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PROSPECTUS JANUARY 2, 1996
AS REVISED MARCH 26, 1996
DREYFUS HIGH YIELD SECURITIES FUND
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DREYFUS HIGH YIELD SECURITIES FUND (THE "FUND") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS INCOME FUNDS, AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY (THE "COMPANY"), KNOWN AS A MUTUAL FUND. THE FUND'S
INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN, CONSISTING OF CAPITAL
APPRECIATION AND CURRENT INCOME.
THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING UP TO ALL OF ITS
ASSETS IN LOWER RATED FIXED-INCOME SECURITIES, COMMONLY KNOWN AS "JUNK
BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF
PRINCIPAL AND NON-PAYMENT OF INTEREST. INVESTORS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. SEE "DESCRIPTION OF THE
FUND--MANAGEMENT POLICIES" AND "INVESTMENT CONSIDERATIONS AND RISKS--HIGH
YIELD-LOWER RATED SECURITIES."
YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING DREYFUS
TELETRANSFER.
IN SOME CASES, SHAREHOLDERS WILL BE CHARGED A REDEMPTION FEE WHICH
WILL BE DEDUCTED FROM REDEMPTION PROCEEDS ON SHARES HELD LESS THAN NINE
MONTHS.
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 JANUARY 2, 1996, 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
FEE TABLE......................................... 3
DESCRIPTION OF THE FUND........................... 3
MANAGEMENT OF THE FUND............................ 5
HOW TO BUY SHARES................................. 7
SHAREHOLDER SERVICES.............................. 9
HOW TO REDEEM SHARES.............................. 12
SHAREHOLDER SERVICES PLAN......................... 14
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 14
PERFORMANCE INFORMATION........................... 16
GENERAL INFORMATION............................... 16
APPENDIX.......................................... 18
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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>
FEE TABLE
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Redemption Fee (as a percentage of amount
redeemed for shares held less than nine
months)..................................................................... .75%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.............................................................. .65%
Other Expenses............................................................... .50%
Total Fund Operating Expenses ............................................... 1.15%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
EXAMPLE: 1 YEAR 3 YEARS
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $12 $37
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF 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 costs and expenses borne by the Fund and investors, the payment of which
will reduce investors' annual return. The redemption fee is charged upon
certain redemptions or exchanges of Fund shares occurring within a nine-month
period following the issuance of such shares and is retained by the Fund.
Other Expenses are based on estimated amounts for the current fiscal year.
The information in the foregoing table does not reflect any fee waivers or
expense reimbursement arrangements that may be in effect. Certain Service
Agents (as defined below) may charge their clients direct fees for effecting
transactions in Fund shares; such fees are not reflected in the foregoing
table. For a further description of the various costs and expenses incurred
in the operation of the Fund, as well as expense reimbursement or waiver
arrangements, see "Management of the Fund," "How to Buy Shares," "How to
Redeem Shares" and "Shareholder Services Plan."
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. It cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")), of the Fund's outstanding
voting shares. There can be no assurance that the Fund's investment objective
will be achieved.
MANAGEMENT POLICIES
Under normal market conditions, the Fund will invest at least 65% of
the value of its net assets in bonds, debentures, notes and other debt
instruments (collectively, "Fixed-Income Securities") rated below investment
grade, or, if unrated, determined by The Dreyfus Corporation to be of
comparable quality. Fixed-Income Securities also include mortgage-related
securities, asset-backed securities, zero coupon securities, municipal
obligations, preferred stock, convertible debt obligations and convertible pre
ferred stock. The issuers of Fixed-Income Securities may include domestic and
foreign corporations, partnerships, trusts or similar entities, and
governmental entities or their political subdivisions, agencies or
instrumentalities. The Fund may invest in companies in, or governments of,
developing countries. The Fund's portfolio will be invested without regard to
maturity.
Page 3
Securities rated below investment grade are those rated lower than
Baa by Moody's Investors Service, Inc. ("Moody's") and BBB by Standard &
Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. ("S&P"),
Fitch Investors Service, L.P. ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff"). These securities carry a high degree of risk and are considered
speculative by the credit rating agencies. See "Investment Considerations and
Risks _ High Yield-Lower Rated Securities" and "Appendix _ Certain Portfolio
Securities _ High Yield-Lower Rated Securities" below for a discussion of
certain risks, and "Appendix" in the Statement of Additional Information. The
Fund may hold investment grade rated Fixed-Income Securities (or unrated
securities of comparable quality) when the yield differential between below
investment grade and investment grade securities narrows and the risk of loss
may be reduced with only a relatively small reduction in yield. The Fund also
may invest in investment grade rated Fixed-Income Securities when The Dreyfus
Corporation determines that a defensive investment position is appropriate in
light of market or economic conditions.
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 set forth under "Appendix
_Certain Portfolio Securities _ Money Market Instruments." Under normal
market conditions, the Fund does not expect to have a substantial portion of
its assets invested 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 all of its assets in money
market instruments.
The Fund's annual portfolio turnover rate is not expected to exceed
200%. Higher portfolio turnover rates usually generate additional brokerage
commissions and expenses and the short-term gains realized from these
transactions are taxable to shareholders as ordinary income. In addition, the
Fund currently intends, to a limited extent, to engage in foreign currency
transactions, options and futures transactions, swaps, lending portfolio
securities and short-selling. See also "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies _ Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- The Fund's net asset value per share should be expected to
fluctuate. The Fund's investment in high yield Fixed-Income Securities may
cause the Fund's share price to be highly volatile at times. Investors should
consider the Fund as a supplement to an overall investment program and should
invest only if they are willing to undertake the risks involved. See
"Investment Objectives and Management Policies_Management Policies" in the
Statement of Additional Information for a further discussion of certain
risks.
HIGH YIELD-LOWER RATED SECURITIES -- The Fund generally will invest in
Fixed-Income Securities rated below investment grade such as those rated Ba
by Moody's and BB by S&P, Fitch and Duff or as low as the lowest rating
assigned by Moody's, S&P, Fitch or Duff (commonly known as junk bonds). 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. The retail secondary market for these securities may be less
liquid than that of higher rated securities; 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
value of these securities, as is the case with the value of higher rated
Fixed-Income Securities, will be inversely affected by changes in interest
rates. See "Appendix _ Certain Portfolio Securities _ High Yield-Lower Rated
Securities" below and "Appendix" in the Statement of Additional Information.
FOREIGN SECURITIES -- 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
Page 4
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.
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, seizure or
nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect the payment of principal and interest on the
foreign securities or restrict the payment of principal and interest to
investors located outside the country of the issuer, whether from currency
blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
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.
FOREIGN CURRENCY TRANSACTIONS -- 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 United States or abroad. See "Appendix _ Investment
Techniques _ Foreign Currency Transactions."
USE OF DERIVATIVES -- The Fund may invest, to a limited extent, in
derivatives ("Derivatives"). These are financial instruments which derive
their performance, at least in part, from the performance of an underlying
asset, index or interest rate. The Derivatives the Fund may use include
options and futures, mortgage-related securities, asset-backed securities and
swaps. While Derivatives can be used effectively in furtherance of the Fund's
investment objective, under certain market conditions, they can increase the
volatility of the Fund's net asset value, can decrease the liquidity of the
Fund's portfolio and make more difficult the accurate pricing of the Fund's
portfolio. See "Appendix _ Investment Techniques_Use of Derivatives" below
and "Investment Objectives and Management Policies _ Management Policies _
Derivatives" in the Statement of Additional Information.
SIMULTANEOUS INVESTMENTS -- Investment decisions for the Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities 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
INVESTMENT ADVISER -- 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 February 29, 1996, The Dreyfus Corporation
managed or administered approximately $85 billion in assets for more than 1.7
million investor accounts nationwide.
Page 5
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the
Company, subject to the authority of the Company's Board in accordance with
Massachusetts law. The Fund's primary portfolio manager is Roger King. He has
held that position since March 1996, and has been employed by The Dreyfus
Corporation since February 1996. Prior thereto, Mr. King was a Vice President
of High Yield Research, and, most recently, Director of High Yield Research,
at Citibank Securities, Inc. The Fund's other portfolio managers are
identified in the Statement of Additional Information. The Dreyfus
Corporation also provides research services for the Fund and 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., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$233 billion in assets as of December 31, 1995, including approximately $81
billion in proprietary mutual fund assets. As of December 31, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $786 billion in assets,
including approximately $60 billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to
pay The Dreyfus Corporation a monthly fee at the annual rate of .65 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
expense ratio of the Fund and increasing yield to investors. 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.
In allocating brokerage transactions for the Fund, TheDreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, TheDreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds advised by The Dreyfus Corporation
as factors in the selection of broker-dealers to execute portfolio
transactions for the Fund. See "Portfolio Transactions" in the Statement of
Additional Information.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
EXPENSES -- All expenses incurred in the operation of the Company are borne
by the Company, except to the extent specifically assumed by The Dreyfus
Corporation. The expenses borne by the Company include: organizational costs,
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 Dreyfus Corporation or any of its
affiliates, 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 independent
pricing services, costs of maintaining the Company's existence, costs
attributable to investor services
Page 6
(including, without limitation, telephone and personnel expenses), costs of
preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders, costs
of shareholders' reports and meetings, and any extraordinary expenses.
Expenses attributable to the Fund are charged against the assets of the Fund;
other expenses of the Company are allocated among the Company's portfolios on
the basis determined by the Company's Board, including, but not limited to,
proportionately in relation to the net assets of each portfolio.
DISTRIBUTOR -- 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.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN -- Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus 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 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 investment is $2,500, or $1,000 if you are a
client of a Service Agent which has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at least
$100. However, the minimum initial investment for Dreyfus-sponsored Keogh
Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant is $750,
with no minimum for subsequent purchases. Individuals who open an IRA also
may open a non-working spousal IRA with a minimum initial investment of $250.
Subsequent investments in a spousal IRA must be at least $250. The initial
investment must be accompanied by the 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 Company'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 or non-qualified employee benefit plans or other programs
where contributions or account information can be transmitted in a manner and
form acceptable to the Fund. The Fund reserves the right to vary further the
initial and subsequent investment minimum requirements at any time. Fund
shares also are offered without regard to the minimum initial investment
requirements through Dreyfus-AUTOMATIC Asset BuilderRegistration Mark,
Dreyfus Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan
pursuant to the Dreyfus Step Program described under "Shareholder Services."
