<PAGE>
[LOGO]
Dreyfus Strategic Income
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
First Data Investor Services Group, Inc.
P.O. Box 9671
Providence, RI 02940
Further information is contained
in the Prospectus, which must
precede or accompany this report.
Printed in U.S.A. 031AR9510
[LOGO] Dreyfus
Strategic
Income
Annual Report
October 31, 1995
[ART]
<PAGE>
Letter to Shareholders
Dear Shareholder:
We are pleased to provide you with this report on Dreyfus Strategic Income.
For its fiscal year ended October 31, 1995, your Fund produced a total return of
17.57%.* Dividends paid from net investment income amounted to approximately
$.928 per share, representing a distribution rate per share of 6.53% based on
the October 31, 1995 closing net asset value. There were no capital gain
distributions paid to shareholders this year.
THE ECONOMY
Concerns about lagging economic growth prompted the Federal Reserve to ease
the Fed Funds rate in July. This was the first indication that the Fed was
moving away from its long-standing policy dedicated to wringing inflation out of
the economy. The bond market has been well ahead of the Federal Reserve in
determining that inflation is, in fact, under control. Long-term interest rates
have fallen during the past 12 months and, accordingly, many bond investors have
enjoyed significant capital gains. Economic indicators remain mixed, some
causing concern about possible recession, while others point toward continued
expansion.
During times of business uncertainty, attention often shifts to the
consumer sector of the economy, especially the consumer's ability to spend. And
here there are some indications that consumers are being pinched. There is
little doubt that the economic recovery has been productivity-driven. That is,
corporations have succeeded in paring expenses from their cost of doing
business. With this reduction in overhead, bottom line profits have grown
dramatically. Yet little of this corporate prosperity has spilled over into the
consumer sector of the economy. Wages and salaries grew at under 3% over the
past year, not even keeping pace with inflation. An additional consumer concern:
new job creation is at the slowest pace of the post-World War II era. And recent
retail sales reports were the weakest since June 1991 when the economy was in
recession. Also, there is worry that the coming Holiday season will be a poor
one for retailers, since debt-burdened consumers may spend cautiously.
Yet, we believe there are also significant signs of continued growth.
Despite the above indications of a potential slowdown in consumer spending,
measures of consumer confidence remain high. Business capital spending and home-
building activity continue to surge, providing substantial fuel for economic
growth. Business investment in durable equipment when calculated as a percentage
of Gross Domestic Product (GDP) is at a 35-year high with no sign of letup. No
wonder industrial production is booming. And while job and wage growth is slow,
the index of hours worked (a key determinant of GDP growth and income
generation) is rising. Providing additional confidence is the fact that the
four-and-a-half year recovery has been well balanced: corporate debt issuance
has been moderate and the banking system is not overstretched.
MARKET ENVIRONMENT
The bond market recovered strongly in 1995 as long-term interest rates
fell. If economic conditions remain sluggish and Congress is able to arrive at
an acceptable budget accord, there is a good chance that the Fed will ease
further. We believe this indicates a rather favorable outlook for bond markets
in general, particularly with inflation under control. But inflation can only go
so low and we are wary that the bond market strength may be counting too much on
continued improvement on
<PAGE>
the price front. Thus, while we remain nearly fully invested in this improving
market, we are alert to the stimulatory effects of easing monetary policy and
are watchful for any signs of rekindling inflation.
THE PORTFOLIO
Dreyfus Strategic Income ranked sixth among 62 funds on a total rate of
return basis in the Lipper General Bond Fund Category for the one-year period
ended October 31, 1995, placing your Fund in the top ten percent of this
universe.
Throughout most of the year, we have tried to improve the credit quality of
the Fund's portfolio securities. The average quality is now AA- as measured by
Standard & Poor's Corporation, an improvement from the year-ago rating of A- .**
We eliminated all South American debt prior to the collapse of the Mexican peso
last December. Foreign holdings in the Fund were reduced from 14.8% to 0.4% of
the portfolio. Since we believed that interest rates would decline during 1995,
we increased holdings in the banking sector (from 6.5% to 19.7%) and in the
financial sector (from 17% to 24.2%).
The high level of volatility exhibited by the market in recent years
underscores the need to maintain a disciplined and long-term focus. Solid market
performance thus far in 1995 has rewarded the patient investor.
