PROSPECTUS AUGUST 15, 1996
DREYFUS SHORT TERM HIGH YIELD FUND
DREYFUS SHORT TERM HIGH YIELD 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 PROVIDE HIGH CURRENT INCOME. UNDER NORMAL MARKET
CONDITIONS, THE FUND WILL INVEST IN A PORTFOLIO OF SECURITIES THAT HAS AN
EFFECTIVE DURATION AND EFFECTIVE AVERAGE PORTFOLIO MATURITY OF THREE YEARS OR
LESS.
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.
THE DREYFUS CORPORATION WILL PROFESSIONALLY MANAGE 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 AUGUST 15, 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. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, 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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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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TABLE OF CONTENTS
PAGE
FEE TABLE......................................... 4
DESCRIPTION OF THE FUND........................... 4
MANAGEMENT OF THE FUND............................ 7
HOW TO BUY SHARES................................. 8
SHAREHOLDER SERVICES.............................. 11
HOW TO REDEEM SHARES.............................. 14
SHAREHOLDER SERVICES PLAN......................... 16
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 16
PERFORMANCE INFORMATION........................... 17
GENERAL INFORMATION............................... 18
APPENDIX.......................................... 20
Page 2
[This Page Intentionally Left Blank]
Page 3
FEE TABLE
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(as a percentage of average daily net assets)
<S> <C> <C> <C>
Management Fees.............................................................. .65%
Other Expenses............................................................... .50%
Total Fund Operating Expenses ............................................... 1.15%
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. 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 provide high 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
preferred 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. See "Investment Considerations and Risks -- Foreign
Securities."
Under normal market conditions, the Fund will invest in a portfolio
of securities that has an effective duration of three years or less. As a
measure of a fixed-income security's cash flow, duration is an alternative to
the concept of "term to maturity" in assessing the price volatility
associated with changes in interest rates. Generally, the longer the
duration, the more volatility an investor should expect. The market price of
a bond with a duration of four years would be expected to increase or decline
twice as
Page 4
much as the market price of a bond with a two-year duration. Duration is a way
of measuring a security's maturity in terms of the average time required to
receive the present value of all interest and principal payments as opposed to
its term to maturity. The maturity of a security measures only the time until
final payment is due; it does not take account of the pattern of a security's
cash flows over time, which would include how cash flow is affected by
prepayments and by changes in interest rates. Incorporating a security's yield,
coupon interest payments, final maturity and option features into one measure,
duration is computed by determining the weighted average maturity of a bond's
cash flows, where the present values of the cash flows serve as weights. In
computing the duration of the Fund, The Dreyfus Corporation will estimate the
duration of obligations that are subject to features such as prepayment or
redemption by the issuer, put options retained by the investor or other
imbedded options, taking into account the influence of interest rates on
prepayments and coupon flows. This method of computing duration is known as
option-adjusted duration. See "Appendix _ Certain Portfolio Securities _
Mortgage-Related Securities".
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. The Fund
currently intends to engage in foreign currency transactions, options and
futures transactions, swaps, lending portfolio securities and short-selling.
For a discussion of the investment techniques and their related risks, 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
Page 5
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 also 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.
Bond prices are inversely related to interest rate changes; however,
bond price volatility also is inversely related to coupon. Accordingly, below
investment grade Fixed Income Securities may be relatively less sensitive to
interest rate changes than higher quality Fixed Income Securities of
comparable maturity, because of their higher coupon. This higher coupon is
what the investor receives in return for bearing greater credit risk. The
higher credit risks associated with below investment grade Fixed Income
Securities potentially can have greater affect on the value of such
securities than may be the case with higher quality issues of comparable
maturity. 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
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
Page 6
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 July 31, 1996, The Dreyfus Corporation managed
or administered approximately $79 billion in assets for more than 1.7 million
investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the
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 the Fund's inception, 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
$220 billion in assets as of June 30, 1996, including approximately $83
billion in proprietary mutual fund assets. As of June 30, 1996, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $876 billion in assets,
including approximately $57 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
Page 7
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, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of the Fund or other funds managed, advised or administered 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 (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"). Mellon Bank, N.A., located at One
Mellon Bank Center, Pittsburgh, Pennsylvania 15258, serves as 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,
Page 8
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 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# 8900312033/Dreyfus Income
Funds/Dreyfus Short Term High Yield 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, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the 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
Page 9
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 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
Page 10
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 calling 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, by a separate signed Shareholder Services Form,
available by calling 1-800-645-6561 or, by oral request from any of the
authorized signatories on the account, also 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.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares 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
Page 11
Dreyfus Family of Funds of which you are 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
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
autho-
Page 12
rization 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 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
Page 13
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.
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 BUILDERRegistration
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 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
Page 14
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 The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program. If you
have any questions with respect to signature-guarantees, please call one of
the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
WIRE REDEMPTION PRIVILEGE -- You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. 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
Page 15
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 calling 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
dividends from its net investment income on each day the New York Stock
Exchange is open for business. Dividends usually are paid on the last
business day of each month. The Fund's earnings for Saturdays, Sundays and
holidays are declared as dividends on the next business day. If you redeem all
shares in your account at any time during the month, all dividends to which
you are entitled will be paid to you along with the proceeds of the
redemption. If you are an omnibus accountholder and indicate in a partial
redemption request that a portion of any accrued dividends to which such
account is entitled belongs to an underlying accountholder who has redeemed
all shares in his or her account, such portion of the accrued dividends will
be paid to you along with the proceeds of the redemption. Distributions from
net realized securities gains, if any, generally are declared and paid once a
year, but the Fund may make distributions more regularly 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
Page 16
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.
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 cal-
Page 17
culating 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.
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 liabili-
Page 18
ties 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 four 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 19
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; 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.
LEVERAGE -- Leveraging will exaggerate the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money
borrowed for leveraging will be limited to 331/3% of the value of the Fund's
total assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the return received on the securities
purchased.
The Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund
of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest
Page 20
and principal payments on the security. At an agreed upon future date, the
Fund repurchases the security at principal plus accrued interest. Except for
these transactions, the Fund's borrowings generally will be unsecured.
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
permissible 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.
Page 21
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 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
Page 22
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.
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
mortgage-related 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.
The mortgage-related securities in which the Fund may invest also
include multi-class pass-through certificates secured principally by mortgage
loans on commercial properties. These mortgage-related securities are
structured similarly to mortgage-related securities secured by pools of
residential mortgages. Commercial lending, however, generally is viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial lending, for example, typically involves large
r loans to single borrowers or groups of related borrowers than residential
one- to four-family mortgage loans. In addition, the repayment of loans
secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on commercial properties than on those secured by
loans on residential properties.
During periods of rapidly rising interest rates, prepayments of
mortgage-backed securities may occur at slower than expected rates. Slower
prepayments effectively may change a mortgage-backed security that was
considered short or intermediate-term at the time of purchase into a
long-term security. The values of long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities. Were the prepayments on a Fund's
mortgage-backed securities to decrease broadly, the Fund's effective
duration, and thus sensitivity to increase rate fluctuations, would increase.
Therefore, depending on the circumstances, such an increase could result in
an effective duration of more than three years.
Page 23
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 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.
