moody's Investors Service, Inc. ("Moody's") and below BBB
by Standard & Poor's Corporation ("S&P") and as low as Ca by Moody's or C by
S&P. Such securities, though higher yielding, are characterized by risk. See
"Description of the Fund -- Risk Factors -- Lower Rated Securities" in the
Prospectus for a discussion of certain risks and "Appendix" for a general
description of Moody's and S&P ratings. Although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of these securities. The Fund will rely on the
Manager's judgment, analysis and experience in evaluating the creditworthiness
of an issuer. In this evaluation, the Manager 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 the Fund's portfolio has
been changed, the Manager will consider all circumstances deemed relevant in
determining whether the Fund should continue to hold the security.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities and will fluctuate over time. These securities are
considered by S&P and Moody's, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation and generally will involve more credit risk than
securities in the higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with higher rated
securities. For example, during an economic downturn or a sustained period
of rising interest rates, highly leveraged issuers of these securities may
experience financial stress and may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations also may be affected adversely by specific corporate developments,
or the issuer's inability to meet specific projected business forecasts, or
the unavailability of additional financing. The risk of loss because of
default by the issuer is significantly greater for the holders of these
securities because such securities generally are unsecured and often are
subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of these
securities, the Manager 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 bonds 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 the Fund's ability to dispose of particular issues when necessary to meet
the 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 the Fund to obtain accurate market quotations for purposes of valuing the
Fund's portfolio and calculating its net asset value. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of these securities. In such cases,
judgment may play a greater role in valuation because less reliable, objective
data may be available.
These securities may be particularly susceptible to economic downturns.
It is likely that any economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
The Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with the Distributor or any other persons concerning the
acquisition of such securities, and the Manager will review carefully the
credit and other characteristics pertinent to such new issues.
Lower rated zero coupon securities involve special considerations. The
credit risk factors pertaining to lower rated securities also apply to lower
rated zero coupon securities. Such zero coupon securities carry an additional
risk in that, unlike securities which pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities are sold and, if the issuer defaults, the Fund may
obtain no return at all on its investment. See "Dividends, Distributions and
Taxes."
Investment Restrictions
The Fund has adopted the investment restrictions numbered 1 through 14
as fundamental policies. Fundamental policies cannot be changed without
approval by the holders of a majority (as defined in the Investment Company
Act of 1940 (the "Act")) of the Fund's outstanding voting shares. Investment
restriction number 15 is not a fundamental policy and may be changed by vote
of a majority of the Trustees at any time. The Fund may not:
1. Purchase the securities of any issuer (other than a bank) if such
purchase would cause more than 5% of the value of its total assets to be
invested in securities of such issuer, or invest more than 15% of its assets
in the obligations of any one bank, except that up to 25% of the value of the
Fund's total assets may be invested, and securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities may be purchased,
without regard to such limitations. Notwithstanding the foregoing, based on
rules of the Securities and Exchange Commission, the Fund will not invest more
than 5% of its assets in the obligations of any one bank, except as otherwise
provided in such rules.
2. 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.
3. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such companies
to exceed 5% of the value of its total assets.
4. Purchase securities of closed-end investment companies except (a)
in the open market where no commission except the ordinary broker's commission
is paid, which purchases are limited to a maximum of (i) 3% of the total
voting stock of any one closed-end investment company, (ii) 5% of its net
assets with respect to any one closed-end investment company and (iii) 10% of
its net assets in the aggregate, or (b) those received as part of a merger or
consolidation. The Fund may not purchase the securities of open-end
investment companies other than itself.
5. Purchase or retain the securities of any issuer if the officers,
Trustees or Directors of the Fund or the Manager individually own beneficially
more than 1/2 of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
6. Purchase, hold or deal in real estate, or oil and gas interests, but
the Fund may purchase and sell securities that are secured by real estate and
may purchase and sell securities issued by companies that invest or deal in
real estate.
7. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to indexes, and options on futures
contracts or indexes.
8. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) based on the lesser of cost or market,
less liabilities (not including the amount borrowed) at the time the borrowing
is made. While borrowings exceed 5% of the value of the Fund's total assets,
the Fund will not make any additional investments.
9. 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 in connection with writing covered put and call
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 indexes, and
options on futures contracts or indexes.
10. 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 an amount not to exceed 33 1/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the
Fund's Trustees.
11. Act as an underwriter of securities of other issuers except to the
extent the Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, by virtue of disposing of portfolio securities.
12. Invest in the securities of a company for the purpose of exercising
management or control, but the Fund will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.
13. Purchase, sell or write puts, calls or combinations thereof, except
as set forth under "Short-Selling," "Call and Put Options on Specific
Securities," "Futures Transactions - In General", "Interest Rate Futures
Contracts and Options on Interest Rate Futures Contracts", "Futures Contracts
Based on an Index of Debt Securities and Options on such Futures Contracts"
and "Options on Foreign Currency" in the Fund's Prospectus and "Futures
Contracts and Options on Futures Contracts" and "Options Transactions" in this
Statement of Additional Information.
