Securities Act File No. 33-7172
Investment Company Act File No. 811-4748
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 19 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 19 /x/
(Check appropriate box or boxes)
DREYFUS INCOME FUNDS
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 922-6000
Mark N. Jacobs, Esq.
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
copy to:
Lewis G. Cole, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
It is proposed that this filing will become effective (check appropriate
box)
____ immediately upon filing pursuant to paragraph (b)
____ on (date) pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)(i)
____ on (date) pursuant to paragraph (a)(i)
____ 75 days after filing pursuant to paragraph (a)(ii)
____ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
X this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Registrant has registered an indefinite number of its shares of beneficial
interest under the Securities Act of 1933 pursuant to Section 24(f) of the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for its fiscal
year ended October 31, 1996 was filed on December 30, 1996.
<PAGE>
DREYFUS INCOME FUNDS
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in Dreyfus Real Estate
Part A of Mortgage Fund
Form N-1A Caption Page
1 Cover Cover Page
2 Synopsis 3
3 Condensed Financial Information *
4 General Description of Registrant 4,28
5 Management of the Fund 9
5(a) Management's Discussion of Fund's Performance *
6 Capital Stock and Other Securities 28
7 Purchase of Securities Being Offered 12
8 Redemption or Repurchase 20
9 Pending Legal Proceedings *
Items in
Part B of
Form N-1A
10 Cover Page B-1
11 Table of Contents B-2
12 General Information and History B-41
13 Investment Objectives and Policies B-2
14 Management of the Fund B-22
15 Control Persons and Principal Holders
of Securities B-27
16 Investment Advisory and Other Services B-27
17 Brokerage Allocation B-39
18 Capital Stock and Other Securities B-41
DREYFUS INCOME FUNDS
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part B of
Form N-1A Caption Page
19 Purchase, Redemption and Pricing of
Securities Being Offered B-29
20 Tax Status B-37
21 Underwriters B-29
22 Calculations of Performance Data B-40
23 Financial Statements B-52
Items in
Part C of
Form N-1A
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under Common
Control with Registrant C-4
26 Number of Holders of Securities C-4
27 Indemnification C-5
28 Business and Other Connections of
Investment Adviser C-6
29 Principal Underwriters C-12
30 Location of Accounts and Records C-15
31 Management Services C-15
32 Undertakings C-15
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*Omitted since answer is negative or inapplicable.
<PAGE>
PROSPECTUS September 30, 1997
DREYFUS REAL ESTATE MORTGAGE FUND
Dreyfus Real Estate Mortgage Fund (the "Fund") is a separate
non-diversified portfolio of Dreyfus Income Funds, an open-end, management
investment company (the "Company"), known as a mutual fund. The Fund's
investment objective is to maximize total return, consisting of capital
appreciation and current income. The Fund will invest primarily in
mortgage-related securities, including those rated below investment grade.
INVESTMENTS IN LOWER RATED MORTGAGE-RELATED SECURITIES 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.
You can purchase or redeem shares by telephone using Dreyfus TELETRANSFER.
The Dreyfus Corporation will professionally manage the Fund's portfolio.
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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 September 30, 1997, 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.
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MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THE NET
ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
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TABLE OF CONTENTS
Page
Fee Table............................................................
Description of the Fund..............................................
Management of the Fund...............................................
How to Buy Shares....................................................
Shareholder Services.................................................
How to Redeem Shares ................................................
Shareholder Services Plan............................................
Dividends, Distributions and Taxes...................................
Performance Information..............................................
General Information..................................................
Appendix.............................................................
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.
<PAGE>
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Redemption Fee* (as a percentage
of amount redeemed).................................. 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees........................................ .65%
Other Expenses......................................... .50%
Total Fund Operating Expenses.......................... 1.15%
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* Shares held for less than six months may be subject to a 1%
redemption fee payable to the Fund. See "How to Redeem
Shares."
EXAMPLE: 1 YEAR 3 YEARS
You would pay the following expenses on a
$1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period: $12 $37
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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 maximize total return, consisting of
capital appreciation and current income. The Fund's investment objective 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 total assets in mortgage-related securities. Mortgage-related
securities are collateralized by pools of loans on commercial or residential
real estate. These securities are a form of derivative and include complex
instruments such as collateralized mortgage obligations, stripped
mortgage-backed securities, mortgage pass-through securities, interests in real
estate mortgage investment conduits ("REMICs"), adjustable rate mortgages, real
estate investment trusts ("REITs"), including debt and preferred stock issued by
REITs, as well as other real estate-related securities. The mortgage- related
securities in which the Fund may invest include those with fixed, floating or
variable interest rates, those with interest rates that change based on
multiples of changes in a specified index of interest rates and those with
interest rates that change inversely to changes in interest rates, as well as
those that do not bear interest. In addition, the Fund may invest in
asset-backed securities, zero coupon securities, preferred stock, convertible
preferred stock and convertible debt obligations and other corporate debt
securities. The issuers of the securities in which the Fund may invest may
include domestic and foreign corporations, partnerships, trusts or similar
entities, and governmental entities or their political subdivisions, agencies or
instrumentalities. The foreign securities in which the Fund may invest must be
U.S. dollar denominated. The fixed-income securities in which the Fund will
invest typically will have an average effective duration ranging between two and
six years. See "Appendix--Certain Portfolio Securities."
The Fund also 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 invest more than 25% of its
assets 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 may invest without limitation in securities rated below investment
grade, or, if unrated, determined by The Dreyfus Corporation to be of comparable
quality. 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 ("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. The average
dollar-weighted credit rating of the securities held by the Fund, however, as
measured on the basis of the dollar value of the securities purchased and their
credit rating without reference to rating subcategories, will be at least Baa by
Moody's or BBB by S&P, Fitch or Duff. Securities rated Baa by Moody's and BBB by
S&P, Fitch and Duff are considered investment grade obligations which lack
outstanding investment characteristics and may have speculative characteristics
as well. See "Investment Considerations and Risks--Lower Rated and Non-Rated
Lower Quality Securities" below for a discussion of certain risks, and
"Appendix" in the Statement of Additional Information.
The Fund's annual portfolio turnover rate is not expected to exceed 200%. A
turnover rate of 100% is equivalent to the Fund buying and selling all of the
securities in its portfolio once in the course of a year. Higher portfolio
turnover rates usually generate additional brokerage commissions and expenses
and the short-term gains realized from these transactions are taxable to
shareholders as ordinary income. In an effort to increase returns, the Fund may
engage in various investment techniques, such as transactions in options,
futures and swaps, leveraging, lending portfolio securities, and short- selling.
For a discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix--Investment Techniques"
below and "Investment Objective 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. Investors should consider the Fund as a supplement to an overall
investment program and should invest only if they are willing to undertake the
risks involved. You could lose money by investing in the Fund. See "Investment
Objective and Management Policies" in the Statement of Additional Information
for a further discussion of certain risks.
MORTGAGE-RELATED SECURITIES--Mortgage-related securities are complex derivative
instruments, subject to both credit and prepayment risk. Although they may
provide opportunities for enhanced total return, you should be aware that the
lower rated mortgage-related securities in which the Fund may invest are likely
to be more volatile and less liquid, and more difficult to price accurately,
than more traditional debt securities. 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.
Mortgage-related securities generally are subject to credit risks
associated with the performance of the underlying mortgage properties and
prepayment risk. In certain instances, the credit risk associated with
mortgage-related securities can be reduced by third party guarantees or other
forms of credit support. Improved credit risk does not reduce prepayment risk
which is unrelated to the rating assigned to the mortgage-related security.
Prepayment risk can lead to fluctuations in value of the mortgage-related
security which may be pronounced. 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. Certain mortgage-related
securities that may be purchased by the Fund, such as inverse floating rate
collateralized mortgage obligations, have coupons that move inversely to a
multiple of a specific index which may result in a form of leverage. 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 certain 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.