These services enable you to make regularly scheduled investments and may
provide you with a convenient way to invest for long-term financial goals.
You should be aware, however, that periodic investment plans do not guarantee
a profit and will not protect an investor against loss in a declining market.
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" and should specify that you are
investing in the Fund. 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
Page 7
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# 8900276428/Dreyfus Income
Funds/Dreyfus High Yield Securities Fund, 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, you should call 1-800-645-6561 after completing your
wire payment to obtain your Fund account number. Please include your Fund
account number on the 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
Fund account number PRECEDED BY THE DIGITS "1111."
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, options and
futures contracts will be valued 15 minutes after the close of trading on the
floor of the New York Stock Exchange. Net asset value per share is computed
by dividing the value of the Fund's net assets (i.e., the value of its assets
less liabilities) by the total number of Fund shares outstanding. The Fund's
investments are valued generally at market value or, where market quotations
are not readily available, at fair value as determined by or under the
direction of the Company's Board. For further information regarding the
methods employed in valuing the Fund's investments, see "Determination of Net
Asset Value" in the 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.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by
Page 8
the Distributor to such plans or programs exceeds $1,000,000 ("Eligible
Benefit Plans"). Shares of funds in the Dreyfus Family of Funds then held by
Eligible Benefit Plans will be aggregated to determine the fee payable. The
Distributor reserves the right to cease paying these fees at any time. The
Distributor will pay such fees from its own funds, other than amounts received
from the Fund, including past profits or any other source available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the 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 shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. 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 shares by telephoning
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
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.
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
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 1-800-645-6561 or, if you are calling from overseas, call
516-794-5452. See "How to Redeem Shares _ Procedures." Upon an exchange into
a new account, the following shareholder services and privileges, as
applicable and where available, will be automatically carried over to the
fund into which the exchange is made: Telephone Exchange Privilege, Wire
Redemption Privilege, Telephone Redemption Privilege, Dreyfus TELETRANSFER
Privilege and the dividend/capital gain distribution option (except for
Dreyfus Dividend Sweep) selected by the investor.
The Fund will deduct a redemption fee equal to .75% of the net asset
value of Fund shares exchanged where the exchange occurs within a nine-month
period following the issuance of such shares. See "How to Redeem Shares."
Otherwise, 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.
Page 9
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 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 reinvestment of dividends or
distributions paid with respect to the foregoing categories of shares. To
qualify, at the time of the 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 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. See "Dividends, Distributions and Taxes."
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 certain other funds in the Dreyfus Family of Funds of
which you are currently a shareholder. 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 day
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 canceled by the Fund or the
Transfer Agent. You may modify or cancel your exercise of this Privilege at
any time by mailing written notification 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. 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. See "Dividends, Distributions and Taxes."
DREYFUS-AUTOMATIC ASSET BUILDERRegistration 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 account
designated by you will be debited in the specified amount, and Fund shares
will be purchased, once a month, on either the first or fifteenth day, or
twice a month, on both days. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. To establish a Dreyfus-AUTOMATIC Asset Builder account, you must
file an authorization form with the Transfer Agent. You may obtain the
necessary authorization form by calling 1-800-645-6561. You may cancel your
participation in this Privilege or change the amount of purchase at any time
by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, 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
Fund 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 automatically deposited into your
Page 10
Fund account. You may deposit as much of such 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. 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.
DREYFUS STEP PROGRAM
Dreyfus Step Program enables you to purchase Fund shares without
regard to the Fund's minimum initial investment requirements through
Dreyfus-AUTOMATIC Asset BuilderRegistration Mark, Dreyfus Government Direct
Deposit Privilege or Dreyfus Payroll Savings Plan. To establish a Dreyfus Step
Program account, you must supply the necessary information on the Account
Application and file the required authorization form(s) with the Transfer
Agent. For more information concerning this Program, or to request the
necessary authorization form(s), please call toll free 1-800-782-6620. You
may terminate your participation in this Program at any time by discontinuing
your participation in Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the case may be,
as provided under the terms of such Privilege(s). The Fund may modify or
terminate this Program at any time. Investors who wish to purchase Fund
shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plan may do so only for IRAs, SEP-IRAs and IRA
"Rollover Accounts."
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
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
Page 11
after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three business
days following receipt. These privileges are available only for existing
accounts and may not be used to open new accounts. Minimum subsequent
investments do not apply for Dreyfus Dividend Sweep. The Fund may modify or
terminate these privileges at any time or charge a service fee. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans are not eligible for Dreyfus Dividend Sweep.
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. 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; or for
SEP-IRAs, 401(k) Salary Reduction Plans and 403(b)(7) Plans, please call
1-800-322-7880.
HOW TO REDEEM 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 will deduct a redemption fee equal to .75% of the net asset
value of Fund shares redeemed (including redemptions through use of the Fund
Exchanges service) where the redemption or exchange occurs within a
nine-month period following the issuance of such shares. The purpose of the
redemption fee is to discourage short-term trading. The fee will be retained
by the Fund and used primarily to offset the transaction costs that
short-term trading imposes on the Fund and its shareholders. For purposes of
computing the nine-month period, any issuance of Fund shares during a month
will be deemed to occur on the first day of such month. No redemption fee
will be charged upon the redemption of shares through the Fund's Automatic
Withdrawal Plan or Dreyfus Auto-Exchange Privilege, or through omnibus
accounts for various retirement plans. Furthermore, no redemption fee will be
charged upon the redemption of Fund shares acquired through reinvestment of
dividends or distributions, nor will the redemption fee be used to pay fees
imposed for various Fund services or shares. The redemption fee may be
waived, modified or discontinued at any time or from time to time. In
addition, Service Agents may charge their clients 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 upon
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 PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER
REGISTRATION MARK 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
Page 12
EIGHT BUSINESS DAYS OR MORE. IN ADDITION, THE FUND WILL REJECT REQUESTS TO
REDEEM SHARES BY WIRE OR TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER
PRIVILEGE FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER
AGENT OF THE PURCHASE CHECK, THE DREYFUS TELETRANSFER PURCHASE OR THE
DREYFUS-AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS
REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY
WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR
ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS
EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL
BE ENTITLED TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares
will not be redeemed until the Transfer Agent has received your Account
Application.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or, if you have checked the appropriate box and
supplied the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent, through the Wire
Redemption Privilege, the Telephone Redemption Privilege or the Dreyfus
TELETRANSFER Privilege. Other redemption procedures may be in effect for
clients of certain Service Agents. The Fund makes available to certain large
institutions the ability to issue redemption instructions through compatible
computer facilities. The Fund reserves the right to refuse any request made
by wire or telephone, including requests made shortly after a change of
address, and may limit the amount involved or the number of such requests.
The Fund may modify or terminate any redemption Privilege at any time or
charge a service fee upon notice to shareholders. No such fee currently is
contemplated. Shares held under Keogh Plans, IRAs or other retirement plans,
and shares for which certificates have been issued, are not eligible for the
Wire Redemption, Telephone Redemption or Dreyfus TELETRANSFER Privilege.
You may redeem shares by telephone if you have checked the
appropriate box on the 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
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to TheDreyfus 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
Page 13
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. You also may direct that redemption proceeds be paid by
check (maximum $150,000 per day) made out to the owners of record and mailed
to your address. Redemption proceeds of less than $1,000 will be paid
automatically by check. Holders of jointly registered Fund or bank accounts
may have redemption proceeds of not more than $250,000 wired within any
30-day period. You may telephone redemption requests by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire.
TELEPHONE REDEMPTION PRIVILEGE -- You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
DREYFUS TELETRANSFER PRIVILEGE -- You may request by telephone that
redemption proceeds (minimum $500 per day) be transferred between your Fund
account and your bank account. Only a bank account maintained in a domestic
financial institution which is an Automated Clearing House member may be
designated. Redemption proceeds will be on deposit in your account at an
Automated Clearing House member bank ordinarily two days after receipt of the
redemption request 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.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by telephoning
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan, pursuant to which
it pays the Distributor for the provision of certain services to Fund
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. The Fund ordinarily declares and
pays dividends from its net investment income quarterly, and distributes net
realized securities gains, if any, once a year, but it may make distributions
more regularly to comply with
Page 14
the distribution requirements of the Code, in all events in a manner
consistent with the provisions of the 1940 Act. Distributions from 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 Code, in all events in a manner consistent
with the provisions of the 1940 Act. 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
dividends and distributions in cash or to reinvest in additional shares at
net asset value. All expenses are accrued daily and deducted before
declaration of dividends to investors.
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
shares. No dividend paid by the Fund will qualify for the dividends received
deduction allowable to certain U.S. corporations. Distributions from net
realized long-term securities gains of the Fund will be taxable to U.S.
shareholders 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 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 will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
The 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.
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 and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a 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.
Page 15
It is expected that the Fund will qualify as a "regulated investment
company" under the Code so long as such qualification is in the best
interests of its shareholders. Such qualification relieves the Fund of any
liability for Federal income tax to the extent its earnings are distributed
in accordance with applicable provisions of the Code. 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 or 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 current
yield may reflect absorbed expenses pursuant to any undertaking that may be
in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment 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 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. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
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, Bond Buyer's
20-Bond Index, Morningstar, Inc. and other industry publications.
GENERAL INFORMATION
The Company 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. Before January 2, 1996, the
Company's name was Dreyfus Strategic Income. The Company is authorized to
issue an unlimited number of shares of beneficial interest, par value $.001
per share. Each share has one vote.
Page 16
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a
Massachusetts business trust. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Company and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Company 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
Company intends to conduct its operations in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for liabilities of
the Fund.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Fund are being
offered. Other portfolios are sold pursuant to other offering documents.
To date, the Board has authorized the creation of three series of
shares. All consideration received by the Company for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Company) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of the
other series. The Company has the ability to create, from time to time, new
series without shareholder approval.
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.
Page 17
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS -- Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Fund has agreed to buy
or sell; or to hedge the U.S. dollar value of securities the Fund already
owns, particularly if it expects a decrease in the value of the currency in
which the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Fund's success in these transactions will depend principally on
The Dreyfus Corporation's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
SHORT-SELLING -- In these transactions, the Fund sells a security it does not
own in anticipation of a decline in the market value of the security. To
complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently 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, which would result in a loss or gain,
respectively.