Included in this report is a series of detailed statements about your
Fund's holdings and its financial condition. We hope they are informative.
Please know that we appreciate greatly your continued confidence in the Fund and
in The Dreyfus Corporation.
Very truly yours,
/s/ Garitt A. Kono
Garitt A. Kono
Portfolio Manager
November 15, 1995
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
** Standard & Poor's ratings are based on an analysis of several factors,
including, but not limited to, the credit quality of the investment within
the portfolio, diversification of assets, management, liquidity and
investment practice. S&P ratings are subject to change.
<PAGE>
Dreyfus Strategic Income October 31, 1995
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS STRATEGIC INCOME
AND THE MERRILL LYNCH DOMESTIC MASTER INDEX
<CAPTION>
Merrill Lynch
Measurement period Domestic Master Dreyfus Strategic
(Fiscal year Covered) Index Income
- --------------------- --------------- -----------------
<S> <C> <C>
Measurement PT -
10/3/86 $ 10,000 $ 10,000
FYE 10/31/86 $ 10,141 $ 10,040
FYE 10/31/87 $ 10,360 $ 10,215
FYE 10/31/88 $ 11,543 $ 11,922
FYE 10/31/89 $ 12,891 $ 13,524
FYE 10/31/90 $ 13,711 $ 13,703
FYE 10/31/91 $ 15,867 $ 16,298
FYE 10/31/92 $ 17,479 $ 18,358
FYE 10/31/93 $ 19,580 $ 21,650
FYE 10/31/94 $ 18,871 $ 20,039
FYE 10/31/95 $ 21,853 $ 23,560
</TABLE>
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
Average Annual Total Returns
- --------------------------------------------------------------------------------
One Year Ended Five Years Ended From Inception (10/3/86)
October 31, 1995 October 31, 1995 to October 31, 1995
---------------- ---------------- ------------------------
17.57% 11.42% 9.90%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Strategic Income
on October 3, 1986 (Inception Date) to a $10,000 investment made in the Merrill
Lynch Domestic Master Index on that date. For comparative purposes, the value of
the Index on 9/30/86 is used as the beginning value on 10/3/86. All dividends
and capital gain distributions are reinvested.
The Fund invests primarily in debt securities of domestic and foreign issuers.
The Fund's performance shown in the line graph takes into account all applicable
fees and expenses. Unlike the Fund, the Merrill Lynch Domestic Master Index is
an unmanaged performance benchmark for portfolios that include U.S. Government,
mortgage and BBB or higher-rated corporate securities with maturities greater
than or equal to one year; corporate and Treasury securities in the Index must
have par amounts outstanding greater than or equal to $25 million and generic
mortgage-backed securities, $200 million per coupon. The Index does not take
into account charges, fees and other expenses. Further information relating to
Fund performance, including expense reimbursements, if applicable, is contained
in the Condensed Financial Information section of the Prospectus and elsewhere
in this report.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Investments October 31, 1995
<TABLE>
<CAPTION>
Principal
Bonds and Notes--97.7% Amount Value
- --------------------- --------- -------
<S> <C> <C>
Banking--19.7% ABN AMRO Bank N.V.,
Sub. Notes, 7 1/4%, 2005........................ $ 4,000,000 $ 4,159,772
Bank of New York,
Sub. Notes, 8 1/2%, 2004........................ 5,000,000 5,627,670
BankAmerica, Sub. Notes:
9.70%, 2000..................................... 5,000,000 5,689,685
6 3/4%, 2005.................................... 5,000,000 4,987,500
Chemical Banking,
Sub. Deb., 7 7/8%, 2006......................... 15,000,000 16,277,100
First Chicago,
Sub. Notes, 11 1/4%, 2001....................... 3,500,000 4,242,774
Fleet Financial Group,
Sub. Notes, 8 1/8%, 2004........................ 6,000,000 6,537,636
Manufacturers and Traders Trust,
Sub. Notes, 7%, 2005............................ 4,000,000 4,052,268
Midland Bank plc,
Sub. Notes, 8 5/8%, 2004........................ 5,000,000 5,604,815
NCNB,
Sub. Notes, 9 3/8%, 2009........................ 5,000,000 6,014,395
----------
63,193,615
----------
Consumer--7.4% News America Holdings (Gtd. by News):
Sr. Deb., 9 1/4%, 2013.......................... 5,000,000 5,812,400
Sr. Notes, 8 1/2%, 2005......................... 5,000,000 5,492,705
Time Warner Entertainment, L.P.,
Sr. Deb., 8 3/8%, 2023.......................... 12,000,000 12,429,768
----------
23,734,873
----------
