<PAGE>
Dreyfus
Strategic
Income Fund
Semi-Annual
Report
April 30, 1996
<PAGE>
Dreyfus Strategic Income Fund
- ------------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus Strategic
Income Fund. For its semi-annual reporting period ended April 30, 1996, your
Fund produced a total return, consisting of bond price changes and interest
income, of 2.02% per share.* Income dividends paid from net investment income
of approximately $.460 per share were paid representing an annualized
distribution rate per share of 6.57%.**
The Economy
Concern that the economy was heading toward recession was eased by the
recent release of brighter-than-expected reports on employment and consumer
spending. Consequently, the Federal Reserve Board refrained from making any
further reductions in the Federal Funds rate; the last easing of this
benchmark interest rate occurred on January 31, 1996. In reaction to the more
optimistic economic news (and the related fears of a potential rekindling of
inflation), long-term interest rates as measured by 30-year Treasury bonds
have risen nearly one percentage point since February.
The rosier outlook for the economy was heralded by reports of large gains
in employment for two consecutive months (February and March). Furthermore,
personal income and expenditures data indicated that consumers continued to
spend, despite their present high level of installment credit. Retail sales
reports have correspondingly edged higher, confirming a modest recovery in
consumer spending from its year-end slump.
Supporting the growing consensus that the economy has picked up steam
were reports of slow but steady growth in the manufacturing sector. After
data is adjusted for the 17-day General Motors strike, industrial output rose
modestly. New orders for durable goods, a closely watched indicator of future
hiring and production, also posted gains.
Despite the economy's apparent recovery from its year-end pause,
inflation has remained under control. Through March of this year, the
Consumer Price Index rose at an annual rate of 2.8%. There appear to be few
signs of inflationary pressure in the economy. Factories are running at a
relatively comfortable rate of capacity (82.5%), markedly below this
expansion's peak of 85.1% reached over a year ago. With major industries
trying to reduce inventories, there is little to suggest that product pricing
will surge upwards. Reflecting this absence of so-called pipeline
inflationary pressure, price increases at both the wholesale and production
levels of the economy remained similarly under control. The cautionary stance
of the Federal Reserve on additional reductions in interest rates, combined
with the fiscal restraint from reduced government spending, should serve as
additional moderating forces against any resurgence of inflation.
We are mindful, however, of several signals which prompt us to be alert
to a potential change in what has been a benign inflation picture. The recent
rise in oil prices, along with strength in other commodity prices such as
grain, is not to be dismissed lightly. While they may be only aberrations of
a temporary nature, they also could represent early warning signs of a
fundamental change in inflation which could be seen later in the year.
Market Environment
Prices fell in the first quarter of 1996 as interest rates rose more than
one percentage point on Treasury securities of all maturities greater than
one year. Bond investors began the year with an overly optimistic view on
slow economic growth, declining inflation and prospects for a balanced
Federal budget in seven years. As all three of these views became
increasingly unlikely, investors sold fixed-income securities. With interest
rates higher now and consensus on the economy and inflation more in
<PAGE>
line with reality, there is much better value today in the fixed-income
markets. Despite this rise in interest rates, a number of sectors within the
bond market outperformed Treasuries. Corporate bonds, mortgage pass-throughs,
high yield securities and foreign bonds all outperformed comparable maturity
Treasury securities.
The Portfolio
Dreyfus Strategic Income Fund achieved a total return of 11.51% over the
last 12 months ended April 30, 1996,outperforming its broad-based index
benchmark, the Merrill Lynch Domestic Master Index, by 2.78%.*** [The Fund's
average annual total returns for the one- and five-year periods ended March
31, 1996, and for the period since inception (October 3, 1986) through March
31, 1996, were 13.59%, 10.05%, and 9.70%, respectively. Share price, yield
and investment return fluctuate and an investor may receive more or less than
original cost upon redemption. Past performance is no guarantee of future
results.] This outperformance can be attributed to the Fund having a duration
modestly longer than the Index as rates fell during 1995, correctly
anticipating the rising rate environment and positioning duration a little
shorter than the benchmark in January of 1996. As of April 30 the portfolio's
duration was 4.0 years compared to the Index duration of 4.7 years.