Page 24
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 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
Page 25
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 26
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Page 27
Short Term
High Yield
Fund
Prospectus
Registration Mark
Copy Rights 1996 Dreyfus Service Corporation
044p081596
Page 28
DREYFUS INCOME FUNDS
DREYFUS EQUITY DIVIDEND FUND
DREYFUS HIGH YIELD SECURITIES FUND
DREYFUS SHORT TERM HIGH YIELD FUND
DREYFUS STRATEGIC INCOME FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
August 15, 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of Dreyfus Equity Dividend Fund dated July 1, 1996, Dreyfus High Yield
Securities Fund dated January 2, 1996, Dreyfus Short Term High Yield Fund
dated August 15, 1996, and Dreyfus Strategic Income Fund dated January 2,
1996 (each, a "Fund") of Dreyfus Income Funds (the "Company"),
respectively, 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-2
Management of the Company . . . . . . . . . . . . . . . B-18
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-36
Performance Information . . . . . . . . . . . . . . . . B-36
Information About the Funds . . . . . . . . . . . . . . B-37
Transfer and Dividend Disbursing Agent,
Custodian, Counsel and Independent Auditors . . . . . B-38
Appendix. . . . . . . . . . . . . . . . . . . . . . . . B-39
Financial Statements. . . . . . . . . . . . . . . . . . B-48, B-60, B-72
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 Depository Receipts. (Dreyfus Equity Dividend Fund only)
The Fund may invest in American Depository 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, 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.
Warrants. (Dreyfus High Yield Securities Fund, Dreyfus Short Term
High Yield Fund (collectively, the "Dreyfus High Yield Funds"), and Dreyfus
Strategic Income Fund only). A warrant is an instrument issued by a
corporation which gives the holder the right to subscribe to a specified
amount of the corporations's capital stock at a set price for a specified
period of time. The Fund may invest up to 5% of its net assets in
warrants, except that this limitation does not apply to warrants purchased
by the Fund that are sold in units with, or attached to, other securities.
Common Stock. (The Dreyfus High Yield Funds and Dreyfus Strategic
Income Fund only). From time to time, a Fund may hold common stock sold in
units with, or attached to, debt securities purchased by the Fund. A Fund
also may hold common stock received upon the conversion of convertible
securities.
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. (The Dreyfus High Yield Funds 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 of 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. (The Dreyfus High Yield Funds 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. (The Dreyfus High Yield Funds 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
offer 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.
(The Dreyfus High Yield Funds 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. (The Dreyfus High Yield Funds 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
Portfolio Maturity. (Dreyfus Short Term High Yield Fund only) Under
normal market conditions, the average effective portfolio maturity of the
Fund is expected to be three years to less. For purposes of calculating
average effective portfolio maturity, a security that is subject to
redemption at the option of the issuer on a particular date (the "call
date") which is prior to the security's stated maturity may be deemed to
mature on the call date rather than on its stated maturity date. The call
date of a security will be used to calculate average effective portfolio
maturity when the Manager reasonably anticipates, based upon information
available to it, that the issuer will exercise its right to redeem the
security. The Manager may base its conclusion on such factors as the
interest rate paid on the security compared to prevailing market rates, the
amount of cash available to the issuer of the security, events affecting
the issuer of the security, and other factors that may compel or make it
advantageous for the issuer to redeem a security prior to its stated
maturity.
Leverage. (The Dreyfus High Yield Funds 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 Fund having sold
short in the aggregate more than 5% of the outstanding securities of any
class of an issuer.
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 always
equals the current value of the security sold short; or (b) otherwise cover
its short position.
Lending Portfolio Securities. (The Dreyfus High Yield Funds 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 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.
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. (The Dreyfus High Yield Funds 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. (The Dreyfus High Yield Funds 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, or
at a specific date.
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 the Dreyfus High Yield Funds 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 receivables on a
forward commitment or when-issued security are fixed when the Fund enters
into the commitment, but a Fund does not make 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. (The Dreyfus High Yield Funds 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. The Dreyfus High Yield Funds each are 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
"Description of the Fund--Investment Considerations and Risks--High Yield-
Lower Rated Securities" in each Prospectus for the Dreyfus High Yield Funds
and "Description of the Fund--Risk Factors--Lower Rated Securities" in
the Prospectus for Dreyfus Strategic Income Fund 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. No Fund
has an arrangement with any person 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, Dreyfus High Yield Securities Fund and
Dreyfus Short Term High Yield Fund only. Each of these Funds has adopted
investment restrictions numbered 1 through 10 as fundamental policies,
which cannot be changed, as to a Fund, without approval by the holders of a
majority (as defined in the 1940 Act) of the 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.
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, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. For
more than five years prior thereto, he was President, a director and,
until August 1994, Chief Operating Officer of the Manager and
Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until
August 24, 1994, the 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
venture capital company; a trustee of Bucknell University; and a
director of The Muscular Dystrophy Association, HealthPlan Services
Corporation, Belding Heminway Company, Inc., a manufacturer and
marketer of industrial threads, specialty yarns, home furnishings, and
fabrics, Curtis Industries, Inc., a national distributor of security
products, chemicals, and automotive and other hardware; 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. She 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 1172 Park
Avenue, 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., 200 Madison Avenue,
New York, New York 10016.
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 1977 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.
Ordinarily, meetings of shareholders for the purpose of electing Board
members will not be held unless and until such time as less than a majority
of the Board members holding office have been elected by shareholders, at
which time the Board members then in office will call a shareholders'
meeting for the election of Board members. Under the 1940 Act,
shareholders of record of not less than two-thirds of the outstanding
shares of the Fund may remove a Board members through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. The Board members will call a meeting of shareholders for the
purpose of voting upon the question of removal of any such Board members
when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
For so long as the 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 would be 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:
Total Compensation
From Company and
Aggregate Fund Complex
Name of Board Compensation Paid to Board
Member From Company* Member
Joseph S. DiMartino $3,528** $ 448,618 (93)
David W. Burke $3,750 $ 253,654 (52)
Rosalind Gersten Jacobs $3,750 $ 92,500 (20)
Diane Dunst $3,750 $ 39,000 (9)
Jay I. Meltzer $3,500 $ 37,500 (9)
Daniel Rose $3,750 $ 80,250 (21)
Warren B. Rudman $3,750 $ 85,500 (17)
Sander Vanocur $3,750 $ 79,750 (21)
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $514 for all Board members as a group.
** Elected Chairman of the Board February 8, 1995.
Officers of the Company
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer and a director 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 38 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.
JOSEPH S. TOWER, III, Vice President and 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.
RICHARD W. INGRAM, Vice President and Assistant Treasurer. Senior Vice
President and Director of Client Services and Treasury Operations of
Funds Distributor, Inc. From March 1994 to November 1995, Mr. Ingram
was Vice President and Division Manager for First Data Investor
Services Group. From 1989 to 1994, Mr. Ingram was Vice President,
Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company. He is 40 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of Funds, distributor,
Inc. From September 1989 to July 1994, Ms. Nelson was an Assistant
Vice President and Client Manager for The Boston Company. She is 32
years old.
DOUGLAS C. CONROY, Vice President and Assistant Treasurer. Supervisor of
Treasury Services and Administration of Funds Distributor, Inc. From
April 1993 to January 1995, Mr. Conroy was a Senior Fund Accountant
for Investors Bank & Trust Company. From December 1991 to March 1993,
Mr. Conroy was employed as a Fund Accountant at The Boston Company.
He is 27 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 July 22, 1996.
