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PROSPECTUS
MARCH 1, 1995
AS REVISED, JULY 24, 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.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY. YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING DREYFUS
TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
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 144.
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
Annual Fund Operating Expenses.................... 3
Condensed Financial Information................... 4
Description of the Fund........................... 5
Management of the Fund............................ 14
How to Buy Fund Shares............................ 15
Shareholder Services.............................. 17
How to Redeem Fund Shares......................... 20
Shareholder Services Plan......................... 22
Dividends, Distributions and Taxes................ 23
Performance Information........................... 24
General Information............................... 25
Appendix.......................................... 26
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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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This Page Intentionally Left Blank
Page 2
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<S> <C> <C> <C> <C>
Management Fees........................................................................ .60%
Other Expenses ........................................................................ .45%
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: $11 $33 $58 $128
</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 borne by the Fund, the payment of which will
reduce investors' annual return. The information in the foregoing table does
not reflect any fee waivers or expense reimbursement arrangements that may be
in effect. You can purchase Fund shares without charge directly from the
Fund's distributor; a nominal fee may be charged if transactions in Fund
shares are effected through a securities dealer, bank or other financial
institution. See "Management of the Fund," "How to Buy Fund Shares" and
"Shareholder Services Plan."
Page 3
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>
<CAPTION>
YEAR ENDED OCTOBER 31,
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1986(1) 1987 1988 1989 1990 1991 1992 1993 1994
------ ----- ----- ----- ----- ---- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERSHAREDATA:
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)
----- ------ ------ ------- ------- ------ ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS........ .06 .24 1.98 1.65 .16 2.25 1.65 2.42 (1.09)
----- ------ ------ ------- ------- ------ ------- ------ ------
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)
----- ------ ------ ------- ------- ------ ------- ------ ------
TOTAL DISTRIBUTIONS..................... (.05) (1.18) (1.61) (1.22) (1.18) (1.16) (1.07) (1.08) (1.32)
----- ------ ------ ------- ------- ------ ------- ------ ------
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 .................. 5.03%(2) 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%(2) 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 limitaion
provision of the Management Agreement).. 1.50%(2) 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) Annualized.
</TABLE>
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.
Page 4
DEBT OUTSTANDING
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
_____________________________________-------------------------
1986(1) 1987 1988 1989 1990 1991 1992 1993 1994
------ ----- ---- ---- ---- ---- ---- ---- ----
<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. It currently is the intention of the Fund, however, to invest in
debt securities rated no lower than Ba by Moody's or BB by Standard & Poor's
and that no more than 20% of the Fund's total assets be invested in debt
securities rated Ba by Moody's and BB by Standard & Poor's. Debt securities
rated Baa by Moody's and BBB by Standard & Poor's are considered investment
grade obligations which lack outstanding investment characteristics and may
have speculative characteristics as well. 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.
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.
Page 5
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.
In an effort to increase total return, the Fund may engage in various
investment techniques such as leveraging, short-selling, options
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.
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
Page 6
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 the 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 obligation 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.
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 any other derivative investments 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
Page 7
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 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.
FORWARD ROLL TRANSACTIONS - In order to enhance income, the Fund may enter
into forward roll transactions with respect to mortgage-related securities
issued by the Government National Mortgage Association, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation. In a
forward roll transaction, the Fund sells a mortgage security to a financial
institution, such as a bank or broker-dealer, and simultaneously agrees to
repurchase a similar security from the institution at a later date at an
agreed-upon price. The mortgage securities that are repurchased will bear the
same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories than those
sold. During the period between the sale and repurchase, the Fund will not be
entitled to receive interest and principal payments on securities sold.
Proceeds of the sale will be invested in short-term instruments, particularly
repurchase agreements, and the income from these investments, together with
any additional fee income received on the sale will generate income for the
Fund exceeding the yield on the securities sold. Forward roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities. A segregated account
of the Fund consisting of cash, U.S. Government securities or other high
quality liquid debt securities at least equal to the amount of the repurchase
price (including accrued interest) will be established and maintained at the
Fund's custodian bank.