Finance--24.2% Associates Corp. of North America:
Medium-Term Sr. Notes,
Ser. G, 8 1/4%, 2004.......................... 5,000,000 5,521,820
Sr. Notes, 7 7/8%, 2001......................... 5,000,000 5,366,215
Avco Financial Services,
Sr. Notes, 6.35%, 2000.......................... 3,000,000 3,003,264
Commercial Credit:
Deb., 10%, 2009................................. 1,000,000 1,274,215
Notes, 7 3/4%, 2005............................. 4,000,000 4,293,116
Dean Witter, Discover & Co.,
Floating Rate Notes, 6 1/4% 2000................ 2,000,000(a) 2,023,846
Dresdner Bank AG,
Sub. Notes, 6 5/8%, 2005........................ 4,000,000 4,016,088
Ford Motor Credit:
Medium-Term Notes, 9.03%, 2009.................. 5,000,000 5,717,195
Notes:
6 1/4%, 2000.................................. 5,000,000 4,975,000
7 3/4%, 2005.................................. 6,000,000 6,427,848
General Electric Capital:
Deb., 8 1/2%, 2008.............................. 4,000,000 4,635,560
Global Medium-Term Notes,
Ser. A, 7.84%, 1997........................... 3,000,000 3,071,022
</TABLE>
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- --------------------------- ----------- -------
<S> <C> <C>
Finance (continued) General Motors Acceptance:
Medium-Term Notes:
7 1/2%, 5/23/2000................................. $ 5,000,000 $ 5,219,750
7 1/2%, 7/24/2000................................. 5,000,000 5,224,795
Notes, 8 3/4%, 1997................................. 3,000,000(b) 3,430,713
Household Finance,
Notes, 7.65%, 2007.................................. 5,000,000 5,350,335
McDonnell Douglas Finance,
Medium-Term Notes, 9.90%, 2000...................... 2,000,000 2,103,390
U.S. Leasing International,
Medium-Term Notes, Ser. A, 9.88%, 2001.............. 5,000,000 5,756,250
------------
77,410,422
------------
Industrial--12.0% Archer-Daniels-Midland,
Deb., 10 1/4%, 2006.................................. 1,400,000 1,779,025
Cincinnati Milacron,
Notes, 8 3/8%, 2004.................................. 5,000,000 5,168,750
du Pont (E.I.) de Nemours and Co.,
Deb., 8 1/4%, 2022................................... 3,000,000 3,266,679
Eli Lilly and Co.,
Notes, 7 1/8%, 2025................................. 4,000,000 4,120,360
Emerson Electric,
Notes, 6.30%, 2005.................................. 1,000,000 992,694
Harnischfeger Industries,
Deb., 8.90%, 2022................................... 1,000,000 1,176,492
Motorola,
Deb., 7 1/2%, 2025.................................. 5,000,000 5,363,740
Phillips Petroleum, Notes:
9 3/8%, 2011........................................ 4,000,000 4,844,852
8.86%, 2022......................................... 5,000,000 5,593,345
Raytheon,
Notes, 6 1/2%, 2005................................. 4,000,000 4,001,460
Union Carbide,
Deb., 8 3/4%, 2022.................................. 2,000,000 2,219,014
------------
38,526,411
------------
Insurance--6.4% NAC Re,
Notes, 8%, 1999..................................... 2,000,000 2,089,324
New York Life Insurance,
Surplus Notes, 7 1/2%, 2023......................... 5,000,000(c) 4,873,500
Orion Capital,
Sr. Notes, 9 1/8%, 2002............................. 3,000,000 3,333,354
Reliastar Financial,
Notes, 6 5/8%, 2003................................. 5,000,000 4,895,760
SunAmerica,
Notes, 9%, 1999..................................... 5,000,000 5,362,345
------------
20,554,283
------------
</TABLE>
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- --------------------------- --------- -------
<S> <C> <C>
Oil and Gas--.4% Maxus Energy,
Sinking Fund Deb., 11 1/4%, 2013.................. $ 254,000 $ 256,540
Occidental Petroleum,
Sr. Deb., 11 3/4%, 2011........................... 1,000,000 1,067,439
-----------
1,323,979
-----------
Utilities--3.5% AT&T,
Deb., 8.35%, 2025................................. 5,000,000 5,519,730
National Rural Utilities Cooperative Finance,
Collateral Trust Bonds, Ser. V, 9%, 2021.......... 5,000,000 5,688,885
------------
11,208,615
------------
Foreign--.4% Province of Newfoundland,
Sinking Fund Deb., 10%, 2020...................... 1,000,000 1,284,490
------------
Other--5.0% Chemical Master Credit Card Trust I,
Floating Rate Asset Backed Ctfs.,
Ser. 1995-1, Cl. A, 5.995%, 2001.................. 10,000,000(a) 10,000,000
Chevy Chase Master Credit Card Trust,
Floating Rate Asset Backed Ctfs.,
Ser. 1994-5, Cl. A, 6.085%, 2001.................. 5,000,000(a) 5,000,500
Rural Electric Cooperative Grantor Trust Ctfs.