As of July 17, 1996, the following entity was known by the Company to
own 5% or more of the outstanding voting securities of Dreyfus Equity
Dividend Fund and Dreyfus High Yield Securities Fund, respectively:
Allomon Corporation, One Mellon Bank Center, Pittsburgh, PA 15258 (81.38%
and 54.5%, respectively). Allomon Corporation, a Pennsylvania corporation
and a subsidiary of Mellon Bank Investments Corporation (the parent company
of which is Mellon Bank Corporation) is deemed a "control person" of the
Fund, as that term is defined under the 1940 Act, because it is the
beneficial owner of more than 25% of the Fund's outstanding votings
securities. Also as of this date, the following person was known by the
Company to own beneficially 5% or more of the outstanding voting securities
of Dreyfus High Yield Securities Fund: Mr. G.F. Knowles, Miami, FL (8.53%).
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 revised August 5, 1996, 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. As to Dreyfus Strategic Income Fund only, the Agreement was
approved by shareholders on August 3, 1994, 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
August 5, 1996. 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; Elie M.
Genadry, Vice President--Institutional Sales; William F. Glavin, Jr., Vice
President--Corporate Development; Mark N. Jacobs, Vice President, General
Counsel and Secretary; Patrice M. Kozlowski, Vice President--Corporate
Communications; Mary Beth Leibig, Vice President--Human Resources; Jeffrey
N. Nachman, Vice President--Mutual Fund Accounting; Andrew S. Wasser, Vice
President--Information Systems; 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 Georgarian. The
portfolio managers for the Dreyfus High Yield Funds are Roger King and
Kevin McClintock. Dreyfus Strategic Income Fund's portfolio managers are
Kevin McClintock, Roger King 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 each 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 the average daily net assets of each
Dreyfus High Yield Fund, 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.
Dreyfus Equity Dividend Fund and the Dreyfus High Yield Funds had not
commenced operations as of October 31, 1995.
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 for its 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 the respective 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 automatically 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 the
Dreyfus High Yield Funds 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 the Dreyfus High Yield Funds
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 Dreyfus High Yield Fund and Dreyfus Strategic Income Fund may
approach the 200% level, respectively. 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 Short Term High Yield Fund has not commenced operations as of
the date of this Statement of Additional Information. Accordingly, no
financial or performance information is included at this time for the Fund.
Dreyfus Strategic Income Fund's current yield for the 30-day period
ended April 30, 1996 was 5.96%. Dreyfus High Yield Securities Fund's
current yield for the 30-day period ended April 30, 1996 was 10.00%.
During this period, the Manager was waiving receipt of the management fee
and absorbing expenses of the Dreyfus High Yield Securities Fund, without
which the Fund's 30-day yield would have been 8.83%. 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 and
five year periods ended April 30, 1996, and for the period October 1, 1986
(commencement of operations) through April 30, 1996, was 11.51, 9.63% and
9.59%, 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 April 30, 1996 was 140.38%.
Dreyfus Equity Dividend Fund's total return for the period December 29,
1995 (commencement of operations) through April 30, 1996 was 6.21%.
Dreyfus High Yield Securities Fund's total return for the period March 26,
1996 (commencement of operations) through April 30, 1996 was 0.04%. During
this period, receipt of certain fees were being waived, and operating
expenses were borne, by the Manager, without which returns for Dreyfus
Equity Dividend Fund and Dreyfus High Yield Securities Fund would have been
lower. 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)
discussions of the risk and reward potential of the high yield securities
markets and its comparative performance in the overall securities markets;
and (vi) as to Dreyfus Short Term High Yield Fund, that as of its inception
date the Fund was the first short-term, high yield fund in the mutual fund
industry.
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 it maintains for the Company during the month, and is
reimbursed for certain out-of-pocket expenses.
Mellon Bank, N.A. (the "Custodian"), the Manager's parent, located at
One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, acts as the
custodian of the Fund's investments. Under a custody agreement with the
Company, the Custodian holds each Fund's portfolio securities and keeps all
necessary accounts and records. For its custody services, the Custodian
receives a monthly fee based on the market value of each Fund's assets held
in custody and receives certain securities transaction changes.
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 accountants, 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.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Investments October 31, 1995
<TABLE>
<CAPTION>
Principal
Bonds and Notes--97.7% Amount Value
- --------------------- --------- -------
<S> <C> <C>
Banking--19.7% ABN AMRO Bank N.V.,
Sub. Notes, 7 1/4%, 2005........................ $ 4,000,000 $ 4,159,772
Bank of New York,
Sub. Notes, 8 1/2%, 2004........................ 5,000,000 5,627,670
BankAmerica, Sub. Notes:
9.70%, 2000..................................... 5,000,000 5,689,685
6 3/4%, 2005.................................... 5,000,000 4,987,500
Chemical Banking,
Sub. Deb., 7 7/8%, 2006......................... 15,000,000 16,277,100
First Chicago,
Sub. Notes, 11 1/4%, 2001....................... 3,500,000 4,242,774
Fleet Financial Group,
Sub. Notes, 8 1/8%, 2004........................ 6,000,000 6,537,636
Manufacturers and Traders Trust,
Sub. Notes, 7%, 2005............................ 4,000,000 4,052,268
Midland Bank plc,
Sub. Notes, 8 5/8%, 2004........................ 5,000,000 5,604,815
NCNB,
Sub. Notes, 9 3/8%, 2009........................ 5,000,000 6,014,395
----------
63,193,615
----------
Consumer--7.4% News America Holdings (Gtd. by News):
Sr. Deb., 9 1/4%, 2013.......................... 5,000,000 5,812,400
Sr. Notes, 8 1/2%, 2005......................... 5,000,000 5,492,705
Time Warner Entertainment, L.P.,
Sr. Deb., 8 3/8%, 2023.......................... 12,000,000 12,429,768
----------
23,734,873
----------
Finance--24.2% Associates Corp. of North America:
Medium-Term Sr. Notes,
Ser. G, 8 1/4%, 2004.......................... 5,000,000 5,521,820
Sr. Notes, 7 7/8%, 2001......................... 5,000,000 5,366,215
Avco Financial Services,
Sr. Notes, 6.35%, 2000.......................... 3,000,000 3,003,264
Commercial Credit:
Deb., 10%, 2009................................. 1,000,000 1,274,215
Notes, 7 3/4%, 2005............................. 4,000,000 4,293,116
Dean Witter, Discover & Co.,
Floating Rate Notes, 6 1/4% 2000................ 2,000,000(a) 2,023,846
Dresdner Bank AG,
Sub. Notes, 6 5/8%, 2005........................ 4,000,000 4,016,088
Ford Motor Credit:
Medium-Term Notes, 9.03%, 2009.................. 5,000,000 5,717,195