Securities will not 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 make a short sale which results in the Fund having sold short in the
aggregate more than 5% of the outstanding securities of any class of an
issuer.
The Fund also may make short sales "against the box," in which the
Fund enters into a short sale of a security it owns in order to hedge an
unrealized gain on the security. At no time will more than 15% of the value
of the Fund's net assets be in deposits on short sales against the box.
LENDING PORTFOLIO SECURITIES -- The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest or other distributions
payable on the loaned securities which affords the Fund an opportunity to
earn interest on the amount of the loan and at the same time to earn income
on the loaned securities' collateral. Loans of portfolio securities may not
exceed 331/3% of the value of the Fund's total assets, and the Fund will
receive collateral consisting of cash, U.S. Government securities or
irrevocable letters of credit which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. Such loans are terminable by the Fund 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.
BORROWING MONEY -- The Fund is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331/3% of the value its total assets. The Fund currently intends
to borrow money only for temporary or emergency (not leveraging) purposes, in
an amount up to 15% of the value of its total assets (including the amount
borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
Page 18
USE OF DERIVATIVES -- The Fund may invest in the types of Derivatives
enumerated under "Description of the Fund -- Investment Considerations and
Risks -- Use of Derivatives." These instruments and certain related risks are
described more specifically under "Investment Objectives and Management
Policies -- Derivatives" in the Statement of Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if it were unable
to liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although the Fund will not be a commodity pool, Derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Fund can invest in certain Derivatives. The Fund may
invest in futures contracts and options with respect thereto for hedging
purposes without limit. However, the Fund may not invest in such contracts
and options for other purposes if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such
contracts,other than for bona fide hedging purposes, exceed 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The fund may write
(i.e, sell) 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. When
required by the Securities and Exchange Commission, the Fund will set aside
permissable liquid assets in a segregated account to cover its obligations
relating to its transactions in Derivatives. To maintain this required cover,
the Fund may have to sell portfolio securities at disadvantageous prices or
times since it may not be possible to liquidate a Derivative position at a
reasonable price.
FORWARD COMMITMENTS -- The Fund may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate that will be received on a forward
commitment or when-issued security are fixed when the Fund enters into the
commitment, but the Fund does not make a payment until it receives delivery
from the counterparty. The Fund will commit 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. 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 commitments will be established and
maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
HIGH YIELD-LOWER RATED 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 S&P, Fitch or Duff are regarded as
having predominantly speculative characteristics and, while such obligations
have less near-term vulnerability to
Page 19
default than other speculative grade debt, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. Securities rated C by Moody's are regarded as having
extremely poor prospects of ever attaining any real investment standing.
Securities rated D by S&P, Fitch and Duff are in default and the payment of
interest and/or repayment of principal is in arrears. Such securities, though
high yielding, are characterized by great risk. See "Appendix" in the
Statement of Additional Information for a general description of securities
ratings.
These securities may be particularly susceptible to economic
downturns. It is likely that an 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 ratings of Moody's, S&P, Fitch or Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety or interest and principal payments, they do not evaluate the
market value risk of such obligations. 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.
CONVERTIBLE SECURITIES -- Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. 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.
PARTICIPATION INTERESTS. The Fund may invest in corporate obligations,
denominated in U.S. dollars or foreign currencies, that are originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting
of commercial banks, thrift institutions, insurance companies, finance
companies or other financial institutions one or more of which administers
the security on behalf of the syndicate (the "Agent Bank"). Co-Lenders may
sell such securities to third parties called "Participants." The Fund may
invest in such securities either by participating as a Co-Lender at
origination or by acquiring an interest in the security from a Co-Lender or a
Participant (collectively, "participation interests"). Co-Lenders and
Participants interposed between the Fund and the corporate borrower (the
"Borrower"), together with Agent Banks, are referred to herein as
"Intermediate Participants." The Fund also may purchase a participation
interest in a portion of the rights of an Intermediate Participant. The Fund
will not act as an Agent Bank, guarantor, sole negotiator or sole structuror
with respect to securities that are the subject of a participation interest.
A participation interest gives the Fund an undivided interest in the security
in the proportion that the Fund's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating
or variable rates of interest. For certain participation interests, the Fund
will have the right to demand payment, on not more than seven days' notice,
for all or any part of the Fund's participation interest in the security,
plus accrued interest. As to these instruments, the Fund intends to exercise
its right to demand payment only upon a default under the terms of the
security, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio. The Fund will not invest
more than 15% of the value of its net assets in participation interests
maturing in more than seven days that do not have this demand feature, and in
other securities that are illiquid.
Page 20
MORTGAGE-RELATED SECURITIES -- Mortgage-related securities are a form of
Derivative collateralized by pools of mortgages. The mortgage-related
securities which may be purchased 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. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions of interest
and principal distributions on a pool of mortgage-backed securities or whole
loans. A common type of stripped mortgage-backed security will have one class
receiving some of the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the interest and the
remainder of the principal. 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 secured. If a mortgage-related
security is purchased 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 on the underlying mortgage
collateral. As with other interest-bearing securities, the prices of certain
of these securities are inversely affected by changes in interest rates.
However, although 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 be prepaid. 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 even if the securities are rated
in the highest rating category by a nationally recognized statistical rating
organization. For further discussion concerning the investment considerations
involved, see "Description of the Fund _ Investment Considerations and Risks
_ Fixed-Income Securities" and "Illiquid Securities" below.
ASSET-BACKED SECURITIES -- Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Fund may
invest in these and other types of asset-backed securities that may be
developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may provide the
Fund with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
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. Municipal obligations bear fixed,
floating or variable rates of interest. 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
obligations and purchased and sold separately. The Fund also may acquire call
options on specific municipal obligations. The Fund generally would purchase
these call options to protect the Fund from the issuer of the related
municipal obligation redeeming, or other holder of the call option from
calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are taxable
obligations, offering yields comparable to, and in some cases greater than,
the yields available on
Page 21
other permissible Fund investments. 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. The
Fund may invest in municipal obligations, the ratings of which correspond with
the ratings of other permissible Fund investments. The Fund currently intends
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.
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. Zero coupon securities also are 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 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.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES -- The
Fund may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Fund may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTS -- The Fund may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
BANK OBLIGATIONS. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Fund
Page 22
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. See "Description of the Fund -- Investment
Considerations and Risks -- Foreign Securities."
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 (in no event longer than seven
days) at a stated interest rate.
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 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,
A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, 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.
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, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. 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.
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 23
DREYFUS
HIGH YIELD
SECURITIES FUND
Prospectus
(LION LOGO)
Registration Mark
Copy Rights 1996 Dreyfus Service Corporation
043p032696
__________________________________________________________________________
DREYFUS INCOME FUNDS
DREYFUS EQUITY DIVIDEND FUND
DREYFUS HIGH YIELD SECURITIES FUND
DREYFUS STRATEGIC INCOME FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
JANUARY 2, 1996
As Revised March 26, 1996
___________________________________________________________________________
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of the series named above (each, a "Fund") of Dreyfus Income Funds (the
"Company"), dated January 2, 1996, as revised March 26, 1996, as each may
be revised from time to time. To obtain a copy of the relevant Fund's
Prospectus, please write to a Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call the following numbers:
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 each Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of each Fund's shares.
TABLE OF CONTENTS
Page
Investment Objectives and Management Policies. . . . . . . B-3
Management of the Company. . . . . . . . . . . . . . . . . B-19
Management Agreement . . . . . . . . . . . . . . . . . . . B-23
Purchase of Shares . . . . . . . . . . . . . . . . . . . . B-25
Shareholder Services Plan. . . . . . . . . . . . . . . . . B-25
Redemption of Shares . . . . . . . . . . . . . . . . . . . B-26
Shareholder Services . . . . . . . . . . . . . . . . . . . B-28
Determination of Net Asset Value . . . . . . . . . . . . . B-31
Dividends, Distributions and Taxes . . . . . . . . . . . . B-32
Portfolio Transactions . . . . . . . . . . . . . . . . . . B-34
Performance Information. . . . . . . . . . . . . . . . . . B-36
Information About the Funds. . . . . . . . . . . . . . . . B-37
Transfer and Dividend Disbursing Agent,
Custodian, Counsel and Independent Auditors. . . . . . . B-37
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . B-39
Financial Statements . . . . . . . . . . . . . . . . . . . B-48
Report of Independent Auditors . . . . . . . . . . . . . . B-59
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in each Fund's Prospectus entitled
"Description of the Fund" and "Appendix."
Portfolio Securities
American Depositary Receipts. (Dreyfus Equity Dividend Fund only)
The Fund may invest in American Depositary Receipts, through "sponsored"
or "unsponsored" facilities. A sponsored facility is established jointly
by the issuer of the underlying security and a depositary, whereas a
depositary may establish an unsponsored facility without participation by
the issuer of the deposited security. Holders of unsponsored depositary
receipts generally bear all the costs of such facilities and the
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the
deposited security or to pass through voting rights to the holders of such
receipts in respect of the deposited securities.
Repurchase Agreements. (All Funds) The Fund's custodian or sub-
custodian will have custody of, and will hold in a segregated account,
securities acquired by a 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, each Fund will enter into
repurchase agreements only with domestic banks with total assets in excess
of $1 billion, or primary government securities dealers reporting to the
Federal Reserve Bank of New York, with respect to securities of the type
in which the Fund may invest, and will require that additional securities
be deposited with it if the value of the securities purchased should
decrease below the resale price.
Commercial Paper and Other Short-Term Corporate Obligations. (All
Funds) These instruments include variable amount master demand notes,
which are obligations that permit a Fund to invest fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the
Fund, as lender, and the borrower. These notes permit daily changes in
the amounts borrowed. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that
such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest, at any time.
Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating
agencies, and a Fund may invest in them only if at the time of an
investment the borrower meets the criteria set forth in the Fund's
Prospectus for other commercial paper issuers.
Convertible Securities. (All Funds) Convertible securities may be
converted at either a stated price or stated rate into underlying shares
of common stock. Convertible securities have characteristics similar to
both fixed-income and equity securities. 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.