14. Invest more than 25% of its assets in investments in any particular
industry or industries (including banking), provided that, when the Fund has
adopted a temporary defensive posture, there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
15. 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.
If a percentage restriction is adhered to at the time an investment is
made, a later increase in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
While not fundamental policies, the Fund has undertaken, so as to permit
the sale of Fund shares in certain states, not to invest in oil, gas and other
mineral leases or in real estate limited partnerships, and to treat the
securities of foreign issuers which are not listed on a recognized domestic
or foreign exchange and for which a bona-fide market does not exist at the
time of purchase or subsequent valuation as not readily marketable.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best interest
of the Fund and its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of Fund shares in the state involved.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Trustee who is deemed to be an "interested person" of the Fund,
as defined in the Act, is indicated by an asterisk.
Trustees of the Fund
*DAVID W. BURKE, Trustee. Consultant to the Manager since August 1994. From
October 1990 to August 1994, Vice President and Chief Administrative
Officer of the Manager. From 1977 to 1990, Mr. Burke was involved in the
management of national television news, as Vice President and Executive
Vice President of ABC News, and subsequently as President of CBS News.
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of
the Board of various funds in the Dreyfus Family of Funds. For more than
five years prior thereto, he was President and a director and, until
August 1994, Chief Operating Officer of the Manager and Executive Vice
President and a director of Dreyfus Service Corporation, a wholly-owned
subsidiary of the Manager and, until August 1994, the Fund's distributor.
From August 1994 to December 1994, he was a director of Mellon Bank
Corporation. Mr. DiMartino is a director and former Treasurer of The
Muscular Dystrophy Association; a trustee of Bucknell University; and a
director of the Noel Group, Inc. His address is 200 Park Avenue, new
York, New York 10166.
DIANE DUNST, Trustee. Since January 1992, President of Diane Dunst Promotion,
Inc., a full service promotion agency. From January 1989 to January
1992, Director of Promotion Services, Lear's Magazine. From 1985 to
January 1989, she was Sales Promotion Manager of ELLE Magazine. Her
address is 120 East 87th Street, New York, New York 10128.
*DAVID P. FELDMAN, Trustee. Chairman and Chief Executive Officer at&T
Investment Management Corporation. He is also a trustee of Corporate
Property Investors, a real estate investment company. His address is One
Oak Way, Berkeley Heights, New Jersey 07922.
ROSALIND GERSTEN JACOBS, Trustee. Director of Merchandise and Marketing for
Corporate Property Investors, a real estate investment company. From
1974 to 1976, she was owner and manager of a merchandise and marketing
consulting firm. Prior to 1974, she was Vice President of Macy's, New
York. Her address is c/o Corporate Property Investors, 305 East 47th
Street, New York, New York 10017.
JAY I. MELTZER, Trustee. Physician engaged in private practice specializing
in internal medicine. He is also a member of the Advisory Board of the
Section of Society and Medicine, College of Physicians and Surgeons,
Columbia University; Clinical Professor of Medicine, Department of
Medicine, Columbia University; and Adjunct Clinical Professor of Medicine
at Cornell College of Medicine. His address is 903 Park Avenue, New
York, New York 10021.
DANIEL ROSE, Trustee. President and Chief Executive Officer of Rose
Associates, Inc., a New York based real estate development and management
firm. He is also Chairman of the Housing Committee of The Real Estate
Board of New York, Inc., and a Trustee of Corporate Property Investors,
a real estate investment company. His address is c/o Rose Associates,
Inc., 380 Madison Avenue, New York, New York 10017.
WARREN B. RUDMAN, Trustee. Since January 1993, Partner in the law firm Paul,
Weiss, Rifkin, Wharton & Garrison. From January 1981 to January 1993,
Mr. Rudman served as a United States Senator from the State of New
Hampshire. Since January 1993, Mr. Rudman also served as Vice Chairman
of the Federal Reserve Bank of Boston and as a director of Chubb
Corporation. Since 1988, Mr. Rudman has served as a trustee of Boston
College and, since 1986, as a member of the Senior Advisory Board of the
Institute of Politics of the Kennedy School of Government at Harvard
University. His address is c/o Paul, Weiss, Rifkind, Wharton & Garrison,
1615 L. Street, N.W., Washington, D.C. 20036.
SANDER VANOCUR, Trustee. Since January 1992, Mr. Vanocur has been the
President of Old Owl Communications, a full-service communications firm
and, since November 1989, he has served as a Director of the Damon
Runyon-Walter Winchell Cancer Research Fund. From June 1986 to December
1991, he was a senior Correspondent of ABC News and, from October 1986
to December 1991, he was Anchor of the ABC News program "Business World,"
a weekly business program on the ABC television network. His address is
2928 P Street, N.W., Washington, D.C. 20007.
There ordinarily will be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Under the Act, shareholders of record of not less than two-thirds
of the outstanding shares of the Fund may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting
called for that purpose. Under the Fund's Agreement and Declaration of Trust,
the Trustees are required to call a meeting of shareholders for the purpose
of voting upon the question of removal of any such Trustee when requested in
writing to do so by the shareholders of record of not less than 10% of the
Fund's outstanding shares.
