DREYFUS HIGH YIELD SECURITIES FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus High Yield
Securities Fund. From inception on March 25, 1996 to the end of its annual
reporting period on October 31, 1996, your Fund produced a total return,
including security price changes and income, of 15.22%.*
THE ECONOMY
Recent fears of another round of monetary tightening by the Federal
Reserve Board (the "Fed") to ward off a resurgence in inflation have so far
proven to be unwarranted. Indeed, despite solid economic growth resulting in
the creation of new jobs and an overall tightening in the labor market,
inflation has remained subdued. Both the Consumer and Producer Price Indexes
remained in the 3% range. This is the fifth consecutive year of inflation
under 3%, the longest period since the 1960s. Despite the duration of the
economic recovery, most economic reports underscore the tepid nature of the
present inflationary environment.
The increase in long-term interest rates early this year may have
contributed to the recently reported slowdown in the rate of economic growth.
During the third quarter, the growth rate of Gross Domestic Product cooled to
2.2%, less than half the second quarter's strong 4.7% pace. Consumers - the
initiators of two thirds of all economic activity - remained cautious
throughout the year. In the third quarter, the pace of consumer spending was
at its slowest in five years. Consumer borrowing has also declined from
levels of a year ago. Not surprisingly, retail sales growth has also been
modest this year. Consumers may have been restrained by wages not rising as
rapidly as had been previously suspected, given the strength in the labor
market. The Employment Cost Index, considered to be an important gauge of
wage inflation by Fed Chairman Alan Greenspan, rose just .6% in the third
quarter, the lowest reading in over a year. This brought the growth in wages
to 2.8% over the past 12 months, slightly less than the rate of inflation as
measured by the Consumer Price Index.
The booming housing market also seems to have cooled with both new
housing starts and existing home sales slackening since midyear. Industrial
production has slowed somewhat from its more rapid pace earlier in the year.
Given the level of capacity utilization, there appears to be no sign of
production bottlenecks that could push prices higher. Anecdotal evidence
still supports the assertion that corporations are reluctant to raise prices.
The report that the 1996 Federal budget deficit had shrunk to $107.3 billion
- - its lowest level in two decades - provided another favorable sign for
inflation. The final reading of the 1996 deficit marks the fourth straight
decline from fiscal 1992's record $290.4 billion.
Despite the relatively benign current environment for inflation, we are
alert for early signs of its potential resurgence. While wage increases so
far have remained modest, workers should eventually expect compensation that
at least matches their cost of living.
MARKET ENVIRONMENT
The strength of the high yield market continues, paced by strong demand
from investors. A major contributing factor is the maturation of this asset
class. During the previous decade, high yield issuance was characterized by a
significant amount of financing for leveraged buyouts, and the average rating
was single B. Currently, most issuance involves refinancing existing debt,
and approximately half of the high yield market is now rated double B. This
increase in rating quality and lower capital structure risk has allowed new
investor classes to participate in the high yield market - insurance
companies, pension plans and other primarily investment-grade investors. The
typically long investment horizon of these new investors should help reduce
demand volatility over the near term and could allow the current high yield
market rally to continue.
THE PORTFOLIO
The Dreyfus High Yield Fund returned 15.22% from its inception to October
31, 1996. For comparison, the Merrill Lynch High Yield Master II Index had a
6.4% return during that period.**
The investment philosophy of the Fund is three-pronged: a base of solid,
higher-yielding credits combined with well researched special situations and
asset backed securities. The duration of the portfolio is market neutral to
focus returns on credit research. While there are no defined industry
guidelines, the emphasis is on industries with long-term improving
characteristics such as aerospace, energy, and telecommunications.
The rallies in the bond and equity markets positively influenced returns
for both the high yield market and the Fund. The bulk of the Fund's returns
resulted primarily from several of its special situation investments and a
strong rally in the high yield asset backed sector, in particular (DeepTech,
Microcell, OMI, Sprint, Shared Technology, and residential mortgages).