During periods of rapidly rising interest rates, prepayments of mortgage-related
securities may occur at slower than expected rates. Slower prepayments
effectively may lengthen a mortgage-related security's expected maturity which
generally would cause the value of such security to fluctuate more widely in
response to changes in interest rates. Were the prepayments on the Fund's
mortgage-related securities to decrease broadly, the Fund's effective duration,
and thus sensitivity to interest rate fluctuations, would increase. Commercial
real property loans, however, often contain provisions that reduce the
likelihood that such securities will be prepaid. The provisions generally impose
significant prepayment penalties on loans and in some cases there may be
prohibitions on principal prepayments for several years following origination.
The Fund's use of leverage may increase fluctuations in its net asset value
and increase the gain or loss on your investment.
FIXED-INCOME SECURITIES--Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values of
fixed-income securities also may be affected by changes in the credit rating or
financial condition of the issuer. Certain securities purchased by the Fund,
such as those rated Baa or lower by Moody's and BBB or lower by S&P, Fitch and
Duff, may be subject to such risk with respect to the issuing entity and to
greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. Once the rating of a portfolio security has been
changed, the Fund will consider all circumstances deemed relevant in determining
whether to continue to hold the security. See "Lower Rated and Non-Rated Lower
Quality Securities" and "Appendix--Certain Portfolio Securities--Ratings" below
and "Appendix" in the Statement of Additional Information.
LOWER RATED AND NON-RATED LOWER QUALITY SECURITIES--The Fund may invest
without limitation in higher yielding (and, therefore, higher risk)
mortgage-related securities such as those rated Ba by Moody's or BB by S&P,
Fitch or Duff or as low as the lowest rating assigned by Moody's, S&P, Fitch or
Duff, or non-rated subordinated classes of equivalent quality. They may be
subject to certain risks with respect to the issuing entity and to greater
market fluctuations and greater risk of loss of income and principal, than
certain lower yielding, higher rated fixed-income securities. The retail
secondary market for these securities may be less liquid than that of higher
rated securities; adverse conditions could make it difficult at times for the
Fund to sell certain securities or could result in lower prices than those used
in calculating the Fund's net asset value. See "Appendix--Certain Portfolio
Securities--Ratings."
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.
USE OF DERIVATIVES--In addition to mortgage-related securities and
asset-backed securities, the Fund may invest in, or enter into, other
derivatives ("Derivatives") such as options, futures and swaps. These are
financial instruments which derive their performance, at least in part, from the
performance of an underlying asset, index or interest rate. 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, decrease the liquidity of the Fund's portfolio and make more
difficult the accurate pricing of the Fund's portfolio.
NON-DIVERSIFIED STATUS--The classification of the Fund as a "non-
diversified" investment company means that the proportion of the Fund's assets
that may be invested in the securities of a single issuer is not limited by the
1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer. Since a relatively high
percentage of the Fund's assets may be invested in the securities of a limited
number of issuers, the Fund's portfolio securities may be more sensitive to
changes in the market value of a single issuer. However, to meet Federal tax
requirements, at the close of each quarter the Fund may not have more than 25%
of its total assets invested in any one issuer and, with respect to 50% of total
assets, not more than 5% of its total assets invested in any one issuer. These
limitations do not apply to U.S. Government securities.
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 August 31, 1997, The Dreyfus Corporation managed or administered
approximately $92 billion in assets for approximately 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 Michael Hoeh. He has held that position
since the Fund's inception and has been employed by The Dreyfus Corporation
since October 1996. Prior to joining The Dreyfus Corporation, Mr. Hoeh was Vice
President of Portfolio Management at ARM Capital Advisors, Inc. From 1993 to
1994, Mr. Hoeh was Vice President in the Risk Management division of Blackrock
Financial Management where he was employed since January 1992. 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 $286 billion in assets as of June 30,
1997, including approximately $94 billion in proprietary mutual fund assets. As
of June 30, 1997, Mellon, through various subsidiaries, provided non-investment
services, such as custodial or administration services, for more than $1.306
trillion in assets, including approximately $63 billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to pay The
Dreyfus Corporation a monthly fee at the annual rate of .65 of 1% of the value
of the Fund's average daily net assets. From time to time, The Dreyfus
Corporation may waive receipt of its fees and/or voluntarily assume certain
expenses of the Fund, which would have the effect of lowering the expense ratio
of the Fund and increasing yield to investors. The Fund will not pay The Dreyfus
Corporation at a later time for any amounts it may waive, nor will the Fund
reimburse The Dreyfus Corporation for any amounts it may assume.
In allocating brokerage transactions, 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.
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 Board, including, but not limited to,
proportionately in relation to the net assets of each portfolio.
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.
DISTRIBUTOR--The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, 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., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, is the Fund's Custodian.
HOW TO BUY SHARES
Fund shares are sold without a sales charge. You may be charged a fee if
you effect transactions in Fund shares through a securities dealer, bank or
other financial institution (collectively, "Service Agents"). Stock 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. See
"Appendix--Additional Information About Purchases, Exchanges and Redemptions."
The minimum initial investment is $10,000. Subsequent investments, other
than those made through an automatic investment privilege described under
"Shareholder Services," must be at least $1,000. However, the minimum initial
investment for Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs, non-working
spousal IRAs and 403(b)(7) Plans with only one participant is $5,000; subsequent
investments must be at least $1,000. The initial investment must be accompanied
by the Account Application. 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.
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# 8900336692/Dreyfus Real Estate
Mortgage 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 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.
Fund shares also may be purchased through Dreyfus- AUTOMATIC Asset
Builder(R), Dreyfus Government Direct Deposit Privilege and Dreyfus Payroll
Savings Plan 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.
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 will be valued based
on market value or, where market quotations are not readily available, based on
fair value as determined in good faith 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 $1,000,
maximum $150,000 per day) by telephone if you have checked the appropriate box
and supplied the necessary information on the Account Application or have filed
a Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between the bank account designated in one of these documents and
your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Fund may modify or terminate this Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may request a
Dreyfus TELETRANSFER purchase of shares by 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 by calling
1-800-645-6561. If you have established the Telephone Exchange Privilege, you
may telephone exchange instructions (including over The Dreyfus Touch(R)
automated telephone system) by calling 1-800-645-6561. If you are calling from
overseas, call 516-794-5452. See "How to Redeem Shares--Procedures." Upon an
exchange into a new account, the following shareholder services and privileges,
as applicable and where available, will be automatically carried over to the
fund into which the exchange is made: Telephone Exchange Privilege, Wire
Redemption Privilege, Telephone Redemption Privilege, Dreyfus TELETRANSFER
Privilege and the dividend/capital gain distribution option (except for Dreyfus
Dividend Sweep) selected by the investor.
The Fund will impose a redemption fee equal to 1% of the net asset value of
Fund shares exchanged out of the Fund where the exchange is made less than six
months after issuance of such shares. See "How to Redeem Shares." Otherwise,
shares will be exchanged at the next determined net asset value; however, a
sales load may be charged with respect to exchanges into funds sold with a sales
load. 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 administrative 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. See "Appendix--Additional Information
About Purchases, Exchanges and Redemptions." The availability of Fund Exchanges
may be modified or terminated at any time upon notice to shareholders. See
"Dividends, Distributions and Taxes."
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of the
Fund, in shares of certain other funds in the Dreyfus Family of Funds of which
you are 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. See "Dividends, Distributions and Taxes." 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.
DREYFUS-AUTOMATIC ASSET BUILDER(R)
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 authorization
form by calling 1-800-645-6561. You may change the amount of purchase or cancel
the authorization only by written notification to your employer. It is the sole
responsibility of your employer, not the Distributor, The Dreyfus Corporation,
the Fund, the Transfer Agent or any other person, to arrange for transactions
under the Dreyfus Payroll Savings Plan. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS 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 $10,000 minimum account. An Automatic Withdrawal Plan may be
established by filing an Automatic Withdrawal Plan application with the Transfer
Agent or by oral request from any of the authorized signatories on the account
by calling 1-800-645-6561. The Automatic Withdrawal Plan may be ended at any
time by you, the Fund or the Transfer Agent. Shares for which certificates have
been issued may not be redeemed through the Automatic Withdrawal Plan.
RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans, including
Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k) Salary Reduction
Plans and 403(b)(7) Plans. Plan support services also are available. You can
obtain details on the various plans by calling the following numbers toll free:
for Keogh Plans, please call 1-800-358-5566; for IRAs and IRA "Rollover
Accounts," please call 1-800-645-6561; or for SEP-IRAs, 401(k) Salary Reduction
Plans and 403(b)(7) Plans, please call 1-800-322-7880.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time. Redemption requests
should be transmitted to the Transfer Agent as described below. When a request
is received in proper form, the Fund will redeem the shares at the next
determined net asset value. See "Appendix--Additional Information About
Purchases, Exchanges and Redemptions."
The Fund will deduct a redemption fee of 1% of the net asset value of Fund
shares redeemed or exchanged in less than six months following the issuance of
such shares. The fee will be retained by the Fund and used primarily to offset
the transaction costs that short-term trading imposes on the Fund and its
shareholders. For purposes of calculating the six-month holding period, the Fund
will employ the "first-in, first-out" method, which assumes that the shares you
are redeeming or exchanging are the ones you have held the longest. No
redemption fee will be charged on the redemption or exchange of shares (1)
through the Fund's Automatic Withdrawal Plan or Dreyfus Auto-Exchange Privilege,
(2) through accounts that are reflected on the records of the Transfer Agent as
omnibus accounts approved by Dreyfus Service Corporation, (3) through accounts
established by Service Agents approved by Dreyfus Service Corporation that
utilize the National Securities Clearing Corporation's networking system, or (4)
acquired through the reinvestment of dividends or capital gains distributions.
The redemption fee may be waived, modified or discontinued at any time or from
time to time. Service Agents may charge their clients a fee for effecting
redemptions of Fund shares. Any certificates representing Fund shares being
redeemed must be submitted with the redemption request. The value of the shares
redeemed may be more or less than their original cost, depending upon the Fund's
then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within seven
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS TELETRANSFER
PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER(R) 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 45 days' written notice if your account's net asset value is $5,000 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 through the Telephone Redemption Privilege which is granted
automatically unless you specifically refuse it by checking the applicable "No"
box on the Account Application. The Telephone Redemption Privilege may be
established for an existing account by a separate signed Shareholder Services
Form or by oral request from any of the authorized signatories on the account by
calling 1-800-645-6561. You also may redeem shares through the Wire Redemption
Privilege or the Dreyfus TELETRANSFER Privilege, 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.
Other redemption procedures may be in effect for clients of certain Service
Agents. The Fund makes available to certain large institutions the ability to
issue redemption instructions through compatible computer facilities. The Fund
reserves the right to refuse any request made by wire or telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of such requests. The Fund may modify or terminate any
redemption Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated. Shares held under Keogh
Plans, IRAs or other retirement plans, and shares for which certificates have
been issued, are not eligible for the Wire Redemption, Telephone Redemption or
Dreyfus TELETRANSFER Privilege.
The Telephone Redemption Privilege or Telephone Exchange Privilege
authorizes the Transfer Agent to act on telephone instructions (including over
The Dreyfus Touch(R) automated telephone system) 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, telephone or letter 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. Holders of jointly registered Fund or bank accounts may have
redemption proceeds of not more than $250,000 wired within any 30-day period.
You may telephone redemption requests by calling 1-800-645-6561 or, if you are
calling from overseas, call 516- 794-5452. The Statement of Additional
Information sets forth instructions for transmitting redemption requests by
wire.
TELEPHONE REDEMPTION PRIVILEGE--You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Telephone Redemption Privilege is granted automatically unless you refuse it.
DREYFUS TELETRANSFER PRIVILEGE--You may request by telephone that
redemption proceeds (minimum $1,000 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. 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 corporation for purposes of qualification and taxation
as a regulated investment company. The Fund ordinarily declares and pays
dividends from its net investment income quarterly and distributes net realized
securities gains, if any, once a year, but it may make distributions on a more
frequent basis to comply with the distribution requirements of the Code, in all
events in a manner consistent with the provisions of the 1940 Act. The Fund will
not make distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. You may choose whether
to receive dividends and distributions in cash or to reinvest in additional
shares at net asset value. If you elect to receive dividends and distributions
in cash, and your dividend or distribution check is returned to the Fund as
undeliverable or remains uncashed for six months, the Fund reserves the right to
reinvest such dividend or distribution and all future dividends and
distributions payable to you in additional Fund shares at net asset value. No
interest will accrue on amounts represented by uncashed distribution or
redemption checks. 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 for
Federal income tax purposes whether received in cash or reinvested in additional
shares. No dividend paid by the Fund will qualify for the dividends-received
deduction allowable to certain U.S. corporations. Distributions from net
realized long- term securities gains of the Fund will be taxable to U.S.
shareholders as long-term capital gains for Federal income tax purposes,
regardless of how long shareholders have held their Fund shares and whether such
distributions are received in cash or reinvested in Fund shares. 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, IRS individual taxpayer
identification 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 calculating current yield, the
amount of net investment income per share during that 30-day period, computed to
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. Income is adjusted to reflect gains and losses from
principal repayments received by the Fund with respect to mortgage-related
securities and other asset-backed securities. Other capital gains and losses and
gains and losses from exchange rate fluctuations generally are excluded from the
calculation. Calculations of the Fund's 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
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 broad-based
securities indexes and 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"), and commenced operations on
October 1, 1986. Before January 1, 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, under certain circumstances, could
be held personally liable for the obligations of the Fund. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Company
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Company or a Trustee.
The Trust Agreement provides for indemnification from the Fund's property for
all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by the
Fund, the shareholder paying such liability will be entitled to reimbursement
from the general assets of the Fund. The Company intends to conduct its
operations in such a way so as to avoid, as far as possible, ultimate liability
of the shareholders for liabilities of the Fund. As described under "Management
of the Company" in the Statement of Additional Information, the Company
ordinarily will not hold shareholder meetings; however, shareholders under
certain circumstances may have the right to call a meeting of shareholders for
the purpose of voting to remove Trustees.
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 five 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., call
516-794-5452.
<PAGE>
APPENDIX
INVESTMENT TECHNIQUES
LEVERAGE--Leveraging exaggerates the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money borrowed
for leveraging is limited to 33-1/3% of the value of the Fund's total assets.
These borrowings would 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. See
also "Forward Commitments" below.
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 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.
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. The Fund also may
make short sales "against the box," in which the Fund enters into a short sale
of a security it owns. 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.
USE OF DERIVATIVES--The Fund may invest in, or enter into, Derivatives,
such as futures and options. These instruments and certain related risks are
described more specifically under "Investment Objective and Management
Policies--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 inopportune 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 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.
Although the Fund will not be a commodity pool, certain Derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Fund can invest in such 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, exceeds 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 purchase call and put options and write (i.e., sell) covered
call and put options. 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 or sell securities on a forward
commitment, when-issued or delayed delivery basis, which means delivery and
payment take place a number of days after the date of the commitment to purchase
or sell the securities at a predetermined price and/or yield. Typically, no
interest accrues to the purchaser until the security is delivered. When
purchasing a security on a forward commitment basis, the Fund assumes the rights
and risks of ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its net
asset value. Because the Fund is not required to pay for these securities until
the delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If the Fund is fully or almost fully invested when
forward commitment purchases are outstanding, such purchases may result in a
form of leverage. The Fund intends to engage in forward commitments to increase
its portfolio's financial exposure to the types of securities in which it
invests. Leveraging the portfolio in this manner will increase the Fund's
exposure to changes in interest rates and will increase the volatility of its
returns. A segregated account of the Fund consisting of permissible liquid
assets at least equal at all times to the amount of the Fund's purchase
commitments will be established and maintained at the Fund's custodian bank. At
no time will the Fund have more than 33-1/3% of its assets committed to purchase
securities on a forward commitment basis.