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
Page 8
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. 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.
Page 9
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 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
Page 10
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 considerations 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, which currently
limits borrowing to no more than 331/3% of the value of the Fund's total
assets; 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.
Page 11
RISK FACTORS
CERTAIN INVESTMENT TECHNIQUES - The use of speculative investment techniques
such as leveraging, short-selling, short-term trading, engaging in 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 and write options expiring in less than three months, 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.
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. 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 inadequ
ate capacity to meet timely interest and principal payments. 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 by Moody's and BB 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
Page 12
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 Ba by Moody's and as low as BB 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.
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
Page 13
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.
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.
The 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 June 30, 1995, The Dreyfus Corporation managed or administered
approximately $76 billion in assets for more than 1.8 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
in the Fund's Statement of Additional
Page 14
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 $200 billion in assets as of March 31, 1995, including $72
billion in mutual fund assets. As of March 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for approximately $680 billion in
assets, including $67 billion in mutual fund assets.
For the fiscal year ended October 31, 1994, the Fund paid The Dreyfus
Corporation a management fee at the 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's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor's ultimate parent 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, 90 Washington Street, New York, New York 10286, is the
Fund's Custodian.
HOW TO BUY FUND SHARES
Fund shares are sold without a sales charge. You may be charged a
nominal fee if you effect transactions in Fund shares through a securities
dealer, bank or other financial institution (collectively, "Service Agents").
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
requirements at any time.
Page 15
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 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."
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or 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"). 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 res
erves 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 are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other agent. 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
contracts will be valued 15 minutes after the close of trad-
Page 16
ing 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.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
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").
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 a Shareholder Services Form with the Transfer Agent. The
proceeds will be transferred between the bank account designated in one of
these documents and your Fund account. Only a bank account maintained in a
domestic financial institution which is an Automated Clearing House member
may be so designated. The 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 purchase of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
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 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 applicable "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 have 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
Page 17
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
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 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 Registration Mark - 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
Page 18
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 GOVERNMENT DIRECT DEPOSIT PRIVILEGE - Dreyfus Government Direct
Deposit Privilege enables you to purchase shares (minimum of $100 and maximum
of $50,000 per transaction) by having Federal salary, Social Security, or
certain veterans', military or other payments from the Federal government auto
matically deposited into your Fund account. You may deposit as much of your
payments as you elect. To enroll in Dreyfus Government Direct Deposit, you
must file with the Transfer Agent a completed Direct Deposit Sign-Up Form for
each type of payment that you desire to include in this Privilege. The
appropriate form may be obtained by calling 1-800-645-6561. Death or legal
incapacity will terminate your participation in this Privilege. You may elect
at any time to terminate your participation by notifying in writing the
appropriate Federal agency. Further, the Fund may terminate your
participation upon 30 days' notice to you.
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.
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
prices 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.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to 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
Page 19
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 these privileges.
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.
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. 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, the Wire Redemption Privilege, the Telephone
Redemption Privilege, or the Dreyfus
Page 20
TELETRANSFER Privilege. The Fund makes available to certain large institutions
the ability to issue redemption instructions through compatible computer
facilities.
In addition, the Distributor or its designee will accept orders from
dealers with which the Distributor 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 or its designee 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 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 a 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, 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 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 telephone 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
Page 21
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 change of address, and may limit the amount involved or the number of
such requests. This Privilege may be modified or terminated at any time by
the Transfer Agent or the Fund. The Fund's Statement of Additional Information
sets forth instructions for transmitting redemption requests by wire. Shares
held under Keogh Plans, IRAs or other retirement plans, and shares for which
certificates have been issued, are not eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE - You may redeem 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.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan, pursuant to which
the Fund pays the Distributor for the provision of certain services to
shareholders a fee at the annual rate of .25 of 1% of the value of the Fund's
average daily net assets. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. The Distributor may make
payments to Service Agents in respect of these services. The Distributor
determines the amounts to be paid to Service Agents.
Page 22
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 reinvest 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.