Despite the emerging market sector providing some of the highest returns
in the high yield market, the Fund has maintained a low exposure to avoid
this sector's historical volatility. Foreign debt held by the Fund is
predominately from investment-grade countries, such as Canada and Colombia,
and is associated with large, multinational investment-grade corporations
such as Sprint and Cable and Wireless.
No changes in both the investment philosophy and emerging market exposure
are contemplated at this time.
Our primary task - to maximize total return though capital appreciation
and high current income - will guide our portfolio management decisions. We
will continue to use intensive fundamental research in seeking to achieve
high returns. We feel that this approach will reward the patient investor.
Very truly yours,
[Roger King signature logo]
Roger King
Portfolio Manager
November 15, 1996
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
**SOURCE: MERRILL LYNCH, PIERCE, FENNER AND SMITH, INC. - The Merrill Lynch
High Yield Master II Index is a market capitalization weighted index
including all domestic and yankee high-yield bonds with at least $100 million
par amount outstanding and greater than or equal to one year to maturity.
DREYFUS HIGH YIELD SECURITIES FUND OCTOBER 31, 1996
[Exhibit A]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS HIGH YIELD
SECURITIES FUND AND THE
MERRILL LYNCH HIGH YIELD MASTER II INDEX
Dollars
$11,522
Dreyfus High Yield
Securities Fund
$10,651
Merrill Lynch High Yield
Master II Index*
[Exhibit A]
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
Actual Aggregate Total Return
From Inception (3/25/96)
to October 31, 1996
_____________________
15.22%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus High Yield
Securities Fund on 3/25/96 (Inception Date) to a $10,000 investment made in
the Merrill Lynch High Yield Master II Index on that date. For comparative
purposes, the value of the Index on 3/31/96 is used as the beginning value on
3/25/96. All dividends and capital gain distributions are reinvested.
The Fund seeks to achieve its objective by investing in lower rated
fixed-income securities, commonly known as "Junk Bonds." The Fund's
performance shown in the line graph takes into account all applicable fees
and expenses. The Merrill Lynch High Yield Master II Index is a market
capitalization weighted index including all domestic and yankee high-yield
bonds with at least $100 million par amount outstanding and greater than or
equal to one year to maturity. Both interest and price return are calculated
daily based on an accrued schedule and trader pricing. The Index does not
take into account charges, fees and other expenses. Further information
relating to Fund performance, including expense reimbursements, if
applicable, is contained in the Financial Highlights section of the
Prospectus and elsewhere in this report.
<TABLE>
<CAPTION>
DREYFUS HIGH YIELD SECURITIES FUND
STATEMENT OF INVESTMENTS OCTOBER 31, 1996
Principal
Bonds and Notes-106.0% Amount Value
______ ______
<S> <C> <C>
Aircraft & Aerospace-10.7% Aircraft Lease Portfolio Securitisation 96-1
Pass Through Trust, Ctfs.,
Cl. D, 12 3/4%, 2006................. $ 1,000,000 (a) $ 1,035,000
Fairchild,
Sub. Deb., 12%, 2001................. 1,500,000 1,522,500
RHI Holdings,
Sr. Sub. Deb., 11 7/8%, 1999......... 100,000 100,000
__________
2,657,500
__________
Auto Parts-1.0% Aetna Industries,