Notes:
6 1/4%, 2000.................................. 5,000,000 4,975,000
7 3/4%, 2005.................................. 6,000,000 6,427,848
General Electric Capital:
Deb., 8 1/2%, 2008.............................. 4,000,000 4,635,560
Global Medium-Term Notes,
Ser. A, 7.84%, 1997........................... 3,000,000 3,071,022
</TABLE>
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- --------------------------- ----------- -------
<S> <C> <C>
Finance (continued) General Motors Acceptance:
Medium-Term Notes:
7 1/2%, 5/23/2000................................. $ 5,000,000 $ 5,219,750
7 1/2%, 7/24/2000................................. 5,000,000 5,224,795
Notes, 8 3/4%, 1997................................. 3,000,000(b) 3,430,713
Household Finance,
Notes, 7.65%, 2007.................................. 5,000,000 5,350,335
McDonnell Douglas Finance,
Medium-Term Notes, 9.90%, 2000...................... 2,000,000 2,103,390
U.S. Leasing International,
Medium-Term Notes, Ser. A, 9.88%, 2001.............. 5,000,000 5,756,250
------------
77,410,422
------------
Industrial--12.0% Archer-Daniels-Midland,
Deb., 10 1/4%, 2006.................................. 1,400,000 1,779,025
Cincinnati Milacron,
Notes, 8 3/8%, 2004.................................. 5,000,000 5,168,750
du Pont (E.I.) de Nemours and Co.,
Deb., 8 1/4%, 2022................................... 3,000,000 3,266,679
Eli Lilly and Co.,
Notes, 7 1/8%, 2025................................. 4,000,000 4,120,360
Emerson Electric,
Notes, 6.30%, 2005.................................. 1,000,000 992,694
Harnischfeger Industries,
Deb., 8.90%, 2022................................... 1,000,000 1,176,492
Motorola,
Deb., 7 1/2%, 2025.................................. 5,000,000 5,363,740
Phillips Petroleum, Notes:
9 3/8%, 2011........................................ 4,000,000 4,844,852
8.86%, 2022......................................... 5,000,000 5,593,345
Raytheon,
Notes, 6 1/2%, 2005................................. 4,000,000 4,001,460
Union Carbide,
Deb., 8 3/4%, 2022.................................. 2,000,000 2,219,014
------------
38,526,411
------------
Insurance--6.4% NAC Re,
Notes, 8%, 1999..................................... 2,000,000 2,089,324
New York Life Insurance,
Surplus Notes, 7 1/2%, 2023......................... 5,000,000(c) 4,873,500
Orion Capital,
Sr. Notes, 9 1/8%, 2002............................. 3,000,000 3,333,354
Reliastar Financial,
Notes, 6 5/8%, 2003................................. 5,000,000 4,895,760
SunAmerica,
Notes, 9%, 1999..................................... 5,000,000 5,362,345
------------
20,554,283
------------
</TABLE>
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- --------------------------- --------- -------
<S> <C> <C>
Oil and Gas--.4% Maxus Energy,
Sinking Fund Deb., 11 1/4%, 2013.................. $ 254,000 $ 256,540
Occidental Petroleum,
Sr. Deb., 11 3/4%, 2011........................... 1,000,000 1,067,439
-----------
1,323,979
-----------
Utilities--3.5% AT&T,
Deb., 8.35%, 2025................................. 5,000,000 5,519,730
National Rural Utilities Cooperative Finance,
Collateral Trust Bonds, Ser. V, 9%, 2021.......... 5,000,000 5,688,885
------------
11,208,615
------------
Foreign--.4% Province of Newfoundland,
Sinking Fund Deb., 10%, 2020...................... 1,000,000 1,284,490
------------
Other--5.0% Chemical Master Credit Card Trust I,
Floating Rate Asset Backed Ctfs.,
Ser. 1995-1, Cl. A, 5.995%, 2001.................. 10,000,000(a) 10,000,000
Chevy Chase Master Credit Card Trust,
Floating Rate Asset Backed Ctfs.,
Ser. 1994-5, Cl. A, 6.085%, 2001.................. 5,000,000(a) 5,000,500
Rural Electric Cooperative Grantor Trust Ctfs.
(Soyland), 9.70%, 2017............................ 1,000,000 1,093,905
------------
16,094,405
------------
U.S. Government
and Agencies--18.7% Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation Ctfs.,
Ser. 1166, Cl. 1166-PG, 8%, 2020.................. 4,699,313 4,776,100
Government National Mortgage Association 1:
7%, 7/15/2023..................................... 9,495,298 9,444,783
7 1/2%, 10/15/2023................................ 10,484,292 10,638,202
7 1/2%, 5/15/2024................................. 4,858,735 4,930,061
8%, 8/15/2024..................................... 9,778,128 10,077,535
8%, 9/15/2024..................................... 12,416,920 12,797,127
U.S. Treasury Bonds:
8 7/8%, 2/15/2019................................. 3,000,000 3,871,875
6 7/8%, 8/15/2025................................. 3,000,000 3,215,157
------------
59,750,840
------------
TOTAL BONDS AND NOTES
(cost $298,617,777)............................... $313,081,933
============
</TABLE>
<PAGE>
Dreyfus Strategic Income
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Short-Term Investment--.3% Amount Value
- ------------------------- --------- -----
<S> <C> <C>
Time Deposit; Chemical Bank (London),
5 7/8%, 11/1/1995
(cost $1,043,000).......... $ 1,043,000 $ 1,043,000
============
TOTAL INVESTMENTS (cost $299,660,777).................. 98.0% $314,124,933
====== ============
CASH AND RECEIVABLES (NET)............................. 2.0% $ 6,219,990
====== ============
NET ASSETS............................................. 100.0% $320,344,923
====== ============
</TABLE>
Notes to Statement of Investments:
(a) Variable rate security-interest rate subject to periodic change.
(b) Security is subject to repurchase by the issuer at the option of the
holder. Final maturity is 7/15/2005.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At October 31, 1995, this
security amounted to $4,873,500 or 1.5% of net assets.
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $299,660,777)-see statement.............................. $ 314,124,933
Cash........................................................... 320,744
Receivable for investment securities sold...................... 7,317,822
Interest receivable............................................ 5,089,704
Receivable for shares of Beneficial Interest subscribed........ 2,982
Prepaid expenses............................................... 24,106
-------------
326,880,291
LIABILITIES:
Due to The Dreyfus Corporation................................ $ 222,321
Due to Distributor............................................ 8,735
Payable for investment securities purchased................... 5,968,600
Payable for shares of Beneficial Interest redeemed............ 197,082
Accrued expenses.............................................. 138,630 6,535,368
----------- -------------
NET ASSETS......................................................... $ 320,344,923
=============
REPRESENTED BY:
Paid-in capital.................................................. $ 328,172,689
Accumulated net realized (loss) on investments and foreign
currency transactions.......................................... (22,291,922)
Accumulated net unrealized appreciation on investments-Note 4.... 14,464,156
-------------
NET ASSETS at value applicable to 22,520,160 shares outstanding
(unlimited number of $.001 par value shares of Beneficial
Interest authorized)............................................. $ 320,344,923
=============
NET ASSET VALUE, offering and redemption price per share
($320,344,923/22,520,160)........................................ $14.22
=======
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Operations year ended October 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:...............................................