For so long as the Fund's plan described in the section captioned
"Service Plan" remains in effect, the Trustees of the Fund who are not
"interested persons" of the Fund, as defined in the Act, will be selected and
nominated by the Trustees who are not "interested persons" of the Fund.
The Trustees are also trustees of Dreyfus BASIC U.S. Government Money
Market Fund, Dreyfus California Intermediate Municipal Bond Fund, Dreyfus
Connecticut Intermediate Municipal Bond Fund, Dreyfus Massachusetts
Intermediate Municipal Bond Fund, Dreyfus New Jersey Intermediate Municipal
Bond Fund, Dreyfus Pennsylvania Municipal Bond Fund and Dreyfus Strategic
Investing, and directors of Dreyfus BASIC Money Market Fund, Inc. and Dreyfus
Strategic Governments Income, Inc. Messrs. Rose and Vanocur are also
directors of Dreyfus New Jersey Municipal Bond Fund, Inc., managing general
partners of Dreyfus Strategic Growth, L.P. and Dreyfus Strategic World
Investing, L.P., and trustees of Dreyfus Florida Intermediate Municipal Bond
Fund, Dreyfus New York Insured Tax Exempt Bond Fund and Dreyfus Investors GNMA
Fund, Dreyfus 100% U.S. Treasury Intermediate Term Fund, Dreyfus 100% U.S.
Treasury Long Term Fund, Dreyfus 100% U.S. Treasury Money Market Fund, Dreyfus
100% U.S. Treasury Short Term Fund. Mr. Rudman is also a trustee of Dreyfus
Cash Management, Dreyfus Government Cash Management, Dreyfus Municipal Cash
Management, Dreyfus New York Municipal Cash Management Plus, Dreyfus Tax
Exempt Cash Management, Dreyfus Treasury Cash Management and Dreyfus Treasury
Prime Cash Management and a director of Dreyfus Cash Management Plus, Inc.
Mrs. Jacobs is also a director of Dreyfus A Bonds Plus, Inc., Dreyfus Balanced
Fund, Inc., Dreyfus Capital Growth Fund (A Premier Fund), Dreyfus Global Bond
Fund, Inc., Dreyfus Growth and Income Fund, Inc., Dreyfus Growth Opportunity
Fund, Inc., Dreyfus International Equity Fund, Inc., Dreyfus International
Recovery Fund, Inc. and Dreyfus Money Market Investments, Inc., and a trustee
of Dreyfus Institutional Money Market Fund and Dreyfus Variable Investment
Fund.
The Fund does not pay any remuneration to its officers and Trustees other
than fees and expenses to Trustees who are not officers, directors, employees
or holders of 5% or more of the outstanding voting securities of the Manager,
which totalled $25,583 for the fiscal year ended October 31, 1994 for such
Trustees as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment companies
advised or administered by the Manager. From December 1991 to July 1994,
she was President and Chief Compliance Officer of Funds Distributor,
Inc., a wholly-owned subsidiary of The Boston Company, Inc. Prior to
December 1991, she served as Vice President and Controller, and later as
Senior Vice President, of The Boston Company Advisors, Inc.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992 to
July 1994, he served as Counsel for The Boston Company Advisors, Inc.
From August 1990 to February 1992, he was employed as an Associate at
Ropes & Gray, and prior to August 1990, he was employed as an Associateat
Sidley & Austin.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment companies
advised or administered by the Manager. From 1988 to August 1994, he was
Manager of the High Performance Fabric Division of Springs Industries
Inc.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate General
Counsel of the Distributor and an officer of other investment companies
advised or administered by the Manager. From September 1992 to August
1994, he was an attorney with the Board of Governors of the Federal
Reserve System.
JOSEPH F. TOWER,III, Assistant Treasurer. Senior Vice President, Treasurer
and Chief Financial Officer of the Distributor and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas.
JOHN J. PYBURN, Assistant Treasurer, Vice President of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From 1984 to July 1994, he was Assistant Vice President in the
Mutual Fund Accounting Department of the Administrator.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment
company. From March 1990 until September 1991, she was Development
Director of The Rockland Center for the Arts and, prior thereto, was
employed as a Research Assistant for the Bureau of National Affairs.
PAUL FURCINITO, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From January 1992 to July 1994, he was a
Senior Legal Product Manager for The Boston Company Advisors, Inc., and,
from January 1990 to January 1992, he was a mutual fund accountant for
The Boston Company Advisors, Inc.
The address of each officer of the Fund is 200 Park Avenue, New York, New
York 10166
Trustees and officers of the Fund, as a group, owned less than 1% of the
Fund's outstanding shares of beneficial interest on December 22, 1994.