Sr. Notes, 11 7/8%, 2006............. 240,000 (a) 247,800
__________
Broadcasting-2.1% Spanish Broadcasting System,
Sr. Notes, 7 1/2%, 2002.............. 500,000 (b) 523,750
__________
Building Materials-4.9% Associated Materials,
Sr. Sub. Notes, 11 1/2%, 2003........ 1,250,000 1,212,500
__________
Cable Television-.4% CS Wireless Systems,
Sr. Discount Notes, Zero Coupon, 2001 (Units) 200,000 (a,c,d) 94,000
__________
Chemicals-1.0% Astor,
Sr. Sub. Notes, 10 1/2%, 2006........ 250,000 (a) 250,313
__________
Commercial Mortgage
Backed-5.8% Structured Asset Securities:
Mortgage Pass-Through Ctfs., REMIC,
Ser. Greenpoint 1996-A:
Cl.B5, 8.441%, 2027................. 289,252 (a) 190,545
Cl.B6, 8.441%, 2027................. 362,124 (a) 83,289
Multiclass Pass-Through Ctfs., REMIC,
Ser. 1996-CFL,
Cl. H, 7 3/4%, 2028................. 1,750,000 1,164,023
__________
1,437,857
__________
Consumer-9.7% BPC Holding,
Sr. Secured Notes, 12 1/2%, 2006..... 750,000 (a) 783,750
Hosiery Corp. of America,
Sr. Sub. Exchange Notes, 13 3/4%, 2002 (Units) 500,000 (c) 587,500
Keebler,
Sr. Sub. Notes, 10 3/4%, 2006........ 400,000 (a) 430,000
Remington Arms,
Sr. Sub. Notes, 10%, 2003............ 750,000 (a) 618,750
__________
2,420,000
__________
Energy-2.3% DeepTech International,
Sr. Secured Notes, 12%, 2000......... 500,000 522,500
Falcon Drilling,
Sr. Notes, Ser. B, 8 7/8%, 2003...... 50,000 50,250
__________
572,750
__________
Entertainment/Media-3.7% Alliance Entertainment,
Sr. Sub. Notes, 11 1/4%, 2005........ 1,000,000 915,000
_________
DREYFUS HIGH YIELD SECURITIES FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Principal
Bonds and Notes (continued) Amount Value
______ ______
Financial-2.0% Outsourcing Solutions,
Sr. Sub. Notes, 11%, 2006............ $ 500,000 (a) $ 509,688
__________
Foreign-12.8% Comunicacion Celular SA,
Bonds, Zero Coupon, 2000 (Units)..... 1,000,000 (e,f) 692,500
Dynacare,
Sr. Notes, 10 3/4%, 2006............. 500,000 508,750
Occidente y Caribe Celular S.A.,
Sr. Discount Notes, Zero Coupon, 2001 (Units) 2,910,000 (a,f,g) 1,484,100
Uniforet,
Sr. Notes, 11 1/8%, 2006............. 500,000 (a) 492,500
__________
3,177,850
__________
Gaming-10.2% Casino Magic of Louisiana,
First Mortgage Notes, 13%, 2003...... 750,000 (a) 761,250
Mohegan Tribal Gaming Authority,
Sr. Secured Notes, Ser. B, 13 1/2%, 2002 1,000,000 1,280,000
Riviera Holdings,
First Mortgage Notes, 11%, 2002...... 500,000 502,500
__________
2,543,750
__________
Office Equipment-6.1% Anacomp,
Sr. Secured Notes, 11 5/8%, 1999..... 433,000 438,412
Pierce Leahy,
Sr. Sub. Notes, 11 1/8%, 2006........ 1,000,000 (a) 1,067,500
__________
1,505,912
__________
Residential Mortgage
Backed-13.7% Chase Mortgage Finance,
Multiclass Mortgage Pass-Through Ctfs.,
Ser. 1994-E, Cl.B6, 6 1/4%, 2010..... 450,199 (a) 162,072
Citicorp Mortgage Securities,
REMIC Pass-Through Ctfs.,
Ser. 1994-9, Cl. B2, 5 3/4%, 2009.... 534,455 (a) 192,404
GE Capital Mortgage Services,
Multiclass Pass-Through Ctfs. REMIC:
Ser. 1993-13, Cl.B5, 6%, 2008........ 518,664 (a) 186,719
Ser. 1994-15, Cl.B5, 6%, 2009........ 810,304 (a) 291,710
Ser. 1994-21, Cl.B5, 6 1/2%, 2009.... 1,060,374 (a) 381,735
Ser. 1996-10, Cl.B4, 6 3/4%, 2011.... 307,975 (a) 224,245
Ser. 1996-10, Cl.B5, 6 3/4%, 2011.... 369,887 (a) 133,159
Ser. 1996-12, Cl.B4, 7 1/4%, 2011.... 184,281 (a) 138,442
Ser. 1996-12, Cl.B5, 7 1/4%, 2011.... 431,349 (a) 155,286
Ser. 1996-14, Cl.2B4, 7 1/4%, 2011... 165,509 (a) 123,666