Interest Income $ 25,027,801
Expenses:
Management fee--Note 3(a).................................... $ 1,898,849
Shareholder servicing costs--Note 3(b,c)..................... 1,164,077
Professional fees............................................ 56,492
Custodian fees 52,900
Trustees' fees and expenses--Note 3(d)....................... 41,846
Registration fees............................................ 35,965
Prospectus and shareholders' reports--Note 3(b).............. 25,461
Miscellaneous 16,526
-----------
Total Expenses 3,292,116
-------------
INVESTMENT INCOME--NET.................................... 21,735,685
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments and foreign currency
transactions--Note 4........................................ $ (8,706,304)
Net unrealized appreciation on investments and foreign
currency transactions....................................... 38,489,861
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 29,783,557
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 51,519,242
=============
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------
1994 1995
---- ----
<C> <C>
OPERATIONS:
Investment income--net............................................. $ 24,598,056 $ 21,735,685
Net realized (loss) on investments and foreign currency
transactions..................................................... (13,631,198) (8,706,304)
Net unrealized appreciation (depreciation) on investments and
foreign currency transactions for the year....................... (39,799,142) 38,489,861
-------------- -------------
Net Increase (Decrease) In Net Assets Resulting From Operations... (28,832,284) 51,519,242
-------------- -------------
DIVIDENDS TO SHAREHOLDERS:
From investment income--net........................................ (24,598,056) (21,735,685)
From net realized gain on investments............................. (9,045,367) -
In excess of net realized gain on investments..................... (122,223) -
-------------- -------------
Total Dividends................................................... (33,765,646) (21,735,685)
-------------- -------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold..................................... 90,796,927 17,545,801
Dividends reinvested.............................................. 25,835,418 15,878,061
Cost of shares redeemed........................................... (107,007,060) (65,349,244)
-------------- -------------
Increase (Decrease) In Net Assets From Beneficial Interest
Transactions..................................................... 9,625,285 (31,925,382)
-------------- -------------
Total (Decrease) In Net Assets.................................... (52,972,645) (2,141,825)
NET ASSETS:
Beginning of year................................................. 375,459,393 322,486,748
-------------- -------------
End of year....................................................... $ 322,486,748 $ 320,344,923
============== =============
<CAPTION>
Shares Shares
------ ------
<C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold....................................................... 6,360,200 1,300,295
Shares issued for dividends reinvested............................ 1,842,973 1,172,881
Shares redeemed................................................... (7,743,228) (4,864,735)
-------------- -------------
Net Increase (Decrease) In Shares Outstanding..................... 459,945 (2,391,559)
============== =============
</TABLE>
See notes to financial statements.
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
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Statement of Investments April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes--91.4% Amount Value
----------- -------------
<S> <C> <C>
Aircraft & Aerospace--1.6% K&F Industries,
Sr. Sub. Deb., 13-3/4%, 2001.................... $ 4,500,000 $ 4,685,625
-------------
Banking--3.2% BankAmerica,
Sub. Notes, 9.70%, 2000......................... 5,000,000(a) 5,518,105
First Chicago,
Sub. Notes, 11-1/4%, 2001....................... 3,500,000 4,122,177
-------------
9,640,282
-------------
Chemicals--1.6% UCC Investors,
Sr. Notes, 10-1/2%, 2002........................ 4,550,000 4,766,125
-------------
Commercial Mortgage
Backed--11.3% G S Mortgage Securities Corp. II,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1996-PL, Cl. A-1, 7.02%, 2027.............. 9,716,649 9,689,321
J.P. Morgan Commercial Mortgage Finance,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1996-C2, Cl. A, 6.47%, 2027................ 10,754,330 10,381,289
Structured Asset Securities,
Multiclass Pass-Through Ctfs., Ser. 1996-CFL:
Cl. B, 6.303%, 2028........................... 7,200,000 6,873,750
Cl. C, 6.525%, 2028........................... 7,192,927 6,852,387
-------------
33,796,747
-------------
Computer--1.3% Unisys,
Sr. Notes, 12%, 2003............................ 4,000,000(b) 4,010,000
-------------
Energy--2.9% Apache,
Notes, 7.95%, 2026.............................. 4,000,000 3,924,720
DeepTech International,
Sr. Secured Notes, 12%, 2000.................... 4,850,000 4,643,875
Maxus Energy,
Sinking Fund Deb., 11-1/4%, 2013................ 254,000 260,985
-------------
8,829,580
-------------
Entertainment/Media--3.1% Chancellor Broadcasting,
Sr. Sub. Notes, 9-3/8%, 2004.................... 4,850,000 4,716,625
Viacom,
Gtd. Sr. Notes, 6-3/4%, 2003.................... 5,000,000 4,722,700
-------------
9,439,325
-------------
Finance--6.0% Associates Corp. of North America,
Sr. Notes, 7-7/8%, 2001......................... 5,000,000 5,220,820
-------------
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
----------- -------------
<S> <C> <C>
Finance (continued) GMAC,
Medium-Term Notes, 7-1/2%, 2000................. $5,000,000(a) $ 5,113,650
McDonnell Douglas Finance,
Medium-Term Notes, 9.90%, 2000.................. 2,000,000 2,070,614
U.S. Leasing International,
Medium-Term Notes, Ser. A, 9.88%, 2001.......... 5,000,000 5,589,600
-------------
17,994,684
-------------
Healthcare Related--.7% Dynacare,
Sr. Notes, 10-3/4%, 2006........................ 2,000,000 2,005,000
-------------
Industrial--.6% Remington Arms,
Sr. Sub. Notes, 10%, 2003....................... 500,000(b) 452,500
Republic Engineered Steels,
First Mortgage Notes, 9-7/8%, 2001.............. 1,500,000 1,368,750
-------------
1,821,250
-------------
Insurance--5.1% NAC Re,
Notes, 8%, 1999................................. 2,000,000 2,054,366
Orion Capital,
Sr. Notes, 9-1/8%, 2002......................... 3,000,000 3,231,642
Reliastar Financial,
Notes, 6-5/8%, 2003............................. 5,000,000 4,743,620
SunAmerica,
Notes, 9%, 1999................................. 5,000,000(a) 5,268,950
-------------
15,298,578
-------------
Real Estate Related--1.0% HMH Properties,
Sr. Secured Notes, 9-1/2%, 2005................. 3,000,000 2,928,750
-------------
Residential Mortgage
Backed--4.1% General Electric Capital Mortgage Services,
Multiclass Pass-Through Ctfs.:
Ser. 1993-15B, 6%, 11/25/2008................. 486,012(b) 389,393
Ser. 1996-10B, 6-3/4%, 4/30/2011.............. 812,500(b) 664,219
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs.:
Ser. 1996-7, Cl. 7B4, 6-3/4%, 2011............ 775,000(b) 533,000
Ser. 1996-7, Cl. 7B3, 6-3/4%, 2011............ 1,395,000(b) 1,152,008
Residential Funding Mortgage Securities I,
Mortgage Pass-Through Ctfs.,
Ser. 1996-S7, Cl. A-12, 7%, 2026................ 10,089,897 9,446,666
-------------
12,185,286
-------------
Technology--1.1% Shared Technologies Fairchild
Communications,
Sr. Sub. Notes, Zero Coupon, 1999............... 4,750,000(b,c) 3,420,000
------------
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
----------- ------------
<S> <C> <C>
Transportation--1.8% Moran Transportation,
First Preferred Ship Mortgage Notes,
11-3/4%, 2004................................... $ 800,000 $ 796,000
OMI,
Sr. Notes, 10-1/4%, 2003........................ 4,950,000 4,665,375
-------------
5,461,375
-------------
Foreign--6.6% Corporacion Andina de Fomento,
Bonds, 7.10%, 2003.............................. 3,850,000 3,717,853
Eletson Holdings,
First Preferred Ship Mortgage Notes,
9-1/4%, 2003.................................... 4,500,000 4,342,500
Hydro-Quebec, Medium-Term Notes
(Gtd. by the Province of Quebec),
Ser. B, 8.05%, 2006............................. 6,800,000(d) 7,256,212
Teekay Shipping,
First Preferred Ship Mortgage Notes,
8.32%, 2008..................................... 4,850,000 4,637,813
-------------
19,954,378
-------------
Foreign/Governmental--4.4% Province of Newfoundland,
Sinking Fund Deb., 10%, 2020.................... 1,000,000 1,226,010
Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5-7/16%, 2000..... 3,030,720(e) 2,849,618
Republic of Colombia, Notes:
7-1/4%, 2/15/2003............................... 5,000,000 4,755,680
7-1/4%, 2/23/2004............................... 4,800,000 4,485,130
-------------
13,316,438
-------------
U.S. Government
and Agencies--35.0% Government National Mortgage Association I:
7%, 6/15/2008................................... 1,944,183 1,936,893
7%, 7/15/2023................................... 9,136,911 8,822,785
7-1/2%, 1/15/2002-1/15/2011..................... 24,013,100 24,313,264
7-1/2%, 10/15/2023-5/15/2024.................... 14,644,197 14,503,915
8%, 8/15/2024-9/15/2024......................... 20,334,199 20,613,795
9%, 11/15/2017.................................. 16,833,062 17,958,689
Tennessee Valley Authority,
Power Bonds 1992, Ser. D, 8-1/4%, 2042.......... 16,000,000(a) 16,907,200
-------------
105,056,541
-------------
TOTAL BONDS AND NOTES
(cost $277,641,587)............................. $274,609,964
-------------
-------------
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Convertible Securities--7.8% Shares Value
---------- -----------
<S> <C> <C>
Preferred Stocks--3.2%
- -------------------------------------------------------------------------------
Consumer--1.7% Cablevision Systems, Depositary Shares, Ser. L,
Cum., $11.125................................... 50,711(b) $ 5,045,745
-------------
Entertainment/Media--1.5% Time Warner, Ser. K,
Cum., $102.50................................... 4,350(b) 4,350,000
-------------
Total Preferred Stocks............................ 9,395,745
-------------
-------------
Principal