Moreover, we have added a number of sectors to the portfolio that have
performed well: agency, non-agency and commercial mortgage pass-throughs, and
corporate bonds in the energy, media and transportation sectors. To fund
these purchases we reduced exposure to the interest-rate-sensitive bank and
finance sectors, asset-backed securities and U.S. Treasuries. We have modestly
reduced the portfolio's overall quality from AA to A since we believe the
expanding economic environment potentially may favor lower quality issuers.
Our biggest recent failure has been our lack of exposure in the emerging
market sectors of the bond market. This was the best performing sector of the
bond market over the past six months as compared to other fixed-income
sectors, as prices recovered from the depressed levels of December of 1994.
We are pursuing a slow, measured approach to entering this volatile sector.
The high level of volatility exhibited in the markets over the past
several years underscores the need to maintain a disciplined and long-term
focus, while taking advantage of short-term market inefficiencies.
Included in this report is a series of detailed statements about your
Fund's holdings and its financial condition. We hope they are informative.
Please know that we appreciate greatly your continued confidence in the Fund
and in The Dreyfus Corporation.
Very truly yours,
Kevin M. McClintock
Director, Taxable Fixed Income Group
May 15, 1996
New York, N.Y.
*Total return includes reinvestment of dividends and any capital gains
paid.
**Annualized distribution rate per share is based upon dividends per share
paid from net investment income during the period, divided by the net asset
value per share at the end of the period.
***The Merrill Lynch Domestic Master Index is an unmanaged performance
benchmark for portfolios that include U.S. Government, mortgage and BBB or
higher-rated corporate securities with maturties greater than or equal to
one year.
<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
- ------------------------------------------------------------------------------
Financial Highlights
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Year Ended October 31, Six Months Ended
---------------------------------------------------- April 30, 1996
PER SHARE DATA: 1991 1992 1993 1994 1995 (Unaudited)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $12.35 $13.44 $14.02 $15.36 $12.95 $14.22
------ ------ ------ ------ ------ ------
Investment Operations:
Investment income--net................. 1.16 1.07 1.01 .95 .93 .46
Net realized and unrealized gain
(loss) on investments................. 1.09 .58 1.41 (2.04) 1.27 (.17)
------ ------ ------ ------ ------ ------
Total from Investment
Operations........................... 2.25 1.65 2.42 (1.09) 2.20 .29
------ ------ ------ ------ ------ ------
Distributions:
Dividends from investment
income--net........................... (1.16) (1.07) (1.01) (.95) (.93) (.46)
Dividends from net realized gain
on investments........................ -- -- (.07) (.37) -- --
------ ------ ------ ------ ------ ------
Total Distributions.................. (1.16) (1.07) (1.08) (1.32) (.93) (.46)
Net asset value, end of period......... $13.44 $14.02 $15.36 $12.95 $14.22 $14.05
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN.................... 18.94%(1) 12.64%(1) 17.93%(1) (7.44%)(1) 17.57%(1) 4.05%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to
average net assets.................... .72% .85% .84% .94% 1.04% 1.03%(2)
Ratio of interest expense to
average net assets.................... .15% -- -- -- -- --
Ratio of net investment income to
average net assets.................... 8.93% 7.58% 6.83% 6.84% 6.87% 6.47%(2)
Decrease reflected in above expense
ratios due to undertakings by the
Manager (limited to the expense
limitation provision of the
management agreement)................. .78% .40% .24% .11% -- --
Portfolio Turnover Rate................ 16.08% 72.82% 118.38% 161.35% 176.59% 132.51%(3)
Net assets, end of period
(000's Omitted)....................... $57,336 $149,801 $375,459 $322,487 $320,345 $300,441
<FN>
- ---------------
(1) Exclusive of sales load.
(2) Annualized.
(3) Not annualized.
</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
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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
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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
<PAGE>
Dreyfus Strategic Income Fund
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, RI 02903
Further information is contained in the Prospectus,
which must precede or accompany this report.
Printed in U.S.A. 031SA964