MANAGEMENT AGREEMENT
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Management of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994, as amended, with the Fund,
which is subject to annual approval by (i) the Fund's Board of Trustees or
(ii) vote of a majority (as defined in the Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance also is
approved by a majority of the Trustees who are not "interested persons" (as
defined in the Act) of the Fund or the Manager, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Agreement was
last approved by shareholders on August 3, 1994, and was last approved by the
Board of Trustees, including a majority of the Trustees who are not
"interested persons" of any party to the Agreement, at a meeting held on May
27, 1994. The Agreement is terminable without penalty, on 60 days' notice,
by the Fund's Board of Trustees or by vote of the holders of a majority of the
Fund's shares or, upon not less than 90 days' notice, by the Manager. The
Agreement will terminate automatically in the event of its assignment (as
defined in the Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; Julian M.
Smerling, Vice Chairman of the Board of Directors; W. Keith Smith, Chief
Operating Officer and a Director; Paul H. Snyder, Vice President and Chief
Financial Officer; Daniel C. Maclean, Vice President and General Counsel;
Elie M. Genadry, Vice President-Institutional Sales; Henry D. Gottmann, Vice
President-Retail Sales and Service; Jeffrey N. Nachman, Vice President-Mutual
Fund Accounting; Diane M. Coffey, Vice President-Corporate Communications; Jay
R. DeMartine, Vice President-Retail Marketing; Barbara E. Casey, Vice
President-Retirement Services; Lawrence S. Kash, Vice Chairman-Distribution;
Philip L. Toia, Vice Chairman-Operations and Administration; Katherine C.
Wickham, Vice President-Human Resources; Mark N. Jacobs, Vice President-Fund
Legal and Compliance, and Secretary; Maurice Bendrihem, Controller; and
Mandell L. Berman, Frank V. Cahouet, Alvin E. Friedman, Lawrence M. Greene and
David B. Truman, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board of Trustees. The Manager is responsible for investment decisions, and
provides the Fund with portfolio Managers who are authorized by the Board of
Trustees to execute purchases and sales of securities. The Fund's portfolio
managers are Garitt Kono, Gerald Thunelius and Wolodymyr Wronskyj. The
Manager also maintains a research department with a professional staff of
portfolio managers and securities analysts who provide research services for
the Fund as well as for other funds advised by the Manager. All purchases and
sales are reported for the Trustees' review at the meeting subsequent to such
transactions.
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by the Manager. The expenses borne
by the Fund include: taxes, interest, loan commitment fees, dividends and
interest paid on securities sold short, brokerage fees and commissions, if
any, fees of certain Board members, Securities and Exchange Commission fees,
state Blue Sky qualification fees, 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 Fund's existence, costs of independent pricing services, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of shareholders' reports and meetings and any
extraordinary expenses. The Fund bears certain Servicing expenses in
accordance with the Service Plan and also bears the costs of preparing and
printing prospectuses and statements of additional information and costs
associated with implementing and operating such Plan. See "Service Plan."
The Manager maintains office facilities on behalf of the Fund and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services. The Manager also may make such advertising and promotional
expenditures, using its own resources, as it from time to time deems
appropriate.
As compensation for its services, the Fund has agreed to pay the Manager
a monthly management fee at the annual rate of .60 of 1% of the value of the
Fund's average daily net assets. The management fees chargeable for the
fiscal years ended October 31, 1992, 1993 and 1994 amounted to $545,396,
$1,536,141 and $2,157,631, respectively; however, the fees for fiscal 1992 and
1993 were reduced by $363,819 and $213,144, respectively, resulting in a net
fee of $181,577 in fiscal 1992 and $1,322,997 in fiscal 1993, pursuant to
various undertakings in effect.
The Manager has agreed that if in any fiscal year the aggregate expenses
of the Fund, exclusive of taxes, brokerage, interest on borrowings and (with
the prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed the expense
limit of any state having jurisdiction over the Fund, the Fund may deduct from
the payment to be made to the Manager under the Agreement, or the Manager will
bear, such excess expense to the extent required by state law. Such deduction
or payment, if any, will be estimated daily, and reconciled and effected or
paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
PURCHASE OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor also
acts as distributor for the other funds in the Dreyfus Family of Funds and for
certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders may
be made between the hours of 8:00 A.M. and 4:00 P.M., New York time, on any
business day that the Transfer Agent and the New York Stock Exchange are open.
Such purchases will be credited to the shareholder's Fund account on the next
bank business day. To qualify to use Dreyfus TeleTransfer, payments for
purchase of Fund shares must be drawn on, and redemption proceeds paid to, the
same bank and account as is designated on the Account Application or
Shareholder Services Form on file. If the proceeds of a particular redemption
are to be wired to an account at any other bank, the request must be in
writing and signature-guaranteed. See "Redemption of Fund Shares--
TeleTransfer Privilege."
Sales Loads. The scale of sales loads applies to purchases 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 the 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.