FORWARD ROLL TRANSACTIONS--To enhance current income, the Fund may enter
into forward roll transactions with respect to mortgage-related securities. In a
forward roll transaction, the Fund sells a mortgage-related security to a
financial institution, such as a bank or broker-dealer, and simultaneously
agrees to purchase a similar security from the institution at a later date at an
agreed upon price. The securities that are purchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools of
mortgages with different pre-payment histories than those sold. During the
period between the sale and purchase, the Fund will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
typically will be invested in short-term instruments, particularly repurchase
agreements, and the income from these investments, together with any additional
fee income received on the sale will be expected to generate income for the Fund
exceeding the yield on the securities sold. Forward roll transactions involve
the risk that the market value of the securities sold by the Fund may decline
below the purchase price of those securities. A segregated account of the Fund
consisting of permissible liquid assets at least equal to the amount of the
repurchase price (including accrued interest) will be established and maintained
at the Fund's custodian bank.
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, 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.
CERTAIN PORTFOLIO SECURITIES
MORTGAGE-RELATED SECURITIES--Mortgage-related securities are secured,
directly or indirectly, by pools of mortgage loans, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks and
others, assembled as securities for sale to investors by various governmental,
government-related and private organizations. The mortgage-related securities in
which the Fund may invest include the following:
RESIDENTIAL MORTGAGE-RELATED SECURITIES. The Fund may invest in
mortgage-related securities representing participation interests in pools of
one- to four-family residential mortgage loans issued or guaranteed by
governmental agencies or instrumentalities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or issued by
private entities. Similar to commercial mortgage-related securities, residential
mortgage-related securities have been issued using a variety of structures,
including multi-class structures featuring senior and subordinated classes.
Mortgage-related securities issued by 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 certificates also
are supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by 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. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by FHLMC include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "PCs"). 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.
COMMERCIAL MORTGAGE-RELATED SECURITIES. The Fund may invest in commercial
mortgage-related securities, which generally are multi-class debt or
pass-through certificates secured by mortgage loans on commercial properties.
These mortgage-related securities generally are structured to provide protection
to the senior classes investors against potential losses on the underlying
mortgage loans. This protection is generally provided by having the holders of
subordinated classes of securities ("Subordinated Securities") take the first
loss if there are defaults on the underlying commercial mortgage loans. Other
protection, which may benefit all of the classes or particular classes, may
include issuer guarantees, reserve funds, additional Subordinated Securities,
cross-collateralization and over- collateralization.
SUBORDINATED SECURITIES. The Fund may invest in Subordinated Securities
issued or sponsored by commercial banks, savings and loan institutions, mortgage
bankers, private mortgage insurance companies and other non-governmental
issuers. Subordinated Securities have no governmental guarantee, and are
subordinated in some manner as to the payment of principal and/or interest to
the holders of more senior mortgage-related securities arising out of the same
pool of mortgages. The holders of Subordinated Securities typically are
compensated with a higher stated yield than are the holders of more senior
mortgage-related securities. On the other hand, Subordinated Securities
typically subject the holder to greater risk than senior mortgage-related
securities and tend to be rated in a lower rating category, and frequently a
substantially lower rating category, than the senior mortgage-related securities
issued in respect of the same pool of mortgage. Subordinated Securities
generally are likely to be more sensitive to changes in prepayment and interest
rates and the market for such securities may be less liquid than is the case for
traditional fixed-income securities and senior mortgage-related securities.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are multiclass bonds
backed by pools of mortgage pass-through certificates or mortgage loans. CMOs
may be collateralized by (a) pass-through certificates issued or guaranteed by
GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured by the Federal
Housing Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, (d) other mortgage-related securities or
(e) any combination thereof. CMOs may be issued by agencies or instrumentalities
of the U.S. government, or by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. From time to time, a substantial
portion of the Fund's portfolio may be invested in CMOs. The issuer of CMOs or
multi-class pass-through securities may elect to be treated as a REMIC. The Fund
will not invest in residual interests in REMICs.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final distribution dates.
The principal and interest on the underlying mortgages may be allocated among
the several classes of a series of a CMO in many ways. One or more tranches of a
CMO may have coupon rates which reset periodically at a specified increment over
an index, such as the London Interbank Offered Rate ("LIBOR") (or sometimes more
than one index). These floating rate CMOs typically are issued with lifetime
caps on the coupon rate thereon. The Fund also may invest in inverse floating
rate CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a
coupon rate that moves in the reverse direction to an applicable index such as
the LIBOR. Accordingly, the coupon rate thereon will increase as interest rates
decrease. Inverse floating rate CMOs are typically more volatile than fixed or
floating rate tranches of CMOs.
Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. The effect of the coupon varying inversely
to a multiple of an applicable index creates a leverage factor. Inverse floaters
based on multiples of a stated index are designed to be highly sensitive to
changes in interest rates and can subject the holders thereof to extreme
reductions of yield and loss of principal. The markets for inverse floating rate
CMOs with highly leveraged characteristics at times may be very thin. The Fund's
ability to dispose of its positions in such securities will depend on the degree
of liquidity in the markets for such securities. It is impossible to predict the
amount of trading interest that may exist in such securities, and therefore the
future degree of liquidity.
STRIPPED MORTGAGE-BACKED SECURITIES. The Fund also may invest in stripped
mortgage-backed securities which are created by segregating the cash flows from
underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage securities may be partially stripped so
that each investor class received some interest and some principal. When
securities are completely stripped, however, all of the interest is distributed
to holders of one type of security, known as an interest-only security, or IO,
and all of the principal is distributed to holders of another type of security
known as a principal-only security, or PO. Strips can be created in a
pass-through structure or as tranches of a CMO. The yields to maturity on IOs
and POs are very sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially and adversely affected.
REAL ESTATE INVESTMENT TRUSTS. A REIT is a corporation, or a business trust
that would otherwise be taxed as a corporation, which meets the definitional
requirements of the Code. The Code permits a qualifying REIT to deduct dividends
paid, thereby effectively eliminating corporate level Federal income tax and
making the REIT a pass-through vehicle for Federal income tax purposes. To meet
the definitional requirements of the Code, a REIT must, among other things,
invest substantially all of its assets in interests in real estate (including
mortgages and other REITs) or cash and government securities, derive most of its
income from rents from real property or interest on loans secured by mortgages
on real property, and distribute to shareholders annually a substantial portion
of its otherwise taxable income.
REITs are characterized as equity REITs, mortgage REITs and hybrid REITs.
Equity REITs, which may include operating or finance companies, own real estate
directly and the value of, and income earned by, the REITs depends upon the
income of the underlying properties and the rental income they earn. Equity
REITs also can realize capital gains (or losses) by selling properties that have
appreciated (or depreciated) in value. Mortgage REITs can make construction,
development or long-term mortgage loans and are sensitive to the credit quality
of the borrower. Mortgage REITs derive their income from interest payments on
such loans. Hybrid REITs combine the characteristics of both equity and mortgage
REITs, generally by holding both ownership interests and mortgage interests in
real estate. The value of securities issued by REITs are affected by tax and
regulatory requirements and by perceptions of management skill. They also are
subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation and the possibility of failing to qualify for tax-free status
under the Code or to maintain exemption from the 1940 Act.
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.
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. These securities include debt
securities and securities with debt-like characteristics. 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.
CORPORATE DEBT SECURITIES--Corporate debt securities include corporate
bonds, debentures, notes and other similar instruments, including convertible
securities. Debt securities may be acquired with warrants attached. Corporate
income-producing securities also may include forms of preferred or preference
stock. The rate of interest on a corporate debt security may be fixed, floating
or variable, and may vary inversely with respect to a reference rate. The rate
of return or return of principal on some debt obligations may be linked or
indexed to the level of exchange rates between the U.S. dollar and a foreign
currency or currencies.