Subordinated Debentures--1.1% Amount
- ------------------------------------------------------------------------------- ----------
Computer--1.0% Storage Technology,
8%, 2015........................................ $ 2,900,000 3,066,750
-------------
Industrial--.1% Outboard Marine,
7%, 2002........................................ 358,000 365,160
-------------
Total Subordinated Debentures..................... 3,431,910
-------------
-------------
Notes--3.5%
- -------------------------------------------------------------------------------
Entertainment/Media--1.3% Thomas Nelson,
Sub. Notes, 5-3/4%, 1999........................ 4,000,000(b) 3,960,000
------------
Industrial--2.2% INAMED,
Notes, 11%, 1999................................ 6,650,000(f) 6,650,000
------------
Total Notes....................................... 10,610,000
------------
TOTAL CONVERTIBLE SECURITIES
(cost $23,359,689).............................. $ 23,437,655
------------
------------
Short-Term Investments--.4%
- -------------------------------------------------------------------------------
Time Deposit--.3% Chemical Bank (London),
5-5/16%, 5/1/1996............................... $ 983,000 $ 983,000
------------
U.S. Treasury Bills--.1% 4.80%, 5/30/1996.................................. 250,000 249,033
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,232,033)............................... $ 1,232,033
------------
------------
TOTAL INVESTMENTS (cost $302,233,309)................................................ 99.6% $299,279,652
------- ------------
------- ------------
CASH AND RECEIVABLES (NET)........................................................... .4% $ 1,161,360
------- ------------
------- ------------
NET ASSETS........................................................................... 100.0% $300,441,012
------- ------------
------- ------------
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1996 (Unaudited)
Notes to Statement of Investments:
- ------------------------------------------------------------------------------
(a) Held by the custodian in a segregated account as collateral for open
Financial Futures positions.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At April 30, 1996,
these securities amounted to $23,976,865 or 7.98% of net assets.
(c) Zero coupon until 3/1/99, date on which a stated coupon rate of 12-1/4%
becomes effective, the stated maturity date is 3/1/2006.
(d) Reflects date security can be redeemed at holders' option; the stated
maturity date is 7/7/2024.
(e) Variable rate security - interest rate subject to periodic change.
(f) Security restricted as to public resale. Investment in a restricted
security, with a value of $6,650,000 represents approximately 2.21% of net
assets;
<TABLE>
<CAPTION>
Acquisition Purchase Percentage of
Issue Date Price Net Assets Valuation(1)
- ----------- ----------- --------- -------------- -------------
<S> <C> <C> <C> <C>
INAMED, Conv. Notes, 11%, 3/31/1999 1/23/1996 $100 2.21% cost
<FN>
- -------------------
(1) The valuation of this security has been determined in good faith under
the direction of the Board of Trustees.
</TABLE>
Statement of Financial Futures April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Market Value Unrealized
Covered Appreciation
Financial Futures Sold Short Contracts by Contracts Expiration at 4/30/96
- ---------------- ------ ------- ------- ------
<S> <C> <C> <C> <C>
U.S. Treasury 30yr bond...................... 275 $30,017,969 June '96 $122,656
----------
----------
</TABLE>
See independent accountants' review report and notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Statement of Assets and Liabilities April 30, 1996 (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $302,233,309)--see statement.................................. $299,279,652
Cash................................................................. 385,512
Interest receivable.................................................. 4,094,574
Receivable for investment securities sold............................ 3,009,606
----------------
306,769,344
LIABILITIES:
Due to The Dreyfus Corporation and subsidiaries...................... $ 200,900
Due to Distributor................................................... 10,123
Payable for investment securities purchased.......................... 5,270,469
Payable for shares of Beneficial Interest redeemed................... 718,478
Accrued expenses and other liabilities............................... 128,362 6,328,332
---------- ----------------
NET ASSETS............................................................... $300,441,012
----------------
----------------
REPRESENTED BY:
Paid-in capital...................................................... $312,037,454
Accumulated undistributed investment income-net...................... 57,840
Accumulated net realized (loss) on investments....................... (8,823,281)
Accumulated net unrealized (depreciation) on investments (including
$122,656 net unrealized appreciation on financial futures)--Note 4(b) (2,831,001)
----------------
NET ASSETS at value applicable to 21,387,759 outstanding shares of
Beneficial Interest, equivalent to $14.05 per share
(unlimited number of $.001 par value shares authorized).............. $300,441,012
----------------
----------------
</TABLE>
See independent accountants' review report and notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Statement of Operations six months ended April 30, 1996 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest Income...................................................... $11,814,401
Expenses:
Management fee--Note 3(a)........................................... $ 942,011
Shareholder servicing costs--Note 3(b).............................. 571,112
Trustees' fees and expenses--Note 3(c).............................. 28,676
Professional fees.................................................. 27,959
Custodian fees..................................................... 26,658
Prospectus and shareholders' reports............................... 9,292
Registration fees.................................................. 7,716
Miscellaneous...................................................... 7,681
------------
Total Expenses................................................. 1,621,105
------------
INVESTMENT INCOME--NET.......................................... 10,193,296
------------
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized gain on investments--Note 4(a)........................... $13,249,162
Net realized gain on financial futures--Note 4(a)..................... 219,479
------------
Net Realized Gain.............................................. 13,468,641
Net unrealized (depreciation) on investments (including $122,656 net
unrealized appreciation on financial futures)...................... (17,295,157)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS.............. (3,826,516)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $ 6,366,780
------------
------------
</TABLE>
See independent accountants' review report and notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Six Months Ended
October 31, April 30, 1996
1995 (Unaudited)
------------ ------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 21,735,685 $ 10,193,296
Net realized gain (loss) on investments................................. (8,706,304) 13,468,641
Net unrealized appreciation (depreciation) on investments for the period 38,489,861 (17,295,157)
------------ ------------
Net Increase In Net Assets Resulting From Operations.................. 51,519,242 6,366,780
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income--net.................................................. (21,735,685) (10,135,456)
------------ ------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold........................................... 17,545,801 13,889,633
Dividends reinvested.................................................... 15,878,061 7,494,446
Cost of shares redeemed................................................. (65,349,244) (37,519,314)
------------ ------------
(Decrease) In Net Assets From Beneficial Interest Transactions........ (31,925,382) (16,135,235)
------------ ------------
Total (Decrease) In Net Assets.................................... (2,141,825) (19,903,911)
NET ASSETS:
Beginning of period..................................................... 322,486,748 320,344,923
------------ ------------
End of period (including undistributed investment income-net; $57,840
on April 30, 1996).................................................... $320,344,923 $300,441,012
------------ ------------
------------ ------------
<CAPTION>
Shares Shares
------------ ------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 1,300,295 968,842
Shares issued for dividends reinvested.................................. 1,172,881 523,712
Shares redeemed......................................................... (4,864,735) (2,624,955)
------------ ------------
------------ ------------
Net (Decrease) In Shares Outstanding.................................. (2,391,559) (1,132,401)
------------ ------------
------------ ------------
</TABLE>
See independent accountants' review report and notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Significant Accounting Policies:
Dreyfus Income Funds, (the "Company") is registered under the Investment
Company Act of 1940 ("Act") as a diversified open-end management investment
company and operates as a series company currently offering three series,
including the Dreyfus Strategic Income Fund (the "Fund"). The Fund's
investment objective is to maximize current income by investing principally
in debt securities of domestic and foreign issuers. The Dreyfus Corporation
("Manager") serves as the Fund's investment adviser. The Manager is a direct
subsidiary of Mellon Bank, N.A. ("Mellon"). Premier Mutual Fund Services,
Inc. (the "Distributor") acts as the distributor of the Fund's shares which
are sold to the public without a sales load.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
(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) Securities transactions and investment income: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, including, where applicable, amortization of discount on investments,
is recognized on the accrual basis.