Offering Price
The method of computing the offering price for individual sales
aggregating less than $100,000, based upon the price in effect at the close
of business on October 31, 1994, is as follows:
NET ASSET VALUE and redemption price per share. . $12.95
Sales load, 3.0 percent of offering price
(approximately 3.1 percent of net asset value
per share) . . . . . . . . . . . . . . . . . . .40
------
Offering price to public . . . . . . . . . . . $13.35
======
SERVICE PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Service Plan."
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission
under the 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 Fund's shares and the fees paid to the
Distributor and to certain financial institutions (which may include banks)
securities dealers, and other financial industry professionals (collectively
"Service Agents") could be deemed to be payment of distribution expenses, the
Fund's Board of Trustees has adopted such a plan (the "Plan"). The Fund's
Board of Trustees believes that there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders. In some states, banks or other
financial institutions effecting transactions in Fund shares may be required
to register as dealers pursuant to state law.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the Board
of Trustees for its review. In addition, the Plan provides that it may not
be amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Plan without shareholder approval and that other
material amendments of the Plan must be approved by the Board of Trustees, and
by the Trustees who are not "interested persons" (as defined in the Act) of
the Fund and have no direct or indirect financial interest in the operation
of the Plan or in the related service agreements, by vote cast in person at
a meeting called for the purpose of considering such amendments. The Plan and
the related service agreements are subject to annual approval by such vote of
the Trustees cast in person at a meeting called for the purpose of voting on
the Plan. The Plan was last approved by shareholders on August 3, 1994 and
by the Board of Trustees at a meeting held on May 27, 1994. The Plan may be
terminated at any time by vote of a majority of the Trustees who are not
"interested persons" and have no direct or indirect financial interest in the
operation of the Plan or in any of the related service agreements or by vote
of a majority of the Fund's shares. Any service agreement may be terminated
without penalty, at any time, by such vote of the Trustees, or, upon not more
than 60 days' written notice to the Service Agent, by vote of the holders of
a majority of the Fund's shares, or, upon 15 days' written notice, by the
Distributor. Each service agreement will terminate automatically in the event
of its assignment (as defined in the Act).
For the period from August 24, 1994 through October 31, 1994, $155,810
was charged to the Fund by the Distributor pursuant to the Fund's Service
Plan.
Prior Distribution Plan. As of August 24, 1994 the Fund terminated its
then existing Service Plan, which provided for payments to be made to Dreyfus
Service Corporation for advertising, marketing and distributing Fund shares
at the annual rate of .25%. For the period from November 1, 1993 through
August 23, 1994, the total amount charged to the Fund under such Plan was a
$760,609 of which $741,968 was charged for advertising, marketing and
servicing the Fund's shares and $18,641 was charged for preparing, printing
and distributing prospectuses and statements of additional information and
operating the Plan. Pursuant to undertakings in effect, the amount chargeable
to the Fund pursuant to the Plan was reduced by $391,394, resulting in a net
amount paid of $369,215.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Fund
Shares."
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus TeleTransfer transaction through the
Automated Clearing House ("ACH") system unless more prompt transmittal is
specifically requested. Redemption proceeds will be on deposit in the
investor's account in an ACH member bank ordinarily two business days after
receipt of the redemption request. See "Purchase of Fund Shares--Dreyfus
TeleTransfer Privilege."
Share 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 one of the telephone numbers listed on
the cover.
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record, limited in amount during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable
without the prior approval of the Securities and Exchange Commission. In the
case of requests for redemption in excess of such amount, the Board of
Trustees reserves the right to make payments in whole or part in securities
or other assets of the Fund in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In such event, the securities would be valued in the
same manner as the Fund's portfolio is valued. If the recipient sold such
securities, brokerage charges would be incurred.
Suspension of Redemption. The right of redemption may be suspended or
the date of payment postponed (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 Securities and Exchange
Commission 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 Securities and Exchange Commission by order may permit to protect the
Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales load
will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged for
shares of other funds sold with a sales load, and the applicable
sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged without
a sales load for shares of other funds sold without a sales load.
D. Shares of funds purchased with a sales load, shares of funds acquired
by a previous exchange from shares purchased with a sales load, and
additional shares acquired through reinvestment of dividends or
distributions of any such funds (collectively referred to herein as
"Purchased Shares") may be exchanged for shares of other funds sold
with a sales load (referred to herein as "Offered Shares"), provided
that, if the sales load applicable to the Offered Shares exceeds the
maximum sales load that could have been imposed in connection with
the Purchased Shares (at the time the Purchased Shares were
acquired), without giving effect to any reduced loads, the difference
will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their account
number.