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.
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 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.
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.
INVESTMENT COMPANIES--The Fund may invest in securities issued by other
investment companies. Under the 1940 Act, the Fund's investment in such
securities, subject to certain exceptions, currently is limited to (i) 3% of the
total voting stock of any one investment company, (ii) 5% of the Fund's total
assets with respect to any one investment company and (iii) 10% of the Fund's
total assets in the aggregate. Investments in the securities of other investment
companies may involve duplication of advisory fees and certain other expenses.
ILLIQUID SECURITIES--The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment objective.
Such securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, repurchase agreements providing for settlement in more than seven days
after notice, and certain privately negotiated, non-exchange traded options and
securities used to cover such options. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer is
not available at a price the Fund deems representative of their value, the value
of the Fund's net assets could be adversely affected.
RATINGS--The rating assigned to a given issue and class of mortgage-related
securities is a product of many factors, including the structure of the
security, the level of subordination, the quality and adequacy of the
collateral, and the past performance of the originators and servicing companies.
The rating of any commercial mortgage-related security is determined to a
substantial degree by the debt service coverage ratio (i.e., the ratio of the
current net operating income from the commercial properties, in the aggregate,
to the current debt service obligations on the properties) and the loan-to-value
ratio of the pooled properties. The amount of the securities issued in any one
rating category is determined by the rating agencies after a credit rating
process which includes analysis of the issuer, servicer and property manager, as
well as verification of the loan-to-value and debt service coverage ratios.
Loan-to-value ratios may be particularly important in the case of commercial
mortgages because most commercial mortgage loans provide that the lender's sole
remedy in the event of a default is against the mortgaged property, and the
lender is not permitted to pursue remedies with respect to other assets of the
borrower. Accordingly, loan-to-value ratios, in certain circumstances, may
determine the amount realized by the holder of the commercial mortgage-related
security in the event of a default.
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 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.
The ratings of Moody's, S&P, Fitch and 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 of 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 objectives
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.
ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculation on short-term market
movements. A pattern of frequent purchases and exchanges can be disruptive to
efficient portfolio management and, consequently, can be detrimental to the
Fund's performance and its shareholders. Accordingly, if the Fund's management
determines that an investor is following a market-timing strategy or is
otherwise engaging in excessive trading, the Fund, with or without prior notice,
may temporarily or permanently terminate the availability of Fund Exchanges, or
reject in whole or in part any purchase or exchange request, with respect to
such investor's account. Such investors also may be barred from purchasing other
funds in the Dreyfus Family of Funds. Generally, an investor who makes more than
four exchanges out of the Fund during any calendar year or who makes exchanges
that appear to coincide with a market-timing strategy may be deemed to be
engaged in excessive trading. Accounts under common ownership or control will be
considered as one account for purposes of determining a pattern of excessive
trading. In addition, the Fund may refuse or restrict purchase or exchange
requests by any person or group if, in the judgment of the Fund's management,
the Fund would be unable to invest the money effectively in accordance with its
investment objective and policies or could otherwise be adversely affected or if
the Fund receives or anticipates receiving simultaneous orders that may
significantly affect the Fund (E.G., amounts equal to 1% or more of the Fund's
total assets). The Fund may delay forwarding redemption proceeds for up to seven
days if the investor redeeming shares is engaged in excessive trading or if the
amount of the redemption request otherwise would be disruptive to efficient
portfolio management or would adversely affect the Fund. The Fund's policy on
excessive trading applies to investors who invest in the Fund directly or
through financial intermediaries, but does not apply to the Dreyfus
Auto-Exchange Privilege, to any automatic investment or withdrawal privilege
described herein, or to non-IRA retirement plan accounts.
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>
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DREYFUS INCOME FUNDS
DREYFUS EQUITY DIVIDEND FUND
DREYFUS HIGH YIELD SECURITIES FUND
DREYFUS SHORT TERM HIGH YIELD FUND
DREYFUS STRATEGIC INCOME FUND
DREYFUS REAL ESTATE MORTGAGE FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
SEPTEMBER 30, 1997
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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, Dreyfus High Yield Securities Fund, Dreyfus Short
Term High Yield Fund, and Dreyfus Strategic Income Fund, each dated March 3,
1997, and Dreyfus Real Estate Mortgage Fund, dated September 30, 1997 (each, a
"Fund" and collectively, the "Funds") of Dreyfus Income Funds (the "Company"),
as each may be revised from time to time. To obtain a copy of the relevant
Fund's Prospectus, please write to the 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. -- 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-22
Management Agreement........................................... B-27
Purchase of Shares............................................. B-29
Shareholder Services Plan...................................... B-30
Redemption of Shares........................................... B-30
Shareholder Services........................................... B-32
Determination of Net Asset Value............................... B-35
Dividends, Distributions and Taxes............................. B-36
Portfolio Transactions......................................... B-39
Performance Information........................................ B-40
Information About the Funds.................................... B-41
Transfer and Dividend Disbursing Agent,
Custodian, Counsel and Independent Auditors.................. B-42
Financial Statements and Report of Independent Auditors ....... B-43
Appendix....................................................... B-44
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTIONS IN EACH FUND'S PROSPECTUS ENTITLED "DESCRIPTION OF THE FUND"
AND "APPENDIX."
PORTFOLIO SECURITIES
AMERICAN DEPOSITARY RECEIPTS. (Dreyfus Equity Dividend Fund only) The Fund
may invest in American Depositary Receipts, through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
REPURCHASE AGREEMENTS. (All Funds) The Fund's custodian or sub-custodian
will have custody of, and will hold in a segregated account, securities acquired
by a Fund under a repurchase agreement. Repurchase agreements are considered by
the staff of the Securities and Exchange Commission to be loans by the Fund. In
an attempt to reduce the risk of incurring a loss on a repurchase agreement,
each Fund will enter into repurchase agreements only with domestic banks with
total assets in excess of $1 billion, or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to securities of
the type in which the Fund may invest, and will require that additional
securities be deposited with it if the value of the securities purchased should
decrease below the resale price.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS. (All Funds)
These instruments include variable amount master demand notes, which are
obligations that permit a Fund to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These notes permit daily changes in the amounts borrowed. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value, plus accrued interest, at any time.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies, and a Fund may
invest in them only if at the time of an investment the borrower meets the
criteria set forth in the Fund's Prospectus for other commercial paper issuers.
CONVERTIBLE SECURITIES. (All Funds) Convertible securities may be converted
at either a stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to common stock, of
the same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, 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, "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
corporation'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. (Dreyfus High Yield Funds and Dreyfus Strategic Income Fund
only). From time to time, the Fund may hold common stock sold in units with, or
attached to, debt securities purchased by the Fund. The 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, the 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 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, the Fund's investing in such securities may
have the effect of increasing the level of illiquidity in its investment
portfolio during such period.
PARTICIPATION INTERESTS. (Dreyfus High Yield 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. (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.
VARIABLE AND FLOATING RATE SECURITIES. (All Funds) Variable and floating
rate securities provide for a periodic adjustment in the interest rate paid on
the obligations. The terms of such obligations must provide that interest rates
are adjusted periodically based upon an interest rate adjustment index as
provided in the respective obligations. The adjustment intervals may be regular,
and range from daily up to annually, or may be event based, such as based on a
change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters"). The
interest rate on a floater is a variable rate which is tied to another interest
rate, such as a money-market index or Treasury bill rate. The interest rate on a
floater resets periodically, typically every six months. Because of the interest
rate reset feature, floaters provide the Fund with a certain degree of
protection against rises in interest rates, although the Fund will participate
in any declines in interest rates as well.