Although to a lesser extent than with fixed-income securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest
rates decline. In addition, because of the conversion feature, the market
value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stock. 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.
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stocks. There
can be no assurance of current income because the issuers of the
convertible securities may default on their obligations. 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, however,
generally offer lower interest or dividend yields than non-convertible
securities of similar quality because of the potential for capital
appreciation.
Illiquid Securities. (All Funds) When purchasing securities that
have not been registered under the Securities Act of 1933, as amended, and
are not readily marketable, each Fund will endeavor, to the extent
practicable, 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, where a substantial market of
qualified institutional buyers has developed for certain unregistered
securities purchased by the Fund pursuant to Rule 144A under the
Securities Act of 1933, as amended, the Fund intends to treat such
securities as liquid securities in accordance with procedures approved by
the Company's Board. Because it is not possible to predict with assurance
how the market for specific restricted securities sold pursuant to Rule
144A will develop, the Company's Board has directed the Manager to monitor
carefully the relevant 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, a Fund's investing in such securities
may have the effect of increasing the level of illiquidity in its
investment portfolio during such period.
Participation Interests. (Dreyfus High Yield Securities Fund only)
The Fund may invest in short-term corporate obligations denominated in
U.S. and foreign currencies that are originated, negotiated and structured
by a syndicate of lenders ("Co-Lenders") consisting of commercial banks,
thrift institutions, insurance companies, financial companies or other
financial institutions one or more of which administers the security on
behalf of the syndicate (the "Agent Bank"). Co-Lenders may sell such
securities to third parties called "Participants." The fund may invest in
such securities either by participating as a Co-Lender at origination or
by acquiring an interest in the security from a Co-Lender or a Participant
(collectively, "participation interests"). Co-Lenders and Participants
interposed between the Fund and the corporate borrower (the "Borrower"),
together with Agent Banks, are referred herein as "Intermediate
Participants." The Fund also may purchase a participation interest in a
portion of the rights of an Intermediate Participant, which would not
establish any direct relationship between the Fund and the Borrower. In
such cases, the Fund would be required to rely on the Intermediate
Participant that sold the participation interest not only for the
enforcement of the Fund's rights against the Borrower but also for the
receipt and processing of payments due to the Fund under the security.
Because it may be necessary to assert through an Intermediate Participant
such rights as may exist against the Borrower, in the event the Borrower
fails to pay principal and interest when due, the Fund may be subject to
delays, expenses and risks that are greater than those that would be
involved if the Fund would enforce its rights directly against the
Borrower. Moreover, under the terms of a participation interest, the Fund
may be regarded as a creditor of the Intermediate Participant (rather than
of the Borrower), so that the Fund may also be subject to the risk that
the Intermediate Participant may become insolvent. Similar risks may
arise with respect to the Agent Bank if, for example, assets held by the
Agent Bank for the benefit of the Fund were determined by the appropriate
regulatory authority or court to be subject to the claims of the Agent
Bank's creditors. In such case, the Fund might incur certain costs and
delays in realizing payment in connection with the participation interest
or suffer a loss or principal and/or interest. Further, in the event of
the bankruptcy or insolvency of the Borrower, the obligation of the
Borrower to repay the loan may be subject to certain defenses that can be
asserted by such Borrower as a result of improper conduct by the Agent
Bank or Intermediate Participant.
Municipal Obligations. (Dreyfus High Yield Securities Fund and
Dreyfus Strategic Income Fund only) 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 that
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.
Mortgage-Related Securities. (Dreyfus High Yield Securities Fund and
Dreyfus Strategic Income Fund only)
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. GNMA certificates 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
Bank 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.
Private Entity Securities--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan,
title, pool and hazard insurance. The insurance and guarantees are issued
by government entities, private insurers and the mortgage poolers. There
can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies, so that if the issuers default on
their obligations the holders of the security could sustain a loss. No
insurance or guarantee covers the Fund or the price of the Fund's shares.
Mortgage-related securities issued by non-governmental issuers generally
over a higher rate of interest than government-agency and government-
related securities because there are no direct or indirect government
guarantees of payment.
Foreign Government Obligations; Securities of Supranational Entities.
(Dreyfus High Yield Securities Fund and Dreyfus Strategic Income Fund
only) The Fund may invest in obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies
or instrumentalities that are determined by the Manager to be of
comparable quality to the other obligations in which the Fund may invest.
Such securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
Zero Coupon Securities. (Dreyfus High Yield Securities Fund and
Dreyfus Strategic Income Fund only) 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. Zero coupon securities also are 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 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.
Management Policies
Leverage. (Dreyfus High Yield Securities Fund and Dreyfus Strategic
Income Fund only) For borrowings for investment purposes, the Investment
Company Act of 1940, as amended (the "1940 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 required coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell
some of its portfolio securities within three days to reduce the amount of
its borrowings 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 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 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.
Short-Selling. (All Funds) In these transactions, a Fund sells a
security it does not own in anticipation of a decline in the market value
of the security. To complete the transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund is obligated to replace
the security borrowed by purchasing it subsequently 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, which would result
in a loss or gain, respectively.
Securities will not 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 a Fund's net assets. A 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 a Fund's net
assets. A Fund may not make a short sale which results in the having sold
short in the aggregate more than 5% of the outstanding securities of any
class.
A Fund also may make short sales "against the box," in which the Fund
enters into a short sale of a security it owns in order to hedge an
unrealized gain on the security. At no time will more than 15% of the
value of the Fund's net assets be in deposits on short sales against the
box.
Until a Fund closes its short position or replaces the borrowed
security, it will: (a) maintain a segregated account, containing cash or
U.S. Government securities, at such a level that 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; or (b) otherwise cover
its short position.
Lending Portfolio Securities. (Dreyfus High Yield Securities Fund
and Dreyfus Strategic Income Fund only) The Fund may lend securities from
its portfolio to brokers, dealers and other financial institutions needing
to borrow securities to complete certain transactions. The Fund continues
to be entitled to payments in amounts equal to the interest, dividends or
other distributions payable on the loaned securities, which affords the
Fund an opportunity to earn interest on the amount of the loan and at the
same time to earn income on the loaned securities' collateral. Loans of
portfolio securities may not exceed 33-1/3% of the value of the Fund's
total assets, and the Fund will receive collateral consisting of cash,
U.S. Government securities or irrevocable letters of credit which will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Such loans are terminable by the
Fund 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. In connection with its
securities lending transactions, 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.
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; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) while voting rights on the loaned
securities may pass to the borrower, the Company's Board must terminate
the loan and regain the right to vote the securities if a material event
adversely affecting the investment occurs.
Derivatives. (All Funds) A Fund may invest in Derivatives (as
defined in the relevant Fund's Prospectus) for a variety of reasons,
including to hedge certain market risks, to provide a substitute for
purchasing or selling particular securities or to increase potential
income gain. Derivatives may provide a cheaper, quicker or more
specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit a Fund to increase or
decrease the level of risk, or change the character of the risk, to which
its portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on a Fund's performance.
If a Fund invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Fund's
return or result in a loss. A Fund also could experience losses if its
Derivatives were poorly correlated with its other investments, or if the
Fund were unable to liquidate its position because of an illiquid
secondary market. The market for many Derivatives is, or suddenly can
become, illiquid. Changes in liquidity may result in significant, rapid
and unpredictable changes in the prices for Derivatives.
Dreyfus High Yield Securities Fund and Dreyfus Strategic Income Fund
may invest up to 5% of their assets, represented by the premium paid, in
the purchase of call and put options. The Fund may write (i.e., sell)
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. When
required by the Securities and Exchange Commission, the Fund will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its transaction in Derivatives. To maintain this
required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate
a Derivative position at a reasonable price. Derivatives may be purchased
on established exchanges or through privately negotiated transactions
referred to as over-the-counter Derivatives. Exchange-traded Derivatives
generally are guaranteed by the clearing agency which is the issuer or
counterparty to such Derivatives. This guarantee usually is supported by
a daily payment system (i.e., variation margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result,
unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with Derivatives purchased on an
exchange. By contrast, no clearing agency guarantees over-the-counter
Derivatives. Therefore, each party to an over-the-counter Derivative
bears the risk that the counterparty will default. Accordingly, the
Manager will consider the creditworthiness of counterparties to over-the-
counter Derivatives in the same manner as it would review the credit
quality of a security to be purchased by the Fund. Over-the-counter
Derivatives are less liquid than exchange-traded Derivatives since the
other party to the transaction may be the only investor with sufficient
understanding of the Derivative to be interested in bidding for it.
Futures Transactions--In General. (All Funds) A Fund may enter into
futures contracts in U.S. domestic markets, such as the Chicago Board of
Trade and the International Monetary Market of the Chicago Mercantile
Exchange, or, if permitted in its Prospectus, on exchanges located outside
the United States, such as the London International Financial Futures
Exchange and the Sydney Futures Exchange Limited. Foreign markets may
offer advantages such as trading opportunities or arbitrage possibilities
not available in the United States. Foreign markets, however, may have
greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists
and an investor may look only to the broker for performance of the
contract. In addition, any profits that a 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. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the
Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to a Fund which
could adversely affect the value of the Fund's net assets. Although each
Fund intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once
the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended
for specified periods during the trading day. Futures contract prices
could move to the limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions
and potentially subjecting the Fund to substantial losses.
Successful use of futures by a Fund also is subject to the ability of
the Manager to predict correctly movements in the direction of the
relevant market and, to the extent the transaction is entered into for
hedging purposes, to ascertain the appropriate correlation between the
transaction being hedged and the price movements of the futures contract.
For example, if a Fund uses futures to hedge against the possibility of a
decline in the market value of securities held in its portfolio and the
prices of such securities instead increase, the Fund will lose part or all
of the benefit of the increased value of securities which it has hedged
because it will have offsetting losses in its futures positions.
Furthermore, if in such circumstances the Fund has insufficient cash, it
may have to sell securities to meet daily variation margin requirements.
A Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, a Fund may be required to segregate cash or high
quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of
limiting a Fund's ability otherwise to invest those assets.
Specific Futures Transactions. A Fund may purchase and sell interest
rate futures contracts. An interest rate future obligates the Fund to
purchase or sell an amount of a specific debt security at a future date at
a specific price.