Ser. 1996-14, Cl.2B5, 7 1/4%, 2011... 441,031 (a) 158,771
MORSERV,
Multi-Class Mortgage Pass-Through Ctfs.:
Ser. 1996-1, Cl.B4, 7%, 2011......... 358,414 (a) 275,755
Ser. 1996-1, Cl.B5, 7%, 2011......... 538,591 (a) 193,893
DREYFUS HIGH YIELD SECURITIES FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Principal
Bonds and Notes (continued) Amount Value
______ ______
Residential Mortgage
Backed (continued) Norwest Asset Securities,
Sub. Bond, REMIC,
Ser. 1996-2, Cl.B4, 7%, 2011......... $ 611,092 (a) $ 450,108
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-7, Cl.B5, 6 3/4%, 2011..... 912,549 (a) 328,518
__________
3,396,483
__________
Shipping-1.9% Moran Transportation,
First Preferred Ship Mortgage Notes,
11 3/4%, 2004........................ 450,000 479,250
__________
Supermarkets-1.8% Fleming Cos.,
Floating Rate Sr. Notes, 7 15/16%, 2001 500,000 (h) 447,500
__________
Telecommunications-10.4% American Communications Services,
Sr. Discount Notes, Zero Coupon, 2000 200,000 (i) 114,000
Microcell Telecommunications,
Sr. Discount Notes, Zero Coupon, 2001 (Units) 1,500,000 (a,f,j) 853,125
RSL Communications Ltd.,
Sr. Notes, 12 1/4%, 2006 (Units)..... 500,000 (a,f) 502,500
Shared Technologies Fairchild Communications,
Sr. Sub. Notes, Zero Coupon, 1999.... 700,000 (k) 553,000
Sprint Spectrum L.P.
Sr. Discount Notes, Zero Coupon, 2001 1,000,000 (l) 578,750
__________
2,601,375
_________
Transportation-5.5% Great Dane Holdings,
Sr. Sub. Deb., 12 3/4%, 2001......... 750,000 737,812
TRISM,
Sr. Sub. Notes, 10 3/4%, 2000........ 650,000 627,250
_________
1,365,062
_________
TOTAL BONDS AND NOTES
(cost $25,386,105)................... $26,358,340
============
Convertible Securities-3.8%
Notes-3.4%
Industrial-2.0% MagneTek,
Sub. Notes, 8%, 2001................. $ 500,000 $ 496,250
_________
Retail-1.4% Michaels Stores,
Sub. Notes, 6 3/4%, 2003............. 500,000 350,000
_________
Total Notes............................ 846,250
_________
Subordinated Debentures-.4%
Consumer; Outboard Marine,
7%, 2002............................. 100,000 95,625
_________
TOTAL CONVERTIBLE SECURITIES
(cost $991,476)...................... $941,875
============
DREYFUS HIGH YIELD SECURITIES FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Preferred Stocks-5.4% Shares Value
______ ______
Gaming-1.4% Alliance Gaming, Ser. B,
Cum., $15.00......................... 3,648 $ 342,000
Media/Entertainment-2.9% Paxson Communications,
Cum., $125.00........................ 750 716,250
Supermarkets-1.1% Supermarkets General,
Cum. $3.52........................... 10,000 (m) 278,750
_________
TOTAL PREFERRED STOCK
(cost $1,301,126).................... $ 1,337,000
============
Principal
Short-Term Investments-.5% Amount Value
__________ __________
U.S. Treasury Bills; 4.84%, 12/12/1996 $ 66,000 (n) $ 65,624
5%, 1/9/1997........................... 56,000 (n) 55,466
_________
TOTAL SHORT-TERM INVESTMENTS
(cost $121,100)...................... $ 121,090
============
TOTAL INVESTMENTS (cost $27,799,807)........................................ 115.7% $28,758,305
======= ============
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (15.7%) $ (3,901,455)
======= ============
NET ASSETS.................................................................. 100.0% $24,856,850
======= ============
</TABLE>
Notes to Statement of Investments:
(a)Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1996, these securities amounted to $12,016,843 or 48.3% of net assets.