The Fund also may invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed or inversely to a multiple of the applicable index. An inverse
floating rate security may exhibit greater price volatility than a fixed rate
obligation of similar credit quality.
MORTGAGE-RELATED SECURITIES. (Dreyfus High Yield Funds, Dreyfus Real Estate
Mortgage Fund and Dreyfus Strategic Income Fund only) Mortgage-related
securities are a form of Derivative collateralized by pools of commercial or
residential mortgages. Pools of mortgage loans are assembled as securities for
sale to investors by various governmental, government-related and private
organizations. These securities may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed securities,
mortgage pass-through securities, interests in REMICs or other kinds of
mortgage-backed securities, including those with fixed, floating and variable
interest rates, those with interest rates that change based on multiples of
changes in a specified index of interest rates and those with interest rates
that change inversely to changes in interest rates.
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.
COMMERCIAL MORTGAGE-RELATED SECURITIES--Commercial mortgage-related
securities generally are multi-class debt or pass-through certificates secured
by mortgage loans on commercial properties. These mortgage-related securities
generally are structured to provide protection to the senior classes investors
against potential losses on the underlying mortgage loans. This protection
generally is provided by having the holders of subordinated classes of
securities ("Subordinated Securities") take the first loss if there are defaults
on the underlying commercial mortgage loans. Other protection, which may benefit
all of the classes or particular classes, may include issuer guarantees, reserve
funds, additional Subordinated Securities, cross-collateralization and
over-collateralization.
The Fund may invest in Subordinated Securities issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non- governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some manner
as to the payment of principal and/or interest to the holders of more senior
mortgage-related securities arising out of the same pool of mortgages. The
holders of Subordinated Securities typically are compensated with a higher
stated yield than are the holders of more senior mortgage-related securities. On
the other hand, Subordinated Securities typically subject the holder to greater
risk than senior mortgage-related securities and tend to be rated in a lower
rating category, and frequently a substantially lower rating category, than the
senior mortgage-related securities issued in respect of the same pool of
mortgage. Subordinated Securities generally are likely to be more sensitive to
changes in prepayment and interest rates and the market for such securities may
be less liquid than is the case for traditional fixed-income securities and
senior mortgage-related securities.
The market for commercial mortgage-related securities developed more
recently and in terms of total outstanding principal amount of issues is
relatively small compared to the market for residential single-family
mortgage-related securities. In addition, commercial lending 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 larger
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.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")--A CMO is a multiclass bond
backed by a pool of mortgage pass-through certificates or mortgage loans. CMOs
may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-through
certificates, (b) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, (d) other mortgage-related securities, or
(e) any combination thereof. Each class of CMOs, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral underlying a CMO
may cause it to be retired substantially earlier than the stated maturities or
final distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many ways.
One or more tranches of a CMO may have coupon rates which reset periodically at
a specified increment over an index, such as the London Interbank Offered Rate
("LIBOR") (or sometimes more than one index). These floating rate CMOs typically
are issued with lifetime caps on the coupon rate thereon. The Fund also may
invest in inverse floating rate CMOs. Inverse floating rate CMOs constitute a
tranche of a CMO with a coupon rate that moves in the reverse direction to an
applicable index such a LIBOR. Accordingly, the coupon rate thereon will
increase as interest rates decrease. Inverse floating rate CMOs are typically
more volatile than fixed or floating rate tranches of CMOs.
Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. The effect of the coupon varying inversely
to a multiple of an applicable index creates a leverage factor. Inverse floaters
based on multiples of a stated index are designed to be highly sensitive to
changes in interest rates and can subject the holders thereof to extreme
reductions of yield and loss of principal. The markets for inverse floating rate
CMOs with highly leveraged characteristics at times may be very thin. The Fund's
ability to dispose of its positions in such securities will depend on the degree
of liquidity in the markets for such securities. It is impossible to predict the
amount of trading interest that may exist in such securities, and therefore the
future degree of liquidity.
STRIPPED MORTGAGE-BACKED SECURITIES--The Fund also may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities are created by
segregating the cash flows from underlying mortgage loans or mortgage securities
to create two or more new securities, each with a specified percentage of the
underlying security's principal or interest payments. Mortgage securities may be
partially stripped so that each investor class receives some interest and some
principal. When securities are completely stripped, however, all of the interest
is distributed to holders of one type of security, known as an interest-only
security, or IO, and all of the principal is distributed to holders of another
type of security known as a principal-only security, or PO. Strips can be
created in a pass- through structure or as tranches of a CMO. The yields to
maturity on IOs and POs are very sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially and adversely
affected.
REAL ESTATE INVESTMENT TRUSTS--A REIT is a corporation, or a business trust
that would otherwise be taxed as a corporation, which meets the definitional
requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The
Code permits a qualifying REIT to deduct dividends paid, thereby effectively
eliminating corporate level Federal income tax and making the REIT a
pass-through vehicle for Federal income tax purposes. To meet the definitional
requirements of the Code, a REIT must, among other things, invest substantially
all of its assets in interests in real estate (including mortgages and other
REITs) or cash and government securities, derive most of its income from rents
from real property or interest on loans secured by mortgages on real property,
and distribute to shareholders annually a substantial portion of its otherwise
taxable income.
REITs are characterized as equity REITs, mortgage REITs and hybrid REITs.
Equity REITs, which may include operating or finance companies, own real estate
directly and the value of, and income earned by, the REITs depends upon the
income of the underlying properties and the rental income they earn. Equity
REITs also can realize capital gains (or losses) by selling properties that have
appreciated (or depreciated) in value. Mortgage REITs can make construction,
development or long-term mortgage loans and are sensitive to the credit quality
of the borrower. Mortgage REITs derive their income from interest payments on
such loans. Hybrid REITs combine the characteristics of both equity and mortgage
REITs, generally by holding both ownership interests and mortgage interests in
real estate. The value of securities issued by REITs are affected by tax and
regulatory requirements and by perceptions of management skill. They also are
subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation and the possibility of failing to qualify for tax-free status
under the Code or to maintain exemption from the Investment Company Act of 1940,
as amended (the "1940 Act").
ADJUSTABLE-RATE MORTGAGE LOANS ("ARMS")--ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest rate
for a specified period of time, generally for either the first three, six,
twelve, thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter,
the interest rates are subject to periodic adjustment based on changes in an
index. ARMs typically have minimum and maximum rates beyond which the mortgage
interest rate may not vary over the lifetime of the loans. Certain ARMs provide
for additional limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Negatively amortizing ARMs may
provide limitations on changes in the required monthly payment. Limitations on
monthly payments can result in monthly payments that are greater or less than
the amount necessary to amortize a negatively amortizing ARM by its maturity at
the interest rate in effect during any particular month.
OTHER MORTGAGE-RELATED SECURITIES--Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals. Other mortgage-related securities may
be equity or debt securities issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES.
(Dreyfus High Yield Funds, Dreyfus Real Estate Mortgage Fund and Dreyfus
Strategic Income Fund only) The Fund may invest in obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by the Manager
to be of comparable quality to the other obligations in which the Fund may
invest. Such securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
ZERO COUPON SECURITIES. (Dreyfus High Yield Funds, Dreyfus Real Estate
Mortgage Fund and Dreyfus Strategic Income Fund only) The Fund may invest in
zero coupon U.S. Treasury securities, which are Treasury Notes and Bonds that
have been stripped of their unmatured interest coupons, the coupons themselves
and receipts or certificates representing interests in such stripped debt
obligations and coupons. Zero coupon securities also are issued by corporations
and financial institutions which constitute a proportionate ownership of the
issuer's pool of underlying U.S. Treasury securities. A zero coupon security
pays no interest to its holder during its life and is sold at a discount to its
face value at maturity. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
MANAGEMENT POLICIES
DURATION. 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. For example, the market
price of a bond with a duration of three years would be expected to decline 3%
if interest rates rose 1%. Conversely, the market price of the same bond would
be expected to increase 3% if interest rates fell 1%. The market price of a bond
with a duration of six years would be expected to increase or decline twice as
much as the market price of a bond with a three-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 Manager 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.