A Fund may purchase and sell currency futures. A foreign currency
future obligates the Fund to purchase or sell an amount of a specific
currency at a future date at a specific price.
Dreyfus Equity Dividend Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or
receive an amount of cash equal to a fixed dollar amount specified in the
futures contract multiplied by the difference between the settlement price
of the contract on the contract's last trading day and the value of the
index based on the stock prices of the securities that comprise it at the
opening of trading in such securities on the next business day.
Interest Rate Swaps. (Dreyfus High Yield Securities Fund only)
Interest rate swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest (for example, an
exchange of floating rate payments for fixed-rate payments). The exchange
commitments can involve payments to be made in the same currency or in
different currencies. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio security
transactions. If the Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment
performance of the Fund would diminish compared with what it would have
been if these investment techniques were not used. Moreover, even if the
Manager is correct in its forecasts, there is a risk that the swap
position may correlate imperfectly with the price of the asset or
liability being hedged. There is no limit on the amount of interest rate
swap transactions that may be entered into by the Fund. These
transactions do not involve the delivery of securities or other underlying
assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the other party to an
interest rate swap defaults, the Fund's risk of loss consists of the net
amount of interest payments that the Fund contractually is entitled to
receive.
Credit Derivatives. (Dreyfus High Yield Securities Fund only). The
Fund may engage in credit derivative transactions. There are two broad
categories of credit derivatives: default price risk derivatives and
market spread derivatives. Default price risk derivatives are linked to
the price of reference securities or loans after a default by the issuer
or borrower, respectively. Market spread derivatives are based on the
risk that changes in market factors, such as credit spreads, can cause a
decline in the value of a security, loan or index. There are three basic
transactional forms for credit derivatives: swaps, options and structured
instruments. The use of credit derivatives is a highly specialized
activity which involves strategies and risks different from those
associated with ordinary portfolio security transactions. If the Manager
is incorrect in its forecasts of default risks, market spreads or other
applicable factors, the investment performance of the Fund would diminish
compared with what it would have been if these techniques were not used.
Moreover, even if the Manager is correct in its forecasts, there is a risk
that a credit derivative position may correlate imperfectly with the price
of the asset or liability being hedged. There is no limit on the amount
of credit derivative transactions that may be entered into by the Fund.
The Fund's risk of loss in a credit derivative transaction varies with the
form of the transaction. For example, if the Fund purchases a default
option on a security, and if no default occurs with respect to the
security, the Fund's loss is limited to the premium it paid for the
default option. In contrast, if there is a default by the grantor of a
default option, the Fund's loss will include both the premium that it paid
for the option and the decline in value of the underlying security that
the default option hedged.
Options--In General. (All Funds) A Fund may purchase and write (i.e.,
sell) call or put options with respect to specific securities. A call
option gives the purchaser of the option the right to buy, and obligates
the writer to sell, the underlying security or securities at the exercise
price at any time during the option period, or at a specific date.
Conversely, a put option gives the purchaser of the option the right to
sell, and obligates the writer to buy, the underlying security or
securities at the exercise price at any time during the option period.
A covered call option written by a Fund is a call option with respect
to which a Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other securities. A put option written
by a Fund is covered when, among other things, cash or liquid securities
having a value equal to or greater than the exercise price of the option
are placed in a segregated account with the Fund's custodian to fulfill
the obligation undertaken. The principal reason for writing covered call
and put options is to realize, through the receipt of premiums, a greater
return than would be realized on the underlying securities alone. A Fund
receives a premium from writing covered call or put options which it
retains whether or not the option is exercised.
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 of the 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.
Specific Options Transactions. A Fund may purchase and sell call and
put options on foreign currency. These options convey the right to buy or
sell the underlying currency at a price which is expected to be lower or
higher than the spot price of the currency at the time the option is
exercised or expires.
Dreyfus Equity Dividend Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of
specific securities) or stock indices listed on national securities
exchanges or traded in the over-the-counter market. An option on a stock
index is similar to an option in respect of specific securities, except
that settlement does not occur by delivery of the securities comprising
the index. Instead, the option holder receives an amount of cash if the
closing level of the stock index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. Thus, the effectiveness of purchasing or
writing stock index options will depend upon price movements in the level
of the index rather than the price of a particular stock.
Dreyfus Equity Dividend Fund and Dreyfus High Yield Securities Fund
also may purchase cash-settled options on equity index swaps and interest
rate swaps, respectively, in pursuit of its investment objective. Equity
index swaps involve the exchange by the Fund with another party of cash
flows based upon the performance of an index or a portion of an index of
securities which usually includes dividends. A cash-settled option on a
swap gives the purchaser the right, but not the obligation, in return for
the premium paid, to receive an amount of cash equal to the value of the
underlying swap as of the exercise date. These options typically are
purchased in privately negotiated transactions from financial
institutions, including securities brokerage firms.
Successful use by a Fund of options will be subject to the ability of
the Manager to predict correctly movements in the prices of individual
stocks, the stock market generally, foreign currencies, or interest rates.
To the extent such predictions are incorrect, a Fund may incur losses.
Future Developments. A Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other Derivatives 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 or Statement of
Additional Information.
Forward Commitments. (All Funds) A Fund may purchase securities on
a forward commitment or when-issued basis, which means that delivery and
payment take place a number of days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be
received on a forward commitment or when-issued security are fixed when
the Fund enters into the commitment, but a Fund does not make a payment
until it receives delivery from the counterparty. A Fund will commit 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. 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 commitments will be established and maintained at the
Fund's custodian bank.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (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 forward commitment or when-issued basis
may expose a Fund to risks because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued
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. Purchasing securities on a forward
commitment or when-issued basis when a Fund is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Fund's net assets and its net asset value per share.
Investment Considerations and Risks
Lower Rated Securities. (Dreyfus High Yield Securities Fund and
Dreyfus Strategic Income Fund only) Each of these Funds is permitted to
invest in securities rated Ba or lower by Moody's Investors Service, Inc.
("Moody's") or BB or lower by Standard & Poor's Ratings Group, a division
of The McGraw-Hill Companies, Inc. ("S&P"), Fitch Investors Service, L.P.
("Fitch") and Duff & Phelps Credit Rating Co. ("Duff" and with Moody's,
S&P and Fitch, the "Rating Agencies"). Dreyfus Strategic Income Fund is
permitted to invest in securities rated as low as Caa by Moody's or CCC by
S&P. Dreyfus High Yield Securities Fund is permitted to invest in
securities as low as the lowest rating assigned by the Rating Agencies.
Such securities, though higher yielding, are characterized by risk. See
the Prospectus for Dreyfus High Yield Securities Fund under "Description
of the Fund--Investment Considerations and Risks--High Yield-Lower Rated
Securities" and in the Prospectus for Dreyfus Strategic Income Fund under
"Description of the Fund--Risk Factors--Lower Rated Securities" for a
discussion of certain risks and the "Appendix" for a general description
of the Rating Agencies' 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.
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. These securities generally are considered by the
Rating Agencies to be, on balance, 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 the higher
rated securities. For example, during an economic downturn or a sustained
period of rising interest rates, highly leveraged issuers of these
securities 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, 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 Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher rated
securities. The lack of a liquid secondary market may have an adverse
impact on market price and yield and 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 an 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.
A 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.
Investment Restrictions
Dreyfus Equity Dividend Fund and Dreyfus High Yield Securities Fund
only. Each Fund has adopted investment restrictions numbered 1 through 10
as fundamental policies, which cannot be changed without approval by the
holders of a majority (as defined in the 1940 Act) of a Fund's outstanding
voting shares. Investment restrictions numbered 11 through 16 are not
fundamental policies and may be changed by vote of a majority of the
Company's Board members at any time. None of these Funds may:
1. Invest more than 5% of its assets in the obligations of any
single issuer, 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 any such limitation.
2. Hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to
75% of the Fund's total assets.
3. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
4. Invest in commodities, except that the Fund may purchase and sell
options, forward contracts, futures contracts, including those related to
indices, and options on futures contracts or indices.
5. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Fund may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate or real estate investment
trusts.
6. Borrow money, except to the extent permitted under the 1940 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, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices
shall not constitute borrowing.
7. Make loans to others, except through the purchase of debt
obligations and 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 Company's Board.
8. 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.
9. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 4, 6, 13 and 14 may be deemed to give rise to
a senior security.
10. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, and options on futures contracts.
11. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) 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.
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. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and
the deposit of assets in escrow in connection with writing covered put and
call options and collateral and initial or variation margin arrangements
with respect to options, forward contracts, futures contracts, and options
on futures contracts.
14. Purchase, sell or write puts, calls or combinations thereof,
except as described in the relevant Fund's Prospectus and Statement of
Additional Information.
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.
16. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
* * *
Dreyfus Strategic Income Fund only. The Fund has adopted investment
restrictions numbered 1 through 14 as fundamental policies, which cannot
be changed without approval by the holders of a majority (as defined in
the 1940 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 Company's Board members at any time. The Fund
may not:
1. Purchase the securities of any issuer (other than a bank) if such
purchase would cause more than 5% of the value of its total assets to be
invested in securities of such issuer, or invest more than 15% of its
assets in the obligations of any one bank, except that up to 25% of the
value of the Fund's total assets may be invested, and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities may
be purchased, without regard to such limitations. Notwithstanding the
foregoing, based on rules of the Securities and Exchange Commission, the
Fund will not invest more than 5% of its assets in the obligations of any
one bank, except as otherwise provided in such rules.
2. Purchase the securities of any issuer if such purchase would
cause the Fund to hold more than 10% of the outstanding voting securities
of such issuer. This restriction applies only with respect to 75% of the
Fund's assets.
3. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
4. Purchase securities of closed-end investment companies except (a)
in the open market where no commission except the ordinary broker's
commission is paid, which purchases are limited to a maximum of (i) 3% of
the total voting stock of any one closed-end investment company, (ii) 5%
of its net assets with respect to any one closed-end investment company
and (iii) 10% of its net assets in the aggregate, or (b) those received as
part of a merger or consolidation. The Fund may not purchase the
securities of open-end investment companies other than itself.
5. Purchase or retain the securities of any issuer if the officers,
Trustees or Directors of the Fund or the Manager individually own
beneficially more than 1/2 of 1% of the securities of such issuer or
together own beneficially more than 5% of the securities of such issuer.