(b)7 1\2% coupon rate until 6/15/1997, date on which a stated coupon rate of
12 1\2% becomes effective.
(c)With Common Stock attached.
(d)Zero coupon until 3/1/2001, date on which a stated coupon rate of 11 3\8%
becomes effective; the stated maturity is 3/1/2006.
(e)Zero coupon until 11/15/2000, date on which a stated coupon rate of 13 1\8%
becomes effective; the stated maturity is 11/15/2003.
(f)With warrants to purchase Common Stock.
(g)Zero coupon until 3/15/2001, date on which a stated coupon rate of 14%
becomes effective; the stated maturity is 3/15/2004.
(h)Variable rate security-interest rate subject to periodic change.
(i)Zero coupon until 11/1/2000, date on which a stated coupon rate of 13%
becomes effective; the stated maturity is 11/1/2005.
(j)Zero coupon until 12/1/2001, date on which a stated coupon rate of 14%
becomes effective; the stated maturity is 6/1/2006.
(k)Zero coupon until 3/1/1999, date on which a stated coupon rate of 12 1\4%
becomes effective; the stated maturity is 3/1/2006.
(l)Zero coupon until 8/15/2001, date on which a stated coupon rate of
12 1\2% becomes effective; the stated maturity is 8/15/2006.
(m)Non-income producing.
(n)Held by the custodian in a segregated account as collateral for open
Financial Futures positions.
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL FUTURES OCTOBER 31, 1996
______________________
Market Value Unrealized
Covered (Depreciation)
Issuer Contracts by Contracts Expiration at 10/31/96
___ ________ _____________ ___________ ______________
<S> <C> <C> <C> <C>
U.S. Treasury 10yr Note (Short).............. 40 $4,385,000 December `96 $(48,750)
===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS HIGH YIELD SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
Cost Value
__________ __________
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $27,799,807 $28,758,305
Cash....................................... 34,833
Interest receivable........................ 539,197
Receivable for investment securities sold.. 224,767
Prepaid expenses........................... 2,699
Due from The Dreyfus Corporation and affiliates 257
__________
29,560,058
__________
LIABILITIES: Due to Distributor......................... 4,838
Bank loans payable-Note 2.................. 4,146,000
Payable for investment securities purchased 500,000
Interest payable........................... 30,222
Accrued expenses........................... 22,148
__________
4,703,208
__________
NET ASSETS.................................................................. $24,856,850
=============
REPRESENTED BY: Paid-in capital............................ $23,094,481
Accumulated undistributed investment income-net 254,443
Accumulated net realized gain (loss) on investments 598,178
Accumulated net unrealized appreciation (depreciation)
on investments [including $48,750 net unrealized
(depreciation) on financial futures]-Note 4............ 909,748
__________
NET ASSETS............................................................................. $24,856,850
=============
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED)......... 1,796,871
NET ASSET VALUE, offering and redemption price per share.................... $13.83
=============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS HIGH YIELD SECURITIES FUND
STATEMENT OF OPERATIONS
FROM MARCH 25, 1996 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1996
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME: Interest Income............................ $1,252,518
Dividend Income............................ 50,773 $1,303,291
__________
EXPENSES: Management fee-Note 3(a)................... 72,715
Legal fees................................. 38,476
Shareholder servicing costs-Note 3(b)...... 30,944
Interest-Note 2............................ 30,222
Audit fees................................. 12,000
Registration fees.......................... 7,385
Custodian fees-Note 3(b)................... 6,525
Prospectus and shareholders' reports....... 3,782
Trustees' fees and expenses-Note 3(c)...... 1,821
Miscellaneous.............................. 2,769
__________
Total Expenses....................... 206,639
Less-expense reimbursement from the Manager due to
undertakings-Note 3(a)................. (174,066)
__________
Net Expenses......................... 32,573
__________
INVESTMENT INCOME-NET....................................................... 1,270,718
__________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $ 637,825
Net realized gain (loss) on financial futures (39,647)
__________
Net Realized Gain (Loss)............. 598,178
Net unrealized appreciation (depreciation) on investments
[including $48,750 unrealized (depreciation)
on financial futures].................. 909,748
__________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.......................... 1,507,926
__________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $2,778,644
============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS HIGH YIELD SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
FROM MARCH 25, 1996 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1996
<S> <C>
OPERATIONS:
Investment income-net....................................................................... $ 1,270,718
Net realized gain (loss) on investments..................................................... 598,178
Net unrealized appreciation (depreciation) on investments................................... 909,748