To request an exchange, an investor or the investor's Service Agent
acting on his behalf must give exchange instructions to the Transfer Agent in
writing or by telephone. The ability to issue exchange instructions by
telephone is given to all Fund shareholders, automatically, unless the
investor checks the relevant "NO" box on the Account Application, indicating
that the investor specifically refuses the request. Telephone exchanges may
be made only if the appropriate "YES" box has been checked on the Account
Application or a separate signed Optional Services Form is on file with the
Transfer Agent. By using this Privilege, the investor authorizes the Transfer
Agent to act on telephonic, telegraphic or written exchange instructions from
any person representing himself or herself to be the investor or a
representative of the investor's Service Agent, and reasonably believed by the
Transfer Agent to be genuine. Telephone exchanges may be subject to
limitations as to the amount involved or the number of telephone exchanges
permitted. Shares issued in certificate form are not eligible for telephone
exchange.
To establish a Personal Retirement Plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. For
Dreyfus-sponsored Keogh Plans, IRAs and IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs") with only one participant, the minimum
initial investment is $750. To exchange shares held in Corporate Plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, the minimum
initial investment is $100 if the plan has at least $2,500 invested among the
funds in the Dreyfus Family of Funds. To exchange shares held in Personal
Retirement Plans, the shares exchanged must have a current value of at least
$100.
Dreyfus Auto-Exchange Privilege. Dreyfus Automatic-Exchange Privilege
permits an investor to purchase, in exchange for shares of the Fund, shares
of another fund in the Dreyfus Family of Funds. This Privilege is available
only for existing accounts. Shares will be exchanged on the basis of relative
net asset value as described above under "Fund Exchanges." Investors may
modify or cancel this Privilege at any time by writing to The Dreyfus Family
of Funds, P.O. Box 9671, Providence, Rhode Island 02040-9671. Enrollment in
or modification or cancellation of this Privilege is effective three business
days following such notification. An investor will be notified if his account
falls below the amount designated under this Privilege; an investor's account
will fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts. With
respect to all other retirement accounts, exchanges may be made only among
those accounts.
Fund Exchanges and Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being acquired
may legally be sold. Shares may be exchanged only between accounts having
identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-654-6561. The Fund reserves the right to reject any
exchange request in whole or in part. The Fund Exchanges Service or Dreyfus
Auto-Exchange Privilege may be modified or terminated at any time upon notice
to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, 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. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the Fund
or the Transfer Agent. Shares for which certificates have been issued may not
be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the Dreyfus
Family of Funds of which the investor is a shareholder. Shares of other funds
purchased pursuant to this Privilege will be purchased on the basis of
relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested without
imposition of a sales load in shares of other funds that are offered
without sales load.
B. Dividends and distributions paid by a fund which does not charge a
sales load may be invested in shares of other funds sold with a sales
load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales load
may be invested in shares of other funds sold with a sales load
(referred to herein as "Offered Shares"), provided that, if the sales
load applicable to the Offered Shares exceeds the maximum sales load
charged by the fund from which dividends or distributions are being
swept, without giving effect to any reduced loads, the difference
will be deducted.
D. Distributions paid by a fund may be invested in shares of other funds
that impose a contingent deferred sales charge ("CDSC") and the
applicable CDSC, if any, will be imposed upon redemption of such
shares.
Corporate Pension/Profit-Sharing and Personal Retirement Plans. The Fund
makes available to corporations a variety of prototype pension and profit
sharing plans, including a 401(k) Salary Reduction Plan. In addition, the
Fund makes available Keogh Plans, IRAs, (including SEP-IRAs and IRA "Rollover
Accounts") and 403(b)(7) Plans. Plan support services are also available.
Investors who wish to purchase Fund shares 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 which acts as custodian may charge a fee for Keogh Plans,
403(b)(7) Plans or IRAs, payment of which could require the liquidation of
shares. All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity which acts as custodian. Such purchases will be
effective when payments received by the Transfer Agent are converted into
Federal Funds. Purchases for these plans may not be made in advance of
receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans, and SEP-IRAs, with more than one participant, is
$2,500, with no minimum on subsequent purchases. The minimum initial
investment for Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs, and 403(b)(7)
Plans with only one participant is normally $750, with no minimum on
subsequent purchases. Individuals who open an IRA also may open a non-working
spousal IRA with a minimum investment of $250.
The investor should read the Prototype Retirement Plan and the
appropriate form of Custodial Agreement for further details as to eligibility,
service fees and tax implications, and should consult a tax adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Fund Shares."
Valuation of Portfolio Securities. Portfolio securities, including
covered call options written by the Fund, are valued at the last sale price
on the securities exchange or national securities market on which such
securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no transactions,
are valued at the average of the most recent bid and asked prices, except in
the case of open short positions where the asked price is used for valuation
purposes. Bid price is used when no asked price is available. Market
quotations for foreign securities in foreign currencies are translated into
U.S. dollars at the prevailing rates of exchange. Any securities or other
assets for which recent market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Trustees. Expenses
and fees, including the management fee, are accrued daily and taken into
account for the purpose of determining the net asset value of Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Dividends, Distributions
and Taxes."