6. Purchase, hold or deal in real estate, or oil and gas interests,
but the Fund may purchase and sell securities that are secured by real
estate and may purchase and sell securities issued by companies that
invest or deal in real estate.
7. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to indices, and options on
futures contracts or indices.
8. Borrow money, except to the extent permitted under the 1940 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 Board members.
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 described in the Fund's Prospectus and 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.
While not fundamental policies, Dreyfus Strategic Income 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 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.
If a percentage restriction is adhered to at the time of investment,
a later change in percentage resulting from a change in values or assets
will not constitute a violation of
such restriction.
Each Fund may invest, notwithstanding any other investment
restriction (whether or not fundamental), all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
restrictions as the Fund.
The Company may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Fund shares in
certain states. Should the Company determine that a commitment is no
longer in the best interest of the Fund and its shareholders, the Company
reserves the right to revoke the commitment by terminating the sale of
such Fund's shares in the state involved.
MANAGEMENT OF THE COMPANY
Board members and officers of the Company, together with information
as to their principal business occupations during at least the last five
years, are shown below. Each Board member who is deemed to be an
"interested person" of the Company, as defined in the 1940 Act, is
indicated by an asterisk.
Board Members of the Company
*JOSEPH S. DiMARTINO, Board Member. 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 Company's distributor. From August 1994 until December 31, 1994,
he was a director of Mellon Bank Corporation. He is also Chairman of
the Board of Directors of Noel Group, Inc.; a trustee of Bucknell
University; and a director of The Muscular Dystrophy Association,
HealthPlan Services Corporation, Belding Heminway Company, Inc.,
Curtis Industries, Inc., and Staffing Resources, Inc. He is 52 years
old and his address is 200 Park Avenue, New York, New York 10166.
*DAVID W. BURKE, Board Member. Chairman of the Broadcasting Board of
Governors, an independent board within the United States Information
Agency, since August 1995. From 1994 to February 1995, Mr. Burke was
a Consultant to the Manager, and from October 1990 to August 1994, he
was a 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. He
is 59 years old and his address is Box 654, Eastham, Massachusetts
02642.
ROSALIND GERSTEN JACOBS, Board Member. 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 a
Vice President of Macy's, New York. Mrs. Jacobs is 70 years old and
her address is c/o Corporate Property Investors, 305 East 47th
Street, New York, New York 10017.
DIANE DUNST, Board Member. 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 56 years old and her address is 120 East 87th
Street, New York, New York 10128.
JAY I. MELTZER, Board Member. 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 and a Clinical Professor
of Medicine, Department of Medicine, Columbia University College of
Physicians and Surgeons. He is 67 years old and his address is 903
Park Avenue, New York, New York 10021.
DANIEL ROSE, Board Member. President and Chief Executive Officer of Rose
Associates, Inc., a New York based real estate development and
management firm. In July 1994, Mr. Rose received a Presidential
appointment to serve as a Director of the Baltic-American Enterprise
Fund, which will make equity investments and loans and provide
technical business assistance to new business concerns in the Baltic
states. He is also Chairman of the Housing Committee of the Real
Estate Board of New York, Inc., and a Board Member of Corporate
Property Investors, a real estate investment company. He is 66 years
old and his address is c/o Rose Associates, Inc., 380 Madison Avenue,
New York, New York 10017.
WARREN B. RUDMAN, Board Member. Since January 1993, Partner in the law
firm Paul, Weiss, Rifkind, Wharton & Garrison, and since May 1995, a
director of Collins & Aikman Corporation. Also, since January 1993,
Mr. Rudman has served as a director of Chubb Corporation and of the
Raytheon Company, and as Vice Chairman of the President's Foreign
Intelligence Advisory Board. From January 1981 to January 1993, Mr.
Rudman served as a United States Senator from the State of New
Hampshire. From January 1993 to December 1994, Mr. Rudman served as
Chairman of the Federal Reserve Bank of Boston. 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. He is 65
years old and his address is c/o Paul, Weiss, Rifkind, Wharton &
Garrison, 1615 L Street, N.W., Suite 1300, Washington, D.C. 20036.
SANDER VANOCUR, Board Member. Since January 1994, Mr. Vanocur has served
as Visiting Professional Scholar at the Freedom Forum First Amendment
Center at Vanderbilt University. Since January 1992, Mr. Vanocur has
been the President of Old Owl Communications, a full-service
communications firm and, since November 1989, he has served as a
Director of the Damon Runyon-Walter Winchell Cancer Research Fund.
From June 1986 to December 1991, he was a Senior Correspondent of ABC
News and, from October 1986 to December 1991, he was Anchor of the
ABC News program "Business World," a weekly business program on the
ABC television network. Mr. Vanocur joined ABC News in 1977. He is
68 years old and his address is 2928 P Street, N.W., Washington, D.C.
20007.
For so long as the Company's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Board members who are
not "interested persons" of the Company, as defined in the 1940 Act, will
be selected and nominated by the Board members who are not "interested
persons" of the Company.
The Company 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. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee
of one-half the amount paid to them as Board members. The aggregate
amount of compensation paid to each Board member by the Company for the
fiscal year ended October 31, 1995, 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 parenthesis next to each Board member's total
compensation) for the year ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
(5)
(3) Total Compensation
(2) Pension or (4) From Company and
(1) Aggregate Retirement Benefits Estimated Annual Fund Complex
Name of Board Compensation Accrued as Part of Benefits Upon Paid to Board
Member From Company* Company's Expenses Retirement Member
- ------------- ------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Joseph S. DiMartino $3,528** none none $445,000 (94)
David W. Burke $3,750 none none $ 27,858*** (52)
Rosalind Gersten Jacobs $3,750 none none $ 57,638 (20)
Diane Dunst $3,750 none none $ 32,602 (9)
Jay I. Meltzer $3,500 none none $ 32,602 (9)
Daniel Rose $3,750 none none $ 62,006 (22)
Warren B. Rudman $3,750 none none $ 29,602*** (17)
Sander Vanocur $3,750 none none $ 62,006 (22)
* Amount does not include reimbursed expenses for attending Board meetings, which amounted to $396 for all Board members as a
group.
** Amount for the period from February, 1995 (date Mr. DiMartino was elected to the Board) to October 31, 1995.
*** Amount does not reflect amounts paid directly by the Manager to the Board member pursuant to undertakings in effect.
</TABLE>
Officers of the Company
MARIE E. CONNOLLY, President and Treasurer. President and Chief Executive
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 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 31 years old.
ELIZABETH BACHMAN, Vice President and Assistant Secretary. Assistant Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. She is 26 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.
MARGARET M. PARDO, Assistant Secretary. Legal Assistant with the
Distributor and an officer of other investment companies advised or
administered by the Manager. From June 1992 to April 1995, she was a
Medical Coordination Officer at ORBIS International. Prior to June
1992, she worked as Program Coordinator at Physicians World
Communications Group. She is 27 years old.
JOSEPH S. 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 33 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.
The address of each officer of the Company is 200 Park Avenue, New
York, New York 10166.
The Company's Board members and officers, as a group, owned less than
1% of each Fund's voting securities outstanding on December 1, 1995.
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in each Fund's Prospectus entitled
"Management of the Fund."
Management Agreement. The Manager provides management services
pursuant to the Management Agreement (the "Agreement") dated August 24,
1994, as amended December 6, 1995, with the Company. As to each Fund, the
Agreement is subject to annual approval by (i) the Company's Board or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund, provided that in either event the continuance
also is approved by a majority of the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Company or the
Manager, by vote cast in person at a meeting called for the purpose of
voting on such approval. The Agreement was approved by shareholders on
August 3, 1994 in respect of Dreyfus Strategic Income Fund, and was last
approved by the Company's Board, including a majority of the Board members
who are not "interested persons" of any party to the Agreement, at a
meeting held on December 6, 1995. As to each Fund, the Agreement is
terminable without penalty, on 60 days' notice, by the Company's Board or
by vote of the holders of a majority of such Fund's shares, or, on not
less than 90 days' notice, by the Manager. The Agreement will terminate
automatically, as to the relevant Fund, in the event of its assignment (as
defined in the 1940 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; Christopher M. Condron, President,
Chief Operating Officer and a director; Stephen E. Canter, Vice Chairman,
Chief Investment Officer and a director; Lawrence S. Kash, Vice
Chairman--Distribution and a director; Philip L. Toia, Vice
Chairman--Operations and Administration and a director; William T.
Sandalls, Jr., Senior Vice President and Chief Financial Officer; Barbara
E. Casey, Vice President--Dreyfus Retirement Services; Diane M. Coffey,
Vice President--Corporate Communications; Elie M. Genadry, Vice President-
- -Institutional Sales; William F. Glavin, Jr., Vice President--Corporate
Development; Mark N. Jacobs, Vice President--Secretary, and General
Counsel; Jeffrey N. Nachman, Vice President--Mutual Fund Accounting;
Andrew S. Wasser, Vice President--Information Systems; Mary Beth Leibig,
Vice President--Human Resources; Maurice Bendrihem, Controller; Elvira
Oslapas, Assistant Secretary; and Mandell L. Berman, Frank V. Cahouet,
Alvin E. Friedman, Lawrence M. Greene and Julian M. Smerling, directors.
The Manager manages each Fund's investments in accordance with the
stated policies of such Fund, subject to the approval of the Company's
Board. The Manager is responsible for investment decisions, and provides
the Funds with portfolio managers who are authorized by the Board to
execute purchases and sales of securities. Dreyfus Equity Dividend Fund's
portfolio managers are Timothy Ghriskey and Donald Georgerian. Dreyfus
High Yield Securities Fund's portfolio managers are Roger King and Kevin
McClintock. Dreyfus Strategic Income Fund's portfolio managers are Kevin
McClintock and Garitt Kono. The Manager also maintains a research
department with a professional staff of portfolio managers and securities
analysts who provide research services for a Fund as well as for other
funds advised by the Manager. All purchases and sales are reported for
the Board's review at the meeting subsequent to such transactions.