__________
Net Increase (Decrease) in Net Assets Resulting from Operations......................... 2,778,644
__________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net....................................................................... (1,016,275)
__________
BENEFICIAL INTEREST TRANSACTIONS :
Net proceeds from shares sold............................................................... 35,821,078
Dividends reinvested........................................................................ 662,219
Cost of shares redeemed..................................................................... (13,388,816)
__________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions................. 23,094,481
__________
Total Increase (Decrease) in Net Assets............................................... 24,856,850
NET ASSETS:
Beginning of Period......................................................................... __
__________
End of Period............................................................................... $ 24,856,850
=============
UNDISTRIBUTED INVESTMENT INCOME-NET........................................................... $ 254,443
__________
CAPITAL SHARE TRANSACTIONS:
Shares
__________
Shares sold................................................................................. 2,722,666
Shares issued for dividends reinvested...................................................... 49,314
Shares redeemed............................................................................. (975,109)
__________
Net Increase (Decrease) in Shares Outstanding........................................... 1,796,871
=============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS HIGH YIELD SECURITIES 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 the period from March 25, 1996
(commencement of operations) to October 31, 1996. This information has been
derived from the Fund's financial statements.
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period..................................................... $12.50
______
Investment Operations:
Investment income-net.................................................................... .69
Net realized and unrealized gain (loss)
on investments......................................................................... 1.19
______
Total from Investment Operations......................................................... 1.88
______
Distributions:
Dividends from investment income-net..................................................... (.55)
______
Net asset value, end of period........................................................... $13.83
========
TOTAL INVESTMENT RETURN...................................................................... 25.14%(1)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets........................................ .02%(1)
Ratio of interest expense to average net assets.......................................... .27%(1)
Ratio of net investment income
to average net assets.................................................................. 11.33%(1)
Decrease reflected in above expense ratio
due to undertakings by the Manager..................................................... 1.55%(1)
Portfolio Turnover Rate.................................................................. 233.62%(2)
Net Assets, end of period (000's Omitted)................................................ $24,857
(1) Annualized.
(2) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS HIGH YIELD SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
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 four series,
including the Dreyfus High Yield Securities Fund (the "Fund") which commenced
operations on March 25, 1996. The Fund's investment objective is to maximize
total return, consisting of capital appreciation and current income. 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.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(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. 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: It is the policy of the Fund to declare
and pay dividends quarterly from investment income-net. Dividends from net
realized capital gain are normally declared and paid annually, but the Fund
may make distributions on a more frequent basis to comply with the
distribution requirements of the Internal Revenue Code. To the extent that
net realized capital gain can be offset by capital loss carryovers, if any,
it is the policy of the Fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS HIGH YIELD SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2-BANK LINE OF CREDIT:
The Fund may borrow up to $10 million for leveraging purposes under a
short-term unsecured line of credit and participates with other
Dreyfus-managed funds in a $100 million unsecured line of credit primarily to
be utilized for temporary or emergency purposes, including the financing of
redemptions. Interest is charged to the Fund at rates which are related to
the Federal Funds rate in effect at the time of borrowings. Outstanding
borrowings under both agreements on October 31, 1996, amounted to $4,146,000.
The average daily amount of borrowings outstanding under both
arrangements during the period ended October 31, 1996 was approximately
$492,000, with a related weighted average annualized interest rate of 6.14%.