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. (Dreyfus High Yield Funds, Dreyfus Real Estate Mortgage Fund and
Dreyfus Strategic Income Fund only) For borrowings for investment purposes, 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
permissible liquid assets 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, 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 a Fund's net assets. In the case of Dreyfus Equity Dividend
Fund, Dreyfus High Yield Funds and Dreyfus Strategic Income Fund, 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.
Until the Fund closes its short position or replaces the borrowed security,
it will: (a) maintain a segregated account, containing permissible liquid
assets, 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. (Dreyfus High Yield Funds, Dreyfus Real
Estate Mortgage Fund and Dreyfus Strategic Income Fund only) The Fund may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. The
Fund continues to be entitled to payments in amounts equal to the interest,
dividends or other distributions payable on the loaned securities, which affords
the Fund an opportunity to earn interest on the amount of the loan and 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, or enter into, 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 inopportune 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 permissible liquid
assets 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 (other than Dreyfus Real Estate Mortgage Fund) may purchase and sell
currency futures. A foreign currency future obligates the Fund to purchase or
sell an amount of a specific currency at a future date at a specific price.
Dreyfus Equity Dividend Fund may purchase and sell stock index futures
contracts. A stock index future obligates the Fund to pay or receive an amount
of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
INTEREST RATE SWAPS. (Dreyfus High Yield Funds and Dreyfus Real Estate
Mortgage Fund only) Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest (for
example, an exchange of floating rate payments for fixed- rate payments). The
exchange commitments can involve payments to be made in the same currency or in
different currencies. The use of interest rate swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. If the Manager is
incorrect in its forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared with
what it would have been if these investment techniques were not used. Moreover,
even if the Manager is correct in its forecasts, there is a risk that the swap
position may correlate imperfectly with the price of the asset or liability
being hedged. There is no limit on the amount of interest rate swap transactions
that may be entered into by the Fund. These transactions do not involve the
delivery of securities or other underlying assets or principal. Accordingly, the
risk of loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Fund is contractually obligated to make. If the other
party to an interest rate swap defaults, the Fund's risk of loss consists of the
net amount of interest payments that the Fund contractually is entitled to
receive.
CREDIT DERIVATIVES. (Dreyfus High Yield 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, Dreyfus High Yield Funds and Dreyfus Real
Estate Mortgage Fund also may purchase cash-settled options on swaps in pursuit
of their respective investment objective. Equity index swaps in which Dreyfus
Equity Dividend Fund may invest 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 permissible liquid assets at least equal at all times to the
amount of the commitments will be established and maintained at the Fund's
custodian bank.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise) based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Securities
purchased on a forward commitment or when-issued basis may expose a Fund to
risks because they may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment or when-issued basis when a Fund
is fully or almost fully invested may result in greater potential fluctuation in
the value of the Fund's net assets and its net asset value per share.
INVESTMENT CONSIDERATIONS AND RISKS
LOWER RATED SECURITIES. (Dreyfus High Yield Funds, Dreyfus Real Estate
Mortgage Fund and Dreyfus Strategic Income Fund only) Each of these Funds is
permitted to invest in securities rated Ba or lower by Moody's Investors
Service, Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings Group
("S&P"), Fitch Investors Service, L.P. ("Fitch") and Duff & Phelps Credit Rating
Co. ("Duff" and with Moody's, S&P and Fitch, the "Rating Agencies"). Dreyfus
Strategic Income Fund is permitted to invest in securities rated as low as Caa
by Moody's or CCC by S&P. Dreyfus High Yield Funds and Dreyfus Real Estate
Mortgage Fund 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" in the Fund's Prospectus 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 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 AND DREYFUS HIGH YIELD FUNDS 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.
* * *
DREYFUS REAL ESTATE MORTGAGE FUND ONLY. The Fund has adopted investment
restrictions numbered 1 through 8 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 restrictions numbered 9
through 11 are not fundamental policies and may be changed by vote of a majority
of the Company's Board members at any time. The Fund may not:
1. 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. For purposes of this Investment Restriction,
securities and instruments backed directly or indirectly by real estate and real
estate mortgages and securities of companies engaged in the real estate
business, including interests in real estate investment trusts, are not
considered an industry.
2. 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.
3. Purchase, hold or deal in real estate, 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 or acquire and
sell real estate as a result of ownership of such securities or instruments.
4. 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.
5. 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.
6. 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.
7. 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. 2, 4, 8 and 9 may be deemed to give rise to a senior security.
8. Purchase securities on margin, but the Fund may make margin deposits in
connection with transactions in options, forward contracts, futures contracts,
including those related to indices, and options on futures contracts or indices.
9. 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, including those related to
indices, and options on futures contracts or indices.
10. 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.
11. Purchase securities of other investment companies, except to the extent
permitted under the 1940 Act.
* * *
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. He is also
Chairman of the Board of Directors of Noel Group, Inc., a venture
capital company, and Staffing Resources, Inc.; and a director of The
Muscular Dystrophy Association, HealthPlan Services Corporation,
Carlyle Industries, Inc. (formerly, Belding Heminway Company, Inc.), a
button packager and distributor, and Curtis Industries, Inc., a
national distributor of security products, chemicals, and automotive
and other hardware. For more than five years prior to January 1995, 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 53 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 August 1994 to December 1994, Mr. Burke
was a Consultant to the Manager, and from October 1990 to August 1994,
he was 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 61 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 72 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 57 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 68 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 67 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. He is also a director of
Collins & Aikman Corporation, Chubb Corporation and the Raytheon
Company, and a trustee of Boston College. He also has served, since
January 1994, as Vice Chairman of the President's Foreign Intelligence
Advisory Board 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. 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. He is 67 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 1992, Mr. Vanocur has been the
President of Old Owl Communications, a full-service communications
firm. From May 1995 to June 1996, he was a Professional in Residence at
the Freedom Forum in Arlington, VA, and, from January 1994 to May 1997,
served as Visiting Professional Scholar at the Freedom Forum First
Amendment Center at Vanderbilt University. From November 1989 to
November 1995, he was 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 69 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
member through a declaration in writing or by vote cast in person or by proxy at
a meeting called for that purpose. The Board will call a meeting of shareholders
for the purpose of voting upon the question of removal of any Board member 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, 1996,
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, 1996, 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 $6,875 $448,618 (94)
David W. Burke $5,500 $253,654 (51)
Rosalind Gersten Jacobs $5,500 $92,500 (20)
Diane Dunst $5,500 $39,000 (10
Jay I. Meltzer $5,500 $37,500 (10)
Daniel Rose $5,500 $80,250 (21)
Warren B. Rudman $5,500 $85,500 (17)
Sander Vanocur $5,500 $79,750 (21)
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $24 (Dreyfus Equity Dividend Fund), $154
(Dreyfus High Yield Securities Fund), $21 (Dreyfus Short Term High
Yield Fund) and $1,240 (Dreyfus Strategic Income Fund) for all Board
members as a group.
OFFICERS OF THE COMPANY
MARIE E. CONNOLLY, PRESIDENT AND TREASURER. President, Chief Executive
Officer, Chief Compliance Officer and a director of the Distributor and
Funds Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment companies
advised or administered by the Manager. She is 40 years old.
JOHN E. PELLETIER, VICE PRESIDENT AND SECRETARY. Senior Vice
President, General Counsel, Secretary and Clerk of the
Distributor and Funds Distributor, Inc., 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. He is 33 years
old.
ELIZABETH A. KEELEY, VICE PRESIDENT AND ASSISTANT SECRETARY. Vice
President of the Distributor and Funds Distributor, Inc., and
an officer of other investment companies advised or
administered by the Manager. She has been employed by the
Distributor since September 1995. She is 27 years old.