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
Page 23
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
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 net asset
value 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 net asset
value 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.
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 informa-
Page 24
tion, 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.
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; outside the U.S. and Canada, call 516-794-5452.
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 25
APPENDIX
The average distribution of investments in corporate bonds by ratings
for the fiscal year ended October 31, 1994, calculated monthly on a dollar
weighted basis, was as follows:
<TABLE>
<CAPTION>
MOODY'S INVESTORS STANDARD & POOR'S
SERVICE, INC. OR CORPORATION PERCENTAGE
----------------- ------------------ -------------
<S> <C> <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%
========
</TABLE>
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 26
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Page 27
DREYFUS
Strategic
Income
(Lion Logo)
Prospectus
Registration Mark
Copy Rights1995 Dreyfus Service Corporation
031p15072495
DREYFUS STRATEGIC INCOME
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MARCH 1, 1995
AS REVISED JULY 24, 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 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
Outside the U.S. and Canada -- Call 516-794-5452
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-16
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Shareholder Services Plan . . . . . . . . . . . . . . . . . . . . . . . . . B-18
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . B-19
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-21
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . . . B-24
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . . . . . B-24
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . B-26
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . B-27
Information About the Fund. . . . . . . . . . . . . . . . . . . . . . . . . B-28
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . . . . B-28
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-32
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . B-44
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.
Repurchase Agreements. The Fund's custodian or subcustodian will
have custody of, and will hold in a segregated account, securities
acquired by the Fund under a repurchase agreement. Repurchase agreements
are considered by the staff of the Securities and Exchange Commission to
be loans by the Fund. In an attempt to reduce the risk of incurring a
loss on a repurchase agreement, the Fund will enter into repurchase
agreements only with domestic banks with total assets in excess of one
billion dollars or primary government securities dealers reporting to the
Federal Reserve Bank of New York, with respect to securities of the type
in which the Fund may invest, and will require that additional securities
be deposited with it if the value of the securities purchased should
decrease below resale price. The Manager will monitor on an ongoing basis
the value of the collateral to assure that it always equals or exceeds the
repurchase price. The Fund will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
Illiquid Securities. 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 of these 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 Manager 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 investments during such period.
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, as amended (the "Act"),
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-Selling. The Fund may engage in short-selling. 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.
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.
Risk Factors
Lower Rated Securities. The Fund is permitted to invest in
securities rated Ba by Moody's Investors Service, Inc. ("Moody's") and BB
by Standard & Poor's Corporation ("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 any 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 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 the Fund's net assets with respect to any one closed-end investment
company and (iii) 10% of the Fund's 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 indices, and options
on futures contracts or indices.
8. Borrow money, except to the extent permitted under the Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Fund's total assets). For purposes of this investment restriction,
the entry into options, futures contracts, including those relating to
indices, and options on futures contracts or indices shall not constitute
borrowing.
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
indices, and options on futures contracts or indices.
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. Mr. Burke is 59 years old and his address
is 200 Park Avenue, New York, New York 10166.
*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, 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 24, 1994, the Fund's distributor. From August 1994 to
December 1994, he was a director of Mellon Bank Corporation. Mr.
DiMartino also is Chairman of Noel Group, Inc., a venture capital
company; a trustee of Bucknell University; and a director of the
Muscular Dystrophy Association, HealthPlan Services Corporation,
Simmons Outdoor Corporation, Belding Heminway Company, Inc., a
manufacturer and marketer of industrial threads, specialty yarns,
home furnishings and fabrics, Curtis Industries, Inc, a national
distributor of security products, chemicals and automotive and other
hardware, Simmons Outdoor Corporation and Staffing Resources, Inc.
Mr. DiMartino is 51 years old and 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. Ms. Dunst is 55 years old and her address is 120 East 87th
Street, New York, New York 10128.
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. Ms. Jacobs is 64 years old and 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. Dr.