The maximum amount borrowed at any time during the period ended October 31,
1996 was $9,600,000.
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 .65 of 1% of the value
of the Fund's average daily net assets and is payable monthly. The Agreement
provides that if in any full fiscal year the 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
Fund may deduct from payments to be made to the Manager, or the Manager will
bear the amount of such excess to the extent required by state law. 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. However, the Manager had undertaken from
March 25, 1996 through September 30, 1996 to reimburse all fees and expenses
of the Fund (exclusive of certain expenses as described above), and
thereafter, had undertaken through October 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 expenses exceeded specified annual percentages of
the Fund's average daily net assets. The Manager has currently undertaken
from November 1, 1996 through December 31, 1996, to waive receipt of the
management fee and shareholder services plan fee (exclusive of certain
expenses as described above) payable to it by the Fund. The expense
reimbursement, pursuant to the undertakings, amounted to $174,066 for the
period ended October 31, 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) 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. During the period ended October 31, 1996, $27,967 was charged to the
Fund by the Distributor 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 $2,535 during the period ended October 31, 1996.
Effective May 10, 1996, the Fund entered into a custody agreement with
Mellon to provide custodial services for the Fund. During the period from May
10, 1996 through October 31, 1996, $6,525 was charged by Mellon pursuant to
the custody agreement.
DREYFUS HIGH YIELD SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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.
(d) A 1% redemption fee is charged on certain redemptions of Fund
shares (including redemptions through the Exchange Privilege service) where
the redemption or exchange occurs within a six-month period following the
date of issuance. During the period ended October 31, 1996, no redemption
fees were charged by the Fund.
NOTE 4-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the period
ended October 31, 1996, amounted to $65,727,099 and $38,916,180,
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 realized 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 contracts 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 October
31, 1996, and their related unrealized depreciation are set forth in the
Statement of Financial Futures.
(b) At October 31, 1996, accumulated net unrealized appreciation on
investments was $909,748, consisting of $1,246,452 gross unrealized
appreciation and $336,704 gross unrealized depreciation.
At October 31, 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).
DREYFUS HIGH YIELD SECURITIES FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus High Yield Securities Fund
We have audited the accompanying statement of assets and liabilities,
including the statements of investments and financial futures, of Dreyfus
High Yield Securities Fund (one of the Funds constituting Dreyfus Income
Funds) as of October 31, 1996, and the related statements of operations and
changes in net assets and financial highlights for the period from March 25,
1996 (commencement of operations) to October 31, 1996. 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 audit.
We conducted our audit 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 verification by
examination of securities held by the custodian as of October 31, 1996 and
confirmation of securities not held by the custodian by correspondence with
others. 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 audit provides 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 High Yield Securities Fund at October 31, 1996, and the
results of its operations, the changes in its net assets and the financial
highlights for the period from March 25, 1996 to October 31, 1996, in
conformity with generally accepted accounting principles.
[Ernst & Young LLP signature logo}
New York, New York
December 10, 1996
[Dreyfus lion "d" logo]
DREYFUS HIGH YIELD SECURITIES 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.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 043AR9610
[Dreyfus logo]
High Yield
Securities Fund
Annual Report
October 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS HIGH YIELD SECURITIES FUND AND THE
MERRILL LYNCH HIGH YIELD MASTER II INDEX
EXHIBIT A:
_________________________________________________
| | MERRILL LYNCH | DREYFUS |
| | HIGH YIELD | HIGH YIELD |
| PERIOD | MASTER II | SECURITIES |
| | INDEX * | FUND |
|----------- | ------------- | ------------|
| 3/25/96 | 10,000 | 10,000 |
| 3/31/96 | 10,000 | 10,016 |
| 4/30/96 | 10,014 | 10,080 |
| 5/31/96 | 10,086 | 10,296 |
| 6/30/96 | 10,131 | 10,660 |
| 7/31/96 | 10,193 | 10,823 |
| 8/31/96 | 10,320 | 11,067 |
| 9/30/96 | 10,560 | 11,430 |
| 10/31/96 | 10,651 | 11,522 |
|------------------------------------------------|
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