(c) Dividends to shareholders: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 six months ended April 30, 1996.
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 value
of the Fund's average daily 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 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 value of the Fund's
average net assets in accordance with California "blue sky" regulations.
There was no expense reimbursement for the six months ended April 30, 1996.
(b) Pursuant to the Fund's 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 (a securities
dealer, financial institution or other industry professional) in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. For the six months ended April 30, 1996, $392,505 was charged to the
Fund by the Distributor pursuant to the Shareholder Services Plan.
Effective December 1, 1995, the Fund compensates Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of the Manager, under a transfer agency agreement
for providing personnel and facilities to perform transfer agency services
for the Fund. Such compensation amounted to $98,812 for the period from
December 1, 1995, through April 30, 1996.
Effective May 10, 1996, the Fund entered into a Custody Agreement with
Mellon to provide custodial services for the Fund.
(c) 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 $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 4--Securities Transactions:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the six months
ended April 30, 1996, amounted to $400,059,901 and $411,111,778,
respectively.
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is exposed to
market risk as a result of changes in the value of the underlying financial
instruments (see the Statement of Financial Futures). Investments in
financial futures require the Fund to "mark to market" on a daily basis,
which reflects the change in market value of the contracts at the close of
each day's trading. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains or losses. When the contracts are
closed, the Fund recognizes a realized gain or loss. These investments
require initial margin deposits with a custodian, which consist of cash or
cash equivalents, up to approximately 10% of the contract amount. The amount
of these deposits is determined by the exchange or Board of Trade on which
the contract is traded and is subject to change. Contracts open at April 30,
1996 and their related unrealized market appreciation are set forth in the
Statement of Financial Futures.
(b) At April 30, 1996, accumulated net unrealized depreciation on
investments was $2,831,001, consisting of $3,030,167 gross unrealized
appreciation and $5,861,168 gross unrealized depreciation.
At April 30, 1996, 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 Fund
- ------------------------------------------------------------------------------
Review Report of Ernst & Young LLP, Independent Accountants
Shareholders and Board of Trustees
Dreyfus Strategic Income Fund
We have reviewed the accompanying statement of assets and liabilities,
including the statements of investments and financial futures, of Dreyfus
Strategic Income Fund, one of the Funds constituting Dreyfus Income Funds, as
of April 30, 1996, and the related statements of operations and changes in
net assets and financial highlights for the six month period ended April 30,
1996. These financial statements and financial highlights are the
responsibility of the Fund's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an
opinion regarding the financial statements and financial highlights taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the interim financial statements and financial highlights
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the statement of changes in net assets for the year ended
October 31, 1995 and financial highlights for each of the five years in the
period ended October 31, 1995 and in our report dated December 4, 1995, we
expressed an unqualified opinion on such statement of changes in net assets
and financial highlights.
Ernst & Young LLP
New York, New York
June 3, 1996
<TABLE>
<CAPTION>
DREYFUS EQUITY DIVIDEND FUND
STATEMENT OF INVESTMENTS APRIL 30, 1996 (UNAUDITED)
COMMON STOCKS-97.4% SHARES VALUE
______ ______
<S> <C> <C>
COMMERCIAL SERVICES-7.8% Deluxe................................. 1,400 $ 49,000
McGraw-Hill............................ 1,000 44,125
Ogden.................................. 2,300 46,575
Safety-Kleen........................... 3,100 46,500
_____
186,200
_____
CONSUMER DURABLES-9.3% Brunswick.............................. 2,000 44,000
Chrysler............................... 700 43,925
Eastman Kodak.......................... 600 45,900
General Motors......................... 800 43,400
Jostens................................ 2,000 45,000
_____
222,225
_____
CONSUMER
NON-DURABLES-7.6% American Greetings, Cl. A.............. 1,700 46,962
Colgate-Palmolive...................... 600 45,975
Flowers Industries..................... 3,300 44,138
Kimberly-Clark......................... 600 43,575
_____
180,650
_____
ELECTRONIC TECHNOLOGY-7.8% AMP.................................... 1,100 49,225
General Dynamics....................... 700 44,187
Northrop Grumman....................... 800 49,500
United Technologies.................... 400 44,200
_____
187,112
_____
ENERGY MINERALS-10.0% Exxon.................................. 500 42,500
Lyondell Petrochemical................. 1,600 47,000
Mobil.................................. 400 46,000
Phillips Petroleum..................... 1,200 49,800
Sun.................................... 1,700 52,700
_____
238,000
_____
FINANCE-9.1% CIGNA.................................. 400 45,350
Chelsea GCA Realty..................... 1,300 37,050
First Union............................ 800 49,200
Student Loan Marketing Association..... 600 43,950
Willis Corroon Group, A.D.S............ 3,600 41,850
_____
217,400
_____
HEALTH TECHNOLOGY-9.1% American Home Products................. 400 42,200
Baxter International................... 1,000 44,250
Bristol-Myers Squibb................... 500 41,125
Pharmacia & Upjohn..................... 1,200 45,900
Warner-Lambert......................... 400 44,700
_____
218,175
_____
DREYFUS EQUITY DIVIDEND FUND
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1996 (UNAUDITED)
COMMON STOCKS (CONTINUED) SHARES VALUE
______ ______
NON-ENERGY MINERALS-2.1% Southern Peru Copper................... 2,700 50,625
_____
PROCESS INDUSTRIES-5.9% Dow Chemical........................... 500 $ 44,438
duPont (E.I.) deNemours................ 600 48,225
Witco.................................. 1,400 47,775
_____
140,438
_____
PRODUCER
MANUFACTURING-7.6% Keystone International.................. 2,200 48,125
National Service Industries............. 1,200 44,400
Olin.................................... 500 44,250
Tenneco................................. 800 43,900
_____
180,675
_____
RETAIL TRADE-4.0% May Department Stores................... 900 45,900
Penney (J.C.)........................... 1,000 49,500
_____
95,400
_____
TRANSPORTATION-4.2% Canadian National Railway.............. 2,700 51,300
Illinois Central....................... 1,600 48,000
_____
99,300
_____
UTILITIES-12.9% Ameritech.............................. 700 40,862
Entergy................................ 1,800 47,700
Frontier............................... 1,400 44,275
GTE.................................... 1,100 47,713
NYNEX.................................. 900 44,213
Telefonos de Mexico, Cl. L, A.D.S...... 1,300 44,200
Texas Utilities........................ 1,000 40,250
_____
309,213
_____
TOTAL COMMON STOCKS
(cost $2,210,158).................... $2,325,413
======
TOTAL INVESTMENTS (cost $2,210,158)......................................... 97.4% $2,325,413
=== ======
CASH AND RECEIVABLES (NET).................................................. 2.6% $ 62,762
=== ======
NET ASSETS.................................................................. 100.0% $2,388,175
=== ======
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS EQUITY DIVIDEND FUND
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1996 (UNAUDITED)
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $2,210,158)-see statement....................................... $2,325,413
Cash.................................................................... 39,078
Dividends receivable.................................................... 4,042
Prepaid expenses........................................................ 2,206
Due from The Dreyfus Corporation........................................ 20,687
______
2,391,426
LIABILITIES:
Due to Distributor...................................................... $ 480