The Manager maintains office facilities on behalf of the Funds, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Funds. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
Expenses. All expenses incurred in the operation of the Company are
borne by the Company, except to the extent specifically assumed by the
Manager. The expenses borne by the Company include: organizational
costs, 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
or any of its affiliates, 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 Company's existence, costs of independent pricing
services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders, costs
of shareholders' reports and meetings, and any extraordinary expenses.
Expenses attributable to a particular Fund are charged against the assets
of that Fund; other expenses of the Company are allocated among the Funds
on the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each Fund.
As compensation for the Manager's services to the Company, the
Company has agreed to pay the Manager a monthly management fee at the
annual rate of .75 of 1% of the value of Dreyfus Equity Dividend Fund's
average daily net assets, .65 of 1% of the value of Dreyfus High Yield
Securities Fund's average daily net assets and .60 of 1% of the value of
Dreyfus Strategic Income Fund's average daily net assets. For the fiscal
years ended October 31, 1993, 1994 and 1995, the management fees payable
by the Company for Dreyfus Strategic Income Fund amounted to $1,536,141,
$2,157,631 and $1,898,849, respectively; which amount for fiscal 1993 was
reduced by $213,144, resulting in a net fee paid for Dreyfus Strategic
Income Fund of $1,322,997 in fiscal 1993, pursuant to various undertakings
in effect.
As to each Fund, 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 limitation 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. 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 a Fund's net assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in
conjunction with the section in each Fund's Prospectus entitled "How to
Buy Shares."
The Distributor. The Distributor serves as each Fund's distributor
on a best efforts basis 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.
In some states, certain financial institutions effecting transactions in
Fund shares may be required to register as dealers pursuant to state law.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 p.m., New York
time, on any business day that Dreyfus Transfer, Inc., each Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), and the
New York Stock Exchange are open for business will be credited to the
shareholder's Fund account on the next bank business day following such
purchase order. To qualify to use the Dreyfus TeleTransfer Privilege, the
initial payment for purchase of shares must be drawn on, and redemption
proceeds paid to, the same bank and account as are 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 Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in each Fund's Prospectus entitled
"Shareholder Services Plan."
The Company has adopted a Shareholder Services Plan, pursuant to
which the Company pays the Distributor for the provision of certain
services to each Fund's shareholders. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Company and providing reports and
other information, and services related to the maintenance of such
shareholder accounts. Under the Shareholder Services Plan, the
Distributor may make payments to certain securities dealers, financial
institutions and other financial industry professionals (collectively,
"Service Agents") in respect of these services.
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 Board members for their review. In addition, the
Shareholder Services Plan provides that material amendments must be
approved by the Company's Board, and by the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Company 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. As to each Fund,
the Shareholder Services Plan is subject to annual approval by such vote
of the Board members 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 with respect to each Fund at any time by vote of a majority of
the Board members 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.
For the period from July 19, 1995 (effective date of Shareholder
Services Plan) through October 31, 1995, $217,598 was charged the Company
with respect to Dreyfus Strategic Income Fund pursuant to the Shareholder
Services Plan.
Prior Service Plan. As of July 19, 1995, the Company terminated its
then-existing Service Plan with respect to Dreyfus Strategic Income Fund.
That Service Plan, adopted pursuant to Rule 12b-1 under the 1940 Act,
provided that the Company (a) reimburse the Distributor for payments to
certain Service Agents for distributing Dreyfus Strategic Income Fund
shares and servicing shareholder accounts ("Servicing") and (b) pay the
Manager, Dreyfus Service Corporation and any affiliate of either of them
for advertising or marketing relating to Dreyfus Strategic Income 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 November 1, 1994
through July 19, 1995, $580,600 was charged to the Company with respect to
Dreyfus Strategic Income Fund pursuant to such plan, of which $496,033 was
charged for advertising or marketing, $77,557 was charged for distributing
shares and servicing, and $7,010 was charged for preparing, printing and
distributing prospectuses and statements of additional information.
REDEMPTION OF SHARES
The following information supplements and should be read in
conjunction with the section in each Fund's Prospectus entitled "How to
Redeem Shares."
Redemption Fee. (Dreyfus High Yield Securities Fund only) The Fund
will deduct a redemption fee equal to .75% of the net asset value of Fund
shares redeemed (including redemptions through use of the Fund Exchanges
service) where the redemption or exchange occurs within a nine-month
period following the issuance of such shares. For purposes of computing
the nine-month period, any issuance of Fund shares during a month will be
deemed to occur on the first day of such month. The redemption fee will
be deducted from redemption proceeds and retained by Dreyfus High Yield
Securities Fund.
No redemption fee will be charged upon the redemption of shares
through the Fund's Automatic Withdrawal Plan or Dreyfus Auto-Exchange
Privilege or through omnibus accounts for various retirement plans.
Further, no redemption fee will be charged upon the redemption of Fund
shares acquired through reinvestment of dividends or distributions, nor
will a redemption fee be charged to pay fees imposed for various Fund
services. This redemption fee may be waived, modified or discontinued at
any time or from time to time.
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 and reasonably believed by the Transfer Agent to be genuine.
Ordinarily, the Company will initiate payment for shares redeemed pursuant
to this Privilege on the next business day after receipt by the Transfer
Agent of the redemption request in proper form. Redemption proceeds
($1,000 minimum) 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, or to a correspondent bank if
the investor's bank is not a member of the Federal Reserve System. 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
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 specifically is requested. Redemption proceeds will be on
deposit in the investor's account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of
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 Company has committed itself to pay in
cash all redemption requests by any shareholder of record of a Fund,
limited in amount during any 90-day period to the lesser of $250,000 or 1%
of the value of such 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 reserves the right to make
payments in whole or in part in securities (which may include non-
marketable securities) or other assets 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 securities are valued.
If the recipient sold such securities, brokerage charges would be
incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (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 relevant 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 each Fund's Prospectus entitled
"Shareholder Services."
Fund Exchanges. Dreyfus High Yield Securities Fund will deduct a
redemption fee equal to .75% of the net asset value of Fund shares
exchanged where the exchange occurs within a nine-month period following
the issuance of such shares. 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, shareholders 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 telephonic 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 a
personal retirement plan account, the shares exchanged must have a current
value of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of a 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 notification by the
investor. An investor will be notified if the investor's account falls
below the amount designated to be exchanged under this Privilege. In this
case, 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 1-800-645-6561. The Company 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. Automatic Withdrawal may be terminated at any
time by the investor, the Company 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 a 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 a 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. Dividends and 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 Retirement Plans. The Company
makes available to corporations a variety of prototype pension and profit-
sharing plans including a 401(k) Salary Reduction Plan. In addition, the
Company makes available Keogh Plans, IRAs, including SEP-IRAs and IRA
"Rollover Accounts," and 403(b)(7) Plans. Plan support services also are
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 acting as custodian for Keogh Plans, 403(b)(7) Plans or
IRAs may charge a fee, payment of which could require the liquidation of
shares. All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans
may not be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is
$2,500 with no minimum for subsequent purchases. The minimum initial
investment for Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7)
Plans with only one participant, is ordinarily $750, with no minimum for
subsequent purchases. Individuals who open an IRA also may open a
non-working spousal IRA with a minimum investment of $250.
Each investor should read the prototype retirement plan and the
appropriate form of custodial agreement for further details on
eligibility, service fees and tax implications, and should consult a tax
adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in each Fund's Prospectus entitled "How to
Buy Shares."
Valuation of Portfolio Securities. Substantially all of each Fund's
fixed-income investments (excluding short-term investments) are valued
each business day by one or more independent pricing services (the
"Service") approved by the Board. Securities valued by the Service for
which quoted bid prices in the judgment of the Service are readily
available and are representative of the bid side of the market 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 valued by the Service 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.
Short-term investments are not valued by the Service and are valued at the
mean price or yield equivalent for such securities or for securities of
comparable maturity, quality and type as obtained from market makers.
Other investments that are not valued by the Service (including the Equity
Securities (as defined in the Prospectus) purchased by Dreyfus Equity
Dividend Fund) are valued at the last sales price for securities traded
primarily on an exchange or the national securities market or otherwise at
the average of the most recent bid and asked prices. Bid price is used
when no asked price is available. Any assets or liabilities initially
expressed in terms of foreign currency will be translated into U.S.
dollars at the midpoint of the New York interbank market spot exchange
rate as quoted on the day of such translation by the Federal Reserve Bank
of New York or, if no such rate is quoted on such date, at the exchange
rate previously quoted by the Federal Reserve Bank of New York or at such
other quoted market exchange rate as may be determined to be appropriate
by the Manager. Expenses and fees, including the management fee (reduced
by the expense limitation, if any), are accrued daily and taken into
account for the purpose of determining the net asset value of a Fund's
shares.
Restricted securities, as well as securities or other assets for
which recent market quotations are not readily available, or are not
valued by the Service, are valued at fair value as determined in good
faith by the Board. The Board will review the method of valuation on a
current basis. In making their good faith valuation of restricted
securities, the Board members generally will take the following factors
into consideration: restricted securities which are, or are convertible
into, securities of the same class of securities for which a public market
exists usually will be valued at market value less the same percentage
discount at which purchased. This discount will be revised periodically
by the Board if it believes that the discount no longer reflects the value
of the restricted securities. Restricted securities not of the same class
as securities for which a public market exists usually will be valued
initially at cost. Any subsequent adjustment from cost will be based upon
considerations deemed relevant by the Board.
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 each Fund's Prospectus entitled
"Dividends, Distributions and Taxes."
Management of the Company believes that Dreyfus Strategic Income Fund
has qualified for the fiscal year ended October 31, 1995 as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended
(the "Code"). It is expected that Dreyfus Equity Dividend Fund and
Dreyfus High Yield Securities Fund each will qualify as a regulated
investment company under the Code. Each Fund intends to continue to so
qualify if such qualification is in the best interests of its
shareholders. As a regulated investment company, each Fund will pay no
Federal income tax on net investment income and net realized securities
gains to the extent that such income and gains are distributed to
shareholders in accordance with applicable provisions of the Code. 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 net asset value of the shares
below the cost of the investment. Such a dividend or distribution would
be a return of investment in an economic sense, although taxable as stated
above. In addition, the Code provides that if a shareholder holds shares
of a 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.