(Soyland), 9.70%, 2017............................ 1,000,000 1,093,905
------------
16,094,405
------------
U.S. Government
and Agencies--18.7% Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation Ctfs.,
Ser. 1166, Cl. 1166-PG, 8%, 2020.................. 4,699,313 4,776,100
Government National Mortgage Association 1:
7%, 7/15/2023..................................... 9,495,298 9,444,783
7 1/2%, 10/15/2023................................ 10,484,292 10,638,202
7 1/2%, 5/15/2024................................. 4,858,735 4,930,061
8%, 8/15/2024..................................... 9,778,128 10,077,535
8%, 9/15/2024..................................... 12,416,920 12,797,127
U.S. Treasury Bonds:
8 7/8%, 2/15/2019................................. 3,000,000 3,871,875
6 7/8%, 8/15/2025................................. 3,000,000 3,215,157
------------
59,750,840
------------
TOTAL BONDS AND NOTES
(cost $298,617,777)............................... $313,081,933
============
</TABLE>
<PAGE>
Dreyfus Strategic Income
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Short-Term Investment--.3% Amount Value
- ------------------------- --------- -----
<S> <C> <C>
Time Deposit; Chemical Bank (London),
5 7/8%, 11/1/1995
(cost $1,043,000).......... $ 1,043,000 $ 1,043,000
============
TOTAL INVESTMENTS (cost $299,660,777).................. 98.0% $314,124,933
====== ============
CASH AND RECEIVABLES (NET)............................. 2.0% $ 6,219,990
====== ============
NET ASSETS............................................. 100.0% $320,344,923
====== ============
</TABLE>
Notes to Statement of Investments:
(a) Variable rate security-interest rate subject to periodic change.
(b) Security is subject to repurchase by the issuer at the option of the
holder. Final maturity is 7/15/2005.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At October 31, 1995, this
security amounted to $4,873,500 or 1.5% of net assets.
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $299,660,777)-see statement.............................. $ 314,124,933
Cash........................................................... 320,744
Receivable for investment securities sold...................... 7,317,822
Interest receivable............................................ 5,089,704
Receivable for shares of Beneficial Interest subscribed........ 2,982
Prepaid expenses............................................... 24,106
-------------
326,880,291
LIABILITIES:
Due to The Dreyfus Corporation................................ $ 222,321
Due to Distributor............................................ 8,735
Payable for investment securities purchased................... 5,968,600
Payable for shares of Beneficial Interest redeemed............ 197,082
Accrued expenses.............................................. 138,630 6,535,368
----------- -------------
NET ASSETS......................................................... $ 320,344,923
=============
REPRESENTED BY:
Paid-in capital.................................................. $ 328,172,689
Accumulated net realized (loss) on investments and foreign
currency transactions.......................................... (22,291,922)
Accumulated net unrealized appreciation on investments-Note 4.... 14,464,156
-------------
NET ASSETS at value applicable to 22,520,160 shares outstanding
(unlimited number of $.001 par value shares of Beneficial
Interest authorized)............................................. $ 320,344,923
=============
NET ASSET VALUE, offering and redemption price per share
($320,344,923/22,520,160)........................................ $14.22
=======
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Operations year ended October 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:...............................................