Accrued expenses........................................................ 2,771 3,251
____ ______
NET ASSETS.................................................................. $2,388,175
======
REPRESENTED BY:
Paid-in capital......................................................... $2,269,455
Accumulated undistributed investment income-net......................... 1,260
Accumulated undistributed net realized gain on investments.............. 2,205
Accumulated net unrealized appreciation on investments-Note 3........... 115,255
______
NET ASSETS at value applicable to 180,974 outstanding shares of
Beneficial Interest, equivalent to $13.20 per share
(unlimited number of $.001 par value shares authorized) ................ $2,388,175
======
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS EQUITY DIVIDEND FUND
STATEMENT OF OPERATIONS
FROM DECEMBER 29, 1995 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME:
<S> <C> <C>
INCOME:
Cash dividends (net of $144 foreign taxes withheld at source)......... $ 22,407
Interest.............................................................. 2,825
____
TOTAL INCOME.................................................... $ 25,232
EXPENSES:
Management fee-Note 2(a).............................................. 5,691
Legal fees............................................................ 21,758
Shareholder servicing costs-Note 2(b)................................. 2,001
Registration fees..................................................... 1,220
Custodian fees........................................................ 857
Prospectus and shareholders' reports.................................. 666
Auditing fees......................................................... 122
Trustees' fees and expenses-Note 2(c)................................. 119
Miscellaneous......................................................... 885
____
TOTAL EXPENSES.................................................. 33,319
Less-expense reimbursement from Manager due to
undertaking-Note 2(a)............................................. 23,059
____
NET EXPENSES.................................................... 10,260
____
INVESTMENT INCOME-NET........................................... 14,972
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments-Note 3................................. $ 2,205
Net unrealized appreciation on investments.............................. 115,255
____
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 117,460
____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $132,432
======
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS EQUITY DIVIDEND FUND
STATEMENT OF CHANGES IN NET ASSETS
FROM DECEMBER 29, 1995 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1996 (UNAUDITED)
OPERATIONS:
<S> <C>
Investment income-net................................................................. $ 14,972
Net realized gain on investments...................................................... 2,205
Net unrealized appreciation on investments for the period............................. 115,255
_____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ 132,432
_____
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net................................................................. (13,712)
_____
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold......................................................... 2,334,334
Dividends reinvested.................................................................. 13,502
Cost of shares redeemed............................................................... (78,381)
_____
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS........................ 2,269,455
_____
TOTAL INCREASE IN NET ASSETS.................................................... 2,388,175
NET ASSETS:
Beginning of period................................................................... -
_____
End of period (including undistributed investment income-net;
$1,260 on April 30, 1996)........................................................... $2,388,175
=====
SHARES
_____
CAPITAL SHARE TRANSACTIONS:
Shares sold........................................................................... 185,909
Shares issued for dividends reinvested................................................ 1,028
Shares redeemed....................................................................... (5,963)
_____
NET INCREASE IN SHARES OUTSTANDING.................................................. 180,974
=====
See notes to financial statements.
</TABLE>
DREYFUS EQUITY DIVIDEND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Income Funds (the "Company") is registered under the Investment
Company Act of 1940 ("Act") as a diversified open-end management investment
company and operates as a series company currently offering three series,
including the Dreyfus Equity Dividend Fund (the "Fund") which commenced
operations on December 29, 1995. The Fund's primary investment objective is
current income, with capital appreciation as a secondary objective. The
Dreyfus Corporation ("Manager") serves as the Fund's investment adviser. The
Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon"). Premier
Mutual Fund Services, Inc. (the "Distributor") acts as the distributor of the
Fund's shares, which are sold to the public without a sales charge.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
As of April 30, 1996, Allomon Corporation, a subsidiary of Mellon Bank
Investments Corporation, the parent company of which is Mellon Bank
Corporation, held 160,928 shares of the Fund.
(A) PORTFOLIO VALUATION: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market. Securities not listed on an exchange
or the national securities market, or securities for which there were no
transactions, are valued at the average of the most recent bid and asked
prices, except for open short positions, where the asked price is used for
valuation purposes. Bid price is used when no asked price is available.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net are declared and paid on a
quarterly basis. Dividends from net realized capital gain are normally
declared and paid annually, but the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code. To the extent that net realized capital gain can be offset by
capital loss carryovers, if any, it is the policy of the Fund not to
distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to 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.
NOTE 2-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 .75 of 1% of the value
of the Fund's average daily net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the
DREYFUS EQUITY DIVIDEND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Fund's aggregate expenses, exclusive of taxes, brokerage, interest on
borrowings 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. The Manager has currently undertaken from December 29, 1995
through December 31, 1996 to reduce the management fee paid by, or reimburse
such excess expenses of the Fund, to the extent that the Fund's aggregate
annual expenses (exclusive of certain expenses as described above) exceed an
annual rate of 1.25 of 1% of the value of the Fund's average daily net
assets. The expense reimbursement, pursuant to the undertaking, amounted to
$23,059 for the period ended April 30, 1996.
The undertaking may be extended, modified or terminated by the Manager,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) The Fund has adopted a Shareholder Services Plan, pursuant to which
it pays a fee to the Distributor for the provision of certain services to
Fund shareholders at an 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 (a securities dealer, financial institution or
other industry professional) in respect of these services. The Distributor
determines the amounts to be paid to Service Agents. For the period ended
April 30, 1996, the Fund was charged an aggregate of $1,897 pursuant to the
Shareholder Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such
compensation amounted to $95 for the period from December 29, 1995 through
April 30, 1996.
Effective May 10, 1996, the Fund entered into a Custody Agreement with
Mellon to provide custodial services for the Fund.
(C) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $2,500 and an attendance fee of
$500 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended April 30, 1996
amounted to $2,875,886 and $668,676, respectively.
At April 30, 1996, accumulated net unrealized appreciation on investments
was $115,255, consisting of $138,731 gross unrealized appreciation and
$23,476 gross unrealized depreciation.
At April 30, 1996, 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).