Management believes that the Fund qualified as a "regulated investment
company" under the Code for fiscal year ended October 31, 1994 and the Fund
intends to continue to so qualify, if such qualification is in the best
interests of its shareholders. As a regulated investment company, the Fund
will pay no Federal income tax on net investment income and net realized
capital gains to the extent that such income and gains are distributed to
shareholders in accordance with applicable provisions of the Code. To qualify
as a regulated investment company, the Fund must distribute at least 90% of
its net income (consisting of net investment income and net short-term capital
gain) to its shareholders, must derive less than 30% of its annual gross
income from gain on the sale of securities held for less than three months,
and must meet certain asset diversification and other requirements.
Accordingly, the Fund may be restricted in the selling of securities held for
less than three months, and in the utilization of certain of the investment
techniques described in the Prospectus under "Description of the Fund -
Investment Techniques." The Code, however, allows the Fund to net certain
offsetting positions, making it easier for the Fund to satisfy the 30% test.
The term "regulated investment company" does not imply the supervision of
management or investment practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a distribution would be a return on
investment in an economic sense, although taxable as stated above. In
addition, the Code provides that if a shareholder holds shares of the Fund for
six months or less and has received a capital gain distribution with respect
to such shares, any loss incurred on the sale of such shares will be treated
as long-term capital loss to the extent of the capital gain distribution
received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains or losses. However, a portion of the gain or loss
realized from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial forwards, futures and options,
and certain preferred stock) may be treated as ordinary income or loss under
Section 988 of the Code. In addition, all or a portion of the gain realized
from the disposition of certain market discount bonds will be treated as
ordinary income under Section 1276. Finally, all or a portion of the gain
realized from engaging in "conversion transactions" may be treated as ordinary
income under Section 1258. "Conversion transactions" are defined to include
certain forward, futures, option and straddle transactions, transactions
marketed or sold to produce capital gains, or transactions described in
Treasury regulations to be issued in the future.
Under Section 1256 of the Code, gain or loss realized by the Fund from
certain financial futures or forward contracts and certain options
transactions (other than those taxed under Section 988 of the Code) will be
treated as 60% long-term capital gain or loss and 40% short-term capital gain
or loss. Gain or loss will arise upon exercise or lapse of such futures,
forwards or options as well as from closing transactions. In addition, any
such futures, forward contracts or options remaining unexercised at the end
of the Fund's taxable year will be treated as sold for their then fair market
value, resulting in additional gain or loss to the Fund characterized in the
manner described above.
Offsetting positions held by the Fund involving certain futures, forwards
or options may be considered, for tax purposes, to constitute "straddles."
"Straddles" are defined to include "offsetting positions" in actively traded
personal property. The tax treatment of "straddles" is governed by Sections
1092 and 1258 of the Code, which, in certain circumstances, overrides or
modifies the provisions of Sections 988 and 1256. As such, all or a portion
of any short or long-term capital gain from certain "straddle" transactions
may be recharacterized to ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in futures, forwards or options transactions, such "straddles" would
be characterized as "mixed straddles" if the futures, forwards, or options
comprising a part of such "straddles" were governed by Section 1256 of the
Code. The Fund may make one or more elections with respect to "mixed
straddles." If no election is made, to the extent the straddle rules apply
to positions established by the Fund, losses realized by the Fund will be
deferred to the extent of unrealized gain in any offsetting positions.
Moreover, as a result of the straddle and conversion transaction rules,
short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be recharacterized as
short-term capital gain or ordinary income.
Investment by the Fund in securities issued or acquired at a discount or
providing for deferred interest or for payment of interest in the form of
additional obligations could, under special tax rules, affect the amount,
timing and character or distributions to shareholders. For example, the Fund
could be required to take into account annually a portion of the discount (or
deemed discount) at which such securities were issued and to distribute such
portion in order to maintain its qualification as a regulated investment
company. In such case, the Fund may have to dispose of securities which it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
PORTFOLIO TRANSACTIONS
The Manager supervises the placement of orders on behalf of the Fund for
the purchase or sale of portfolio securities. Allocation of brokerage
transactions, including their frequency, is made in the best judgment of the
Manager and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders at the most favorable net
price. Subject to this consideration, the brokers selected include those that
supplement the Manager's research facilities with statistical data, investment
information, economic facts and opinions. Information so received is in
addition to and not in lieu of services required to be performed by the
Manager and the Manager's fee is not reduced as a consequence of the receipt
of such supplemental information. Such information may be useful to the
Manager in serving both the Fund and other funds it manages and, conversely,
supplemental information obtained by the placement of business of other
clients may be useful to the Manager in carrying out its obligation to the
Fund. Brokers also are selected because of their ability to handle special
executions such as are involved in large block trades or broad distributions,
provided the primary consideration is met. Large block trades may, in certain
cases, result from two or more funds managed by the Manager being engaged
simultaneously in the purchase or sale of the same security. Certain of the
Fund's transactions in securities of foreign issuers may not benefit from the
negotiated commission rates available to the Fund for transactions in
securities of domestic issuers. The Fund's portfolio turnover rate for the
fiscal year ended October 31, 1994 was 161.35%. Portfolio turnover may vary
from year to year, as well as within a year. It is anticipated that in any
fiscal year, the turnover rate should not generally exceed 150%; however, in
periods in which extraordinary market conditions prevail, the Manager will not
be deterred from changing investment strategy as rapidly as needed, in which
case higher turnover rates can be anticipated. High turnover rates are likely
to result in comparatively greater brokerage expenses. The overall
reasonableness of brokerage commissions paid is evaluated by the Manager based
upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
In connection with its portfolio securities transactions for the fiscal
years ended October 31, 1992 and 1993, no brokerage commissions were paid by
the Fund. For the fiscal year ended October 31, 1994 $25,618 in brokerage
commissions were paid by the Fund. Gross spreads and concessions on principal
transactions which, where determinable, amounted to $652,895, $629,615 and
$664,750 for fiscal 1992, 1993 and 1994, respectively, none of which was paid
to the Distributor.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Performance Information."