Interest Income $ 25,027,801
Expenses:
Management fee--Note 3(a).................................... $ 1,898,849
Shareholder servicing costs--Note 3(b,c)..................... 1,164,077
Professional fees............................................ 56,492
Custodian fees 52,900
Trustees' fees and expenses--Note 3(d)....................... 41,846
Registration fees............................................ 35,965
Prospectus and shareholders' reports--Note 3(b).............. 25,461
Miscellaneous 16,526
-----------
Total Expenses 3,292,116
-------------
INVESTMENT INCOME--NET.................................... 21,735,685
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments and foreign currency
transactions--Note 4........................................ $ (8,706,304)
Net unrealized appreciation on investments and foreign
currency transactions....................................... 38,489,861
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 29,783,557
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 51,519,242
=============
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------
1994 1995
---- ----
<C> <C>
OPERATIONS:
Investment income--net............................................. $ 24,598,056 $ 21,735,685
Net realized (loss) on investments and foreign currency
transactions..................................................... (13,631,198) (8,706,304)
Net unrealized appreciation (depreciation) on investments and
foreign currency transactions for the year....................... (39,799,142) 38,489,861
-------------- -------------
Net Increase (Decrease) In Net Assets Resulting From Operations... (28,832,284) 51,519,242
-------------- -------------
DIVIDENDS TO SHAREHOLDERS:
From investment income--net........................................ (24,598,056) (21,735,685)
From net realized gain on investments............................. (9,045,367) -
In excess of net realized gain on investments..................... (122,223) -
-------------- -------------
Total Dividends................................................... (33,765,646) (21,735,685)
-------------- -------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold..................................... 90,796,927 17,545,801
Dividends reinvested.............................................. 25,835,418 15,878,061
Cost of shares redeemed........................................... (107,007,060) (65,349,244)
-------------- -------------
Increase (Decrease) In Net Assets From Beneficial Interest
Transactions..................................................... 9,625,285 (31,925,382)
-------------- -------------
Total (Decrease) In Net Assets.................................... (52,972,645) (2,141,825)
NET ASSETS:
Beginning of year................................................. 375,459,393 322,486,748
-------------- -------------
End of year....................................................... $ 322,486,748 $ 320,344,923
============== =============
<CAPTION>
Shares Shares
------ ------
<C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold....................................................... 6,360,200 1,300,295
Shares issued for dividends reinvested............................ 1,842,973 1,172,881
Shares redeemed................................................... (7,743,228) (4,864,735)
-------------- -------------
Net Increase (Decrease) In Shares Outstanding..................... 459,945 (2,391,559)
============== =============
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Financial Highlights
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for each year indicated. This information has
been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------
PER SHARE DATA: 1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year....................... $12.35 $13.44 $ 14.02 $ 15.36 $ 12.95
------ ------ -------- ------- -------
Investment Operations:
Investment income--net...... 1.16 1.07 1.01 .95 .93
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions............... 1.09 .58 1.41 (2.04) 1.27
------ ------ -------- ------- ------
Total from Investment
Operations............... 2.25 1.65 2.42 (1.09) 2.20
------ ------ ------- ------- -------
Distributions:
Dividends from
investment income--net..... (1.16) (1.07) (1.01) (.95) (.93)
Dividends from net
realized gain on
investments................ - - (.07) (.37) -
Dividends in excess
of net realized
gain on investments........ - - - - -
------ ------ ------- ------- -------
Total Distributions....... (1.16) (1.07) (1.08) (1.32) (.93)
------ ------ ------- ------- -------
Net asset value, end
of year.................... $13.44 $14.02 $ 15.36 $ 12.95 $ 14.22
====== ====== ======== ======== =======
TOTAL INVESTMENT RETURN(1)....... 18.94% 12.64% 17.93% (7.44%) 17.57%
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating
expenses to average
net assets................. .72% .85% .84% .94% 1.04%
Ratio of interest
expense to average
net assets................. .15% - - - -
Ratio of net
investment income to
average
net assets................. 8.93% 7.58% 6.83% 6.84% 6.87%
Decrease reflected in
above expense ratios
due to undertakings
by the Manager
(limited to the
expense limitation
provision of the
management
agreement)................. .78% .40% .24% .11% -
Portfolio Turnover
Rate....................... 16.08% 72.82% 118.38% 161.35% 176.59%
Net Assets, end
of year (000's
Omitted)................... $ 57,336 $149,801 $375,459 $322,487 $320,345
</TABLE>
- ----------
(1) Exclusive of sales load.