Meltzer is 66 years old and 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., a Trustee of Corporate Property
Investors, a real estate investment company. Mr. Rose is 65 years
old and 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. Mr. Rudman is 64 years
old and 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, 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. Mr. Vanocur is 66 years old and 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. 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
"Shareholder Services 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 Fund typically pays its Board members an annual retainer and a
per meeting fee and reimburses them for their expenses. The Chairman of
the Board receives an additional 25% of such compensation. The aggregate
amount of compensation paid by the Fund to each Board member for the
fiscal year ended October 31, 1994, and by all other funds in the Dreyfus
Family of Funds for which such person is a Board member (the number of
which is set forth in parentheses next to each Board member's total
compensation) for the year ended December 31, 1994, were as follows:
<TABLE>
<CAPTION>
(5)
(3) Total Compensation
(2) Pension or (4) From Fund and
(1) Aggregate Retirement Benefits Estimated Annual Fund Complex
Name of Board Compensation from Accrued as Part of Benefits Upon Paid to Board
Member the Fund* Fund's Expenses Retirement Member
- -------------- ------------------ -------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
David W. Burke $ 466 none none $ 27,898 (51)
Joseph S. DiMartino $5,625** none none $445,000*** (93)
Diane Dunst $4,500 none none $ 32,602 (9)
Rosalind Gersten Jacobs$1,116 none none $ 57,638 (20)
Jay I. Meltzer $4,500 none none $ 32,102 (9)
Daniel Rose $4,500 none none $ 62,006 (21)
Warren B. Rudman $4,000 none none $ 29,602 (17)
Sander Vanocur $4,500 none none $ 62,006 (21)
___________________
* Amount does not include reimbursed expenses for attending Board meetings, which amounted to $625.00 for all Board
members as a group.
** Estimated amount for fiscal year ending October 31, 1995.
*** Estimated amount for the year ending December 31, 1995.
</TABLE>
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., the ultimate parent company of which is Boston
Institutional Group, Inc. Prior to December 1991, she served as Vice
President and Controller, and later as Senior Vice President, of The
Boston Company Advisors, Inc. She is 37 years old.
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. He is 30 years old.
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. He is 33 years old.
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. He is 30 years old.
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. He is 32 years old.
JOHN J. PYBURN, Assistant Treasurer. Assistant Treasurer 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 Manager. He is 59 years old.
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. She is 50 years old.
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, and, from January 1990 to January
1992, he was a mutual fund accountant, for The Boston Company
Advisors, Inc. He is 28 years old.
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 July 13, 1995.
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; W. Keith
Smith, Vice Chairman of the Board; Robert E. Riley, President, Chief
Operating Officer and a director; Lawrence S. Kash, Vice Chairman--
Distributor and a director; Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Philip L. Toia, Vice Chairman--
Operations and Administration; Paul H. Snyder, Vice President--Finance and
Chief Financial Officer; Daniel C. Maclean, Vice President and General
Counsel; Elie M. Genadry, Vice President--Institutional Sales; William F.
Glavin, Jr., Vice President--Production Management; Henry D. Gottman, Vice
President--Retail Sales and Service; Jeffrey N. Nachman, Vice President--
Mutual Fund Accounting; Diane M. Coffey, Vice President--Corporate
Communications; Barbara E. Casey, Vice President--Retirement Services;
Katherine C. Wickham, Vice President--Human Resources; Andrew S. Wasser,
Vice President--Information Services; Mark N. Jacobs, Vice President--
Legal and Secretary; Elvira Oslapas, Assistant Secretary; Maurice
Bendrihem, Controller; and Mandell L. Berman, Frank V. Cahouet, Alvin E.
Friedman, Lawrence M. Greene, Julian M. Smerling 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,
interest and distributions paid on securities sold short, brokerage fees
and commissions, if any, fees of Board members who are not officers,
directors, employees or holders of 5% or more of the outstanding voting
securities of the Manager, 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, costs of preparing and printing certain prospectuses and
statements of additional information, and any extraordinary expenses.
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 to the Fund. 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 Shareholder Services Group, Inc., the Fund's
transfer and dividend disbursing agent (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."
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Fund's Prospectus entitled
"Shareholder Services Plan."