The Fund's current yield for the 30-day period ended October 31, 1994 was
7.29%. Current yield is computed pursuant to a formula which operates as
follows: The amount of the Fund's expenses accrued for the 30-day period (net
of reimbursements) is subtracted from the amount of the dividends and interest
earned (computed in accordance with regulatory requirements) by the Fund
during the period. That result is then divided by the product of: (a) the
average daily number of shares outstanding during the period that were
entitled to receive dividends, and (b) the maximum offering price per share
on the last day of the period less any undistributed earned income per share
reasonably expected to be declared as a dividend shortly thereafter. The
quotient is then added to 1, and that sum is raised to the 6th power, after
which 1 is subtracted. The current yield is then arrived at by multiplying
the result by 2.
The Fund's average annual total return for the 1, 5 and 8.079 year
periods ended October 31, 1994 was -10.25%, 7.53% and 8.57%, respectively.
Average annual total return is calculated by determining the ending redeemable
value of an investment purchased with a hypothetical $1,000 payment made at
the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period)
and subtracting 1 from the result.
Total return is calculated by subtracting the amount of the Fund's
maximum offering price per share at the beginning of a stated period from the
net asset value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period), and dividing
the result by the maximum offering price per share at the beginning of the
period. Total return also may be calculated based on 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. In such cases, the calculation would
not reflect the deduction of the sales load which, if reflected, would reduce
the performance quoted. The Fund's total return for the period October 3,
1986 to October 31, 1994, based on maximum offering price per share, was
94.36%. Based on net asset value per share, the Fund's total return was
100.39% for this period.
Comparative performance may be used from time to time in advertising the
Fund's shares, including data from Lipper Analytical Services, Inc., Standard
& Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Money Magazine, Morningstar, Inc. and other industry publications. From time
to time, the Fund may compare its performance against inflation with the
performance of other instruments against inflation, such as short-term
Treasury Bills (which are direct obligations of the U.S. Government) and FDIC-
insured bank money market accounts. In addition, advertising for the Fund may
indicate that investors may consider diversifying their investment portfolios
in order to seek protection of the value of their assets against inflation.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic or financial conditions, development
and/or events. The Fund's 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. From time to time
advertising materials for the Fund also may refer to Morningstar ratings and
related analyses supporting the ratings.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "General Information."
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Shares are
of one class and have equal rights as to dividends and in liquidation. Fund
shares have no preemptive, subscription or conversion rights and are freely
transferable.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York 10286,
acts as custodian of the Fund's assets. The Shareholder Services Group, Inc.,
a subsidiary of First Data Corporation, P.O. Box 9671, Providence, Rhode
Island 02940-9671, acts as the Fund's transfer and dividend disbursing agent.
Neither The Bank of New York nor The Shareholder Services Group, Inc. has any
part in determining the investment policies of the Fund or which securities
are to be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-
2696, as counsel for the Fund, has rendered its opinion as to certain legal
matters regarding the due authorization and valid issuance of the shares of
beneficial interest being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX
Description of certain ratings assigned by Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch") and Duff & Phelps, Inc. ("Duff"):
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, 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.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default,
and are dependent upon favorable business, financial and economic
conditions to meet timely payments of principal. In the event of adverse
business, financial or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within
the major rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation 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 overwhelming safety characteristics are
denoted with a plus sign (+) designation.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation 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 in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as 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.
Baa
Bonds which are rated Baa are considered as 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.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category.
The modifier 1 indicates a ranking for the security in the higher end of a
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment.
Considerable variability in risk during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such
bonds may be in default or have considerable uncertainty as to timely
payment of interest, preferred dividends and/or principal. Protection
factors are narrow and risk can be substantial with unfavorable economic or
industry conditions and/or with unfavorable company developments.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating
category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by
ample asset protection. Risk factors are minor.
</TABLE>
<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.
DREYFUS STRATEGIC INCOME
FINANCIAL HIGHLIGHTS
Reference is made to page 3 of the Fund's Prospectus dated March 1, 1995.
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