See notes to financial statements.
<PAGE>
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. Premier Mutual Fund
Services, Inc. (the "Distributor") acts as the distributor of the Fund's shares.
The Distributor, located at One Exchange Place, Boston, Massachusetts 02109, is
a wholly-owned subsidiary of FDI Distribution Services, Inc., a provider of
mutual fund administration services, which in turn is a wholly-owned subsidiary,
of FDI Holdings, Inc., the parent company of which is Boston Institutional
Group, Inc. The Dreyfus Corporation ("Manager") serves as the Fund's investment
adviser. The Manager is a direct subsidiary of Mellon Bank, N.A.
Effective July 24, 1995, all Fund shares are being offered at net asset
value without a sales load.
(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 direction 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) Foreign currency transactions: The Fund does not isolate that portion
of the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized on securities transactions, the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in exchange rates. Such gains and losses are included with net
realized and unrealized gain or loss on investments.
(c) 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.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(d) 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, if any, 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, it is
the policy of the Fund not to distribute such gain.
(e) 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 $22,352,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1995. If not
applied, $13,753,000 of the carryover expires in fiscal 2002, and $8,599,000
expires in fiscal 2003.
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, 1995.
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, brokerage, interest on borrowings (which, in the
view of Stroock & Stroock & Lavan, counsel to the Fund, also contemplates
interest on securities sold short) 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 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,
1995.
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager,
retained $542,812 during the period from November 1, 1994 through July 23, 1995
from commissions earned on sales of Fund shares.
(b) Prior to July 24, 1995, the Fund's Service Plan (the "Plan") adopted
pursuant to Rule 12b-1 under
<PAGE>
Dreyfus Strategic Income
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
the Act, provided that the Fund (a) reimburse the Distributor for payments to
certain Service Agents for distributing the Fund's 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 and marketing relating to the Fund and for Servicing at an aggregate
annual rate of .25 of 1% of the value of the Fund's average daily net assets.
Each of the Distributor and Dreyfus paid Service Agents 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 determined the amounts to be paid to Service
Agents to which it made payments and the basis on which such payments were made.
The 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
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. During the period from November 1,
1994 through July 23, 1995, $580,600 was charged to the Fund pursuant to the
Plan.
(c) Effective July 24, 1995, the Fund has adopted a Shareholder Services
Plan. Under the Shareholder Services Plan, the Fund pays the Distributor at an
annual rate of .25 of 1% of the value of the Fund's average daily net assets for
the provision of certain services. 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. During the period from July
24, 1995 through October 31, 1995, $217,598 was charged to the Fund by the
Distributor pursuant to the Shareholder Services Plan.
(d) Each trustee who is not an "affiliated person," as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $250 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the year ended
October 31, 1995, amounted to $525,457,173 and $525,623,147, respectively.
At October 31, 1995, accumulated net unrealized appreciation on investments
was $14,464,156, consisting of $15,661,770 gross unrealized appreciation and
$1,197,614 gross unrealized depreciation.
At October 31, 1995, 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).
<PAGE>
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, 1995, 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, 1995 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, 1995, 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.
/s/ Ernst & Young LLP
New York, New York
December 4, 1995
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS STRATEGIC INCOME AND THE
MERRILL LYNCH DOMESTIC MASTER INDEX
EXHIBIT A:
______________________________________________
| | MERRILL LYNCH | |
| | DOMESTIC | DREYFUS |
| PERIOD | MASTER | STRATEGIC |
| | INDEX * | INCOME |
|----------- | ------------- | ------------|
| 10/3/86 | 10,000 | 10,000 |
| 10/31/86 | 10,141 | 10,040 |
| 10/31/87 | 10,360 | 10,215 |
| 10/31/88 | 11,543 | 11,922 |
| 10/31/89 | 12,891 | 13,524 |
| 10/31/90 | 13,711 | 13,703 |
| 10/31/91 | 15,867 | 16,298 |
| 10/31/92 | 17,479 | 18,358 |
| 10/31/93 | 19,580 | 21,650 |
| 10/31/94 | 18,871 | 20,039 |
| 10/31/95 | 21,853 | 23,560 |
|---------------------------------------------|
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