The Fund has adopted a Shareholder Services Plan, pursuant to which
the Fund pays the Distributor for the provisions of certain services to
the Fund's shareholders.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Trustees for their review. In addition, the
Shareholder Services Plan provides that it may not be amended without
approval of 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 Shareholder
Services Plan or in any agreements entered into in connection with the
Shareholder Services Plan, by vote cast in person at a meeting called for
the purpose of considering such amendments. The Shareholder Services Plan
is subject to the annual approval by such vote cast in person at a meeting
called for the purpose of voting on the Shareholder Services Plan. The
Shareholder Services Plan was so approved on July 19, 1995. The
Shareholder Services Plan is terminable at any time by vote of a majority
of the Trustees who are not "interested persons" and who have no direct or
indirect financial interest in the operation of the Shareholder Services
Plan or in any agreements entered into in connection with the Shareholder
Services Plan.
Prior Service Plans. As of July 19, 1995, the Fund terminated its
then existing Service Plan that had been in effect from August 24, 1994.
That Service Plan, adopted pursuant to Rule 12b-1 under the Act, provided
that the Fund (a) reimburse the Distributor for payments to certain
securities dealers ("Selected Dealers"), financial institutions (including
banks) or other industry professionals (collectively, "Service Agents"),
for distributing Fund shares and servicing shareholder accounts
("Servicing') and (b) pay the Manager, Dreyfus Service Corporation and any
affiliate of either of them (collectively, "Dreyfus") for advertising or
marketing relating to the Fund and for Servicing at the aggregate annual
rate of .25% of the value of the Fund's average daily net assets. For the
period from August 24, 1994 (effective date of the Service Plan) through
October 31, 1994, $155,810 was charged to the Fund pursuant to the Service
Plan, of which $138,030 was paid to Dreyfus Service Corporation.
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% of the value of the Fund's average daily net assets.
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 such
plan. Pursuant to undertakings in effect, the amount chargeable to the
Fund pursuant to such 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."
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor, or a representative of the investor's Service Agent, and
reasonably believed by the Transfer Agent to be genuine. Ordinarily, the
Fund will initiate payment for shares redeemed pursuant to this Privilege
on the next business day after receipt if the Transfer Agent receives the
redemption request in proper form. Redemption proceeds will be
transferred by Federal Reserve wire only to the commercial bank account
specified by the investor on the Account Application or Shareholder
Services Form. Redemption proceeds, if wired, must be in the amount of
$1,000 or more and will be wired to the investor's account at the bank of
record designated in the investor's file at the Transfer Agent, if the
investor's bank is a member of the Federal Reserve System, or to a
correspondent bank if the investor's bank is not a member. Fees
ordinarily are imposed by such bank and usually are borne by the investor.
Immediate notification by the correspondent bank to the investor's bank is
necessary to avoid a delay in crediting the funds to the investor's bank
account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
---------------- -----------------
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at 1-800-
654-7171, toll free. Investors should advise the operator that the above
transmittal code must be used and should also inform the operator of the
Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive wire
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Share Certificates; Signatures."
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 must give exchange instructions
to the Transfer Agent in writing or by telephone. The ability to issue
exchange instructions by telephone is given to all Fund shareholders
automatically, unless the investor checks the applicable "No" box on the
Account Application, indicating that the investor specifically refuses
this privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephone instructions from any
person representing himself or herself to be the investor 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." 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 the 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
the 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: New Year's
Day, 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 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, options 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 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 forward
contracts or options as well as from closing transactions. In addition,
any such 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 forward
contracts 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 forwards or options transactions, such "straddles" would
be characterized as "mixed straddles" if the forward contracts 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 net
asset value 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
net asset value 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 net asset value per share at the beginning of
the period. The Fund's total return for the period October 1, 1986 to
October 31, 1994, based on net asset value price per share, was 100.39%.
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,
developments 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 that includes 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, 90 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") and Moody's Investors Service, Inc. ("Moody's"):
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.
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.
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.
<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,
as revised, July 24, 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