Depending upon the composition of a Fund's income, the entire amount
or a portion of the dividends paid by such Fund from net investment income
may qualify for the dividends received deduction allowable to qualifying
U.S. corporate shareholders ("dividends received deduction"). In general,
dividend income of a Fund distributed to qualifying corporate shareholders
will be eligible for the dividends received deduction only to the extent
that such Fund's income consists of dividends paid by U.S. corporations.
However, Section 246(c) of the Code provides that if a qualifying
corporate shareholder has disposed of Fund shares not held for 46 days or
more and has received a dividend from net investment income with respect
to such shares, the portion designated by the Fund as qualifying for the
dividends received deduction will not be eligible for such shareholder's
dividends received deduction. In addition, the Code provides other
limitations with respect to the ability of a qualifying corporate
shareholder to claim the dividends received deduction in connection with
holding Fund shares. The Company anticipates that no dividend paid by
Dreyfus High Yield Securities Fund or Dreyfus Strategic Income Fund will
qualify for the dividends-received deduction.
A Fund may qualify for and may make an election permitted under
Section 853 of the Code so that shareholders may be eligible to claim a
credit or deduction on their Federal income tax returns for, and will be
required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid or incurred by the Fund to foreign
countries (which taxes relate primarily to investment income). A Fund may
make an election under Section 853 of the Code, provided that more than
50% of the value of the Fund's total assets at the close of the taxable
year consists of securities in foreign corporations, and the Fund
satisfies the applicable distribution provisions of the Code. The foreign
tax credit available to shareholders is subject to certain limitations
imposed by the Code.
Ordinarily, gains and losses realized from portfolio transactions
will be treated as capital gains and losses. However, a portion of the
gain or loss realized from the disposition of foreign currencies
(including foreign currency denominated bank deposits) and non-U.S. dollar
denominated securities (including debt instruments and certain forward
contracts and options) may be treated as ordinary income or loss under
Section 988 of the Code. In addition, all or a portion of any gains
realized from the sale or other disposition of certain market discount
bonds will be treated as ordinary income under Section 1276 of the Code.
Finally, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section
1258 of the Code. "Conversion transactions" are defined to include
certain forward, futures, option and straddle transactions, transactions
marketed or sold to produce capital gains, or transactions described in
Treasury regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by a Fund
from certain forward contracts and options transactions 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 contracts
and options as well as from closing transactions. In addition, any such
contracts or options remaining unexercised at the end of a Fund's taxable
year will be treated as sold for their then fair market value, resulting
in additional gain or loss to such Fund characterized in the manner
described above.
Offsetting positions held by a Fund involving certain foreign
currency forward contracts or options may 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 1256 and 988 of the Code.
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 a Fund were treated as entering into "straddles" by reason of its
engaging in certain forward contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the forward
contracts or options transactions comprising a part of such "straddles"
were governed by Section 1256 of the Code. A Fund may make one or more
elections with respect to "mixed straddles." Depending on which election
is made, if any, the results to a Fund may differ. If no election is
made, to the extent the "straddle" and conversion transaction rules apply
to positions established by a Fund, losses realized by a Fund will be
deferred to the extent of unrealized gain in the offsetting position.
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 gains may be treated as
short-term capital gains or ordinary income.
Investment by a 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 of distributions to shareholders by causing a Fund to
recognize income prior to the receipt of cash payments. For example, a
Fund could be required to accrue a portion of the discount (or deemed
discount) at which the securities were issued each year and to distribute
such income in order to maintain its qualification as a regulated
investment company. In such case, a 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 assumes general supervision over placing orders on behalf
of the Company 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 will 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 fees are not reduced as a consequence of the receipt of such
supplemental information. Such information may be useful to the Manager
in serving both the Company and other funds which it advises and,
conversely, supplemental information obtained by the placement of business
of other clients may be useful to the Manager in carrying out its
obligations to the Company.
Sales of Fund shares by a broker may be taken into consideration, and
brokers also will be 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 advised or
administered by the Manager being engaged simultaneously in the purchase
or sale of the same security. Certain of a Fund's transactions in
securities of foreign issuers may not benefit from the negotiated
commission rates available to a Fund for transactions in securities of
domestic issuers. When transactions are executed in the over-the-counter
market, each Fund will deal with the primary market makers unless a more
favorable price or execution otherwise is obtainable. Foreign exchange
transactions are made with banks or institutions in the interbank market
at prices reflecting a mark-up or mark-down and/or commission.
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 of
Dreyfus Equity Dividend Fund will be less than 100% and the turnover rate
of each of Dreyfus High Yield Securities Fund and Dreyfus Strategic Income
Fund may approach the 200% level. In periods in which extraordinary
market conditions prevail, the Manager will not be deterred from changing
a Fund's investment strategy as rapidly as needed, in which case higher
turnover rates can be anticipated which would result in 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.
For the fiscal years ended October 31, 1993 and 1995, no brokerage
commissions were paid by Dreyfus Strategic Income Fund. For the fiscal
year ended October 31, 1994, Dreyfus Strategic Income Fund paid $25,618 in
brokerage commissions. Gross spreads and concessions on principal
transactions, where determinable, amounted to $629,615, $664,750 and
$633,150 for the fiscal years ended October 31, 1993, 1994 and 1995,
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 each Fund's Prospectus entitled
"Performance Information."
Dreyfus Equity Dividend Fund and Dreyfus High Yield Securities Fund
had not commenced operations as of the date of the financial statements.
Accordingly, no performance information is available for such Funds.
Dreyfus Strategic Income Fund's current yield for the 30-day period
ended October 31, 1995 was 5.96%. Current yield for a Fund 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.
Dreyfus Strategic Income Fund's average annual return for the one,
five and 9.079 year periods ended October 31, 1995 was 17.57%, 11.42% and
9.90%, 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.
Dreyfus Strategic Income Fund's total return for the period October
1, 1986 (commencement of operations) through October 31, 1995 was 135.61%.
Total return for a Fund 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.
From time to time, advertising materials for each Fund may include
(i) biographical information relating to its portfolio manager, including
honors or awards received, and may refer to or include commentary by the
Fund's portfolio manager relating to investment strategy, asset growth,
current or past business, political, economic or financial conditions and
other matters of general interest to investors; (ii) information
concerning retirement and investing for retirement, including statistical
data or general discussions about the growth and development of Dreyfus
Retirement Services (in terms of new customers, assets under management,
market share, etc.) and its presence in the defined contribution plan
market; (iii) the approximate number of then-current Fund shareholders;
(iv) Lipper or Morningstar ratings and related analysis supporting the
ratings; (v) discuss the risk and reward potential of the high yield
securities markets and its comparative performance in the overall
securities markets.
From time to time, the Company may compare a fund's 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), bonds, stocks, and FDIC-insured bank money market
accounts.
INFORMATION ABOUT THE FUNDS
The following information supplements and should be read in
conjunction with the section in each 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. Fund shares are of one class and have equal rights as to
dividends and in liquidation. Shares have no preemptive, subscription or
conversion rights and are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an
investment company, such as the Company, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2
further provides that a series shall be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical or that the matter does not affect any interest of such series.
However, the Rule exempts the selection of independent accountants and the
election of Board members from the separate voting requirements of the
Rule.
Each Fund will send annual and semi-annual financial statements to
all its shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN, COUNSEL
AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager,
P.O. Box 9671, Providence, Rhode Island 02940-9671, is the Company's
transfer and dividend disbursing agent. Under a transfer agency agreement
with the Company, Dreyfus Transfer, Inc. arranges for the maintenance of
shareholder account records for the Fund, the handling of certain
communications between shareholders and the Fund, and the payment of
dividends and distributions payable by the Fund. For these services,
Dreyfus Transfer, Inc. receives a monthly fee computed on the basis of the
number of shareholder accounts during the month, and is reimbursed for
certain out-of-pocket expenses. The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Company's custodian. Neither
Dreyfus Transfer, Inc. nor The Bank of New York has any part in
determining the investment policies of each Fund or which securities are
to be purchased or sold by a Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Company, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance
of the shares being sold pursuant to each Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Company.
APPENDIX
Description of S&P, Moody's, Fitch and Duff ratings:
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 to 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 payments.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, they
are not likely to have the capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or
a minus (-) sign designation, which is used to show relative standing
within the major rating categories, except in the AAA (Prime Grade)
category.
Commercial Paper Rating
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days. Issues assigned an A rating are regarded as having
the greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
A-1
This designation 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 (+)
designation.
A-2
Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3
Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the
higher designations.
B
Issues carrying this designation are regarded as having only
speculative capacity for timely payment.
C
This designation is assigned to short-term obligations with doubtful
capacity for payment.
D
Issues carrying this designation are in default, and payment of
interest and/or repayment of principal is in arrears.
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 generally are referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and, therefore,
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category
and in the categories below B. The modifier 1 indicates a ranking for the
security in the higher end of a rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower
end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins
in earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations.
This ordinarily will be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory obligations.
The effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and the requirements
for relatively high financial leverage. Adequate alternate liquidity is
maintained.
Issuers (or related supporting institutions) rated Not Prime do not
fall within any of the Prime rating categories.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual default of interest and/or
principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for
recovery.
Plus (+) and minus (-) signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category covering
12-36 months.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations
in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not
as great as the F-1+ and F-1 categories.
F-3
Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment
is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
F-S
Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
D
Default. Issues assigned this rating are in actual or imminent
payment default.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment. There may
be considerable variability in risk for bonds in this category during
economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such
bonds may be in default or have considerable uncertainty as to timely
payment of interest, preferred dividends and/or principal. Protection
factors are narrow and risk can be substantial with unfavorable economic
or industry conditions and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled
principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating
category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by
ample asset protection. Risk factors are minor. Paper rated Duff-2 is
regarded as having good certainty of timely payment, good access to
capital markets and sound liquidity factors and company fundamentals.
Risk factors are small. Paper rated Duff 3 is regarded as having
satisfactory liquidity and other protection factors. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is
expected. Paper rated Duff 4 is regarded as having speculative investment
characteristics. Liquidity is not sufficient to insure against disruption
in debt service. Operating factors and market access may be subject to a
high degree of variation. Paper rated Duff 5 is in default. The issuer
has failed to meet scheduled principal and/or interest payments.
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
Reference is made to page 4 of the Fund's Prospectus dated
January 2, 1996 as revised February 12, 1996.
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