MARK A. KARPE, VICE PRESIDENT AND ASSISTANT SECRETARY. Senior
Paralegal of the Distributor and an officer of other
investment companies advised or administered by the Manager.
Prior to August 1993, he was employed as an Associate Examiner
at the National Association of Securities Dealers, Inc. He is
29 years old.
JOSEPH F. TOWER, III, VICE PRESIDENT AND ASSISTANT TREASURER. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., 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 35 years old.
RICHARD W. INGRAM, VICE PRESIDENT AND ASSISTANT TREASURER. Executive Vice
President of the Distributor and Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From March 1994 to November 1995, he was Vice President and
Division Manager for First Data Investor Services Group. From 1989 to
1994, he was Vice President, Assistant Treasurer and Tax Director -
Mutual Funds of The Boston Company, Inc. He is 41 years old.
MARY A. NELSON, VICE PRESIDENT AND ASSISTANT TREASURER. Vice
President of the Distributor and Funds Distributor, Inc., and
an officer of other investment companies advised or
administered by the Manager. From September 1989 to July
1994, she was an Assistant Vice President and Client Manager
for The Boston Company, Inc. She is 33 years old.
DOUGLAS C. CONROY, VICE PRESIDENT AND ASSISTANT TREASURER. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From April
1993 to January 1995, he was a Senior Fund Accountant for Investors
Bank & Trust Company. From December 1991 to March 1993, he was employed
as a Fund Accountant at The Boston Company, Inc. He is 28 years old.
MICHAEL S. PETRUCELLI, VICE PRESIDENT AND ASSISTANT TREASURER. Senior Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
December 1989 through November 1996, he was employed by GE Investments
where he held various financial, business development and compliance
positions. He also served as Treasurer of the GE Funds and as director
of GE Investments Services. He is 36 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 September 16, 1997.
As of September 17, 1997, the following shareholders were known by the
Company to own 5% or more of the outstanding voting securities of the indicated
Fund: Dreyfus Equity Dividend Fund: Apt Holdings Corporation, 4500 New Linden
Hill Road, Wilmington, DE 19808-2922 (record holder of 68.56%); and Mr. Mark N.
Jacobs, Short Hills, NJ (beneficial owner of 6.53%); Dreyfus High Yield
Securities Fund: Charles Schwab & Co. Inc., Reinvest Account, 101 Montgomery
Street, San Francisco, CA 94104-4122 (record holder of 12.27%); Richard Family
Trust, Park Hacienda, Calabasas, CA 91302-1716 (record owner of 9.97%); and
Dreyfus Short Term High Yield Fund: Charles Schwab & Co. Inc., Reinvest Account,
101 Montgomery Street, San Francisco, CA 94104-4122 (record owner of 7.50%). A
shareholder who beneficially owns, directly or indirectly, more than 25% of a
Fund's voting securities may be deemed a "control person" (as defined in the
1940 Act) of the Fund.
MANAGEMENT AGREEMENT
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN EACH FUND'S PROSPECTUS ENTITLED "MANAGEMENT OF THE FUND."
MANAGEMENT AGREEMENT. The Manager provides management services pursuant to
the Management Agreement (the "Agreement") dated August 24, 1994, as amended
December 6, 1995, with the Company. As to each Fund, the Agreement is subject to
annual approval by (i) the Company's Board or (ii) vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Fund,
provided that in either event the continuance also is approved by a majority of
the Board members who are not "interested persons" (as defined in the 1940 Act)
of the Company or the Manager, by vote cast in person at a meeting called for
the purpose of voting on such approval. The Agreement was approved by
shareholders of Dreyfus Strategic Income Fund 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 6, 1997. 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: W.
Keith Smith, Chairman of the Board; Christopher M. Condron, President, Chief
Executive Officer, 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; William T. Sandalls, Jr., Senior Vice
President and Chief Financial Officer; 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; William V. Healey, Assistant Secretary; and
Mandell L. Berman, Burton Borgelt and Frank V. Cahouet, 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. The portfolio managers for Dreyfus Equity Dividend Fund are
Timothy Ghriskey and Donald Geogerian. The portfolio managers for each Dreyfus
High Yield Fund, Dreyfus Strategic Income Fund, and Dreyfus Real Estate Mortgage
Fund are Michael Hoeh, Kevin M. McClintock, Roger King, C. Matthew Olson and
Gerald E. Thunelius. 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.
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 the average daily net assets of Dreyfus Equity Dividend Fund,
.65 of 1% of the value of the average daily net assets of each of Dreyfus Real
Estate Mortgage Fund and 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, 1994, 1995 and 1996, the management fees payable
by the Company for Dreyfus Strategic Income Fund amounted to $2,157,631,
$1,898,849 and $1,829,326, respectively. For the period December 29,1995
(commencement of operations) through October 31, 1996, the management fee
payable by the Company for Dreyfus Equity Dividend Fund amounted to $15,722,
which amount was waived pursuant to various undertakings in effect, resulting in
no fee being paid for fiscal 1996. For the period March 25, 1996 (commencement
of operations) through October 31, 1996, the management fee payable by the
Company for Dreyfus High Yield Securities Fund amounted to $72,715, which amount
was waived pursuant to various undertakings in effect resulting in no fee being
paid for fiscal 1996. For the period August 16, 1996 (commencement of
operations) through October 31, 1996, the management fee payable by the company
for Dreyfus Short Term High Yield Fund amounted to $18,501, which amount was
waived pursuant to undertakings in effect, resulting in no fee being paid for
fiscal 1996. Dreyfus Real Estate Mortgage Fund has not completed its first
fiscal year.
As to each of Dreyfus Equity Dividend Fund, Dreyfus High Yield Funds and
Dreyfus Strategic Income 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.
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. Purchase orders made after 4:00
p.m., New York time, on any business day the Transfer Agent and the New York
Stock Exchange are open for business, or orders made on Saturday, Sunday or any
Fund holiday (e.g., when the New York Stock Exchange is not open for business),
will be credited to the shareholder's Fund account on the second 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 last so approved on August 6,
1997. 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 fiscal year ended October 31, 1996, $762,219 was charged the
Company with respect to Dreyfus Strategic Income Fund pursuant to the
Shareholder Services Plan. For the period from commencement of operations
through October 31, 1996, $5,241, $27,967, and $7,116 was charged the company
with respect to Dreyfus Equity Dividend, Dreyfus High Yield Securities Fund and
Dreyfus Short Term High Yield Fund, respectively, pursuant to the Shareholder
Services Plan. Dreyfus Real Estate Mortgage Fund has not completed its first
fiscal year.
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 and Dreyfus Real Estate
Mortgage Fund only) Each of these Funds will deduct a redemption fee equal to
1.00% of the net asset value of Fund shares redeemed (including redemptions
through use of the Fund Exchanges service) where the redemption or exchange
occurs less than six months following the issuance of such shares. For purposes
of computing the six-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 on the redemption or exchange of shares
(1) through the Fund's Automatic Withdrawal Plan or Dreyfus Auto-Exchange
Privilege, (2) through accounts that are reflected on the records of the
Transfer Agent as omnibus accounts approved by Dreyfus Service Corporation, (3)
through accounts established by Service Agents approved by Dreyfus Service
Corporation that utilize the National Securities Clearing Corporation's
networking system, or (4) acquired through the reinvestment of dividends or
capital gains distributions.
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 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 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 and Dreyfus Real Estate
Mortgage Fund will deduct a redemption fee equal to 1.00% of the net asset value
of Fund shares exchanged where the exchange occurs less than six months
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 $5,000. To exchange shares held in corporate plans, 403(b)(7)
Plans and SEP-IRAs with more than one participant, the minimum initial
investment is $1,000 if the plan has at least $10,000 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 and subsequent investment for corporate plans, Salary
Reduction Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is
$1,000, if the plan has at least $10,000 invested among the funds in the Dreyfus
Family of Funds. The minimum initial investment for Dreyfus-sponsored Keogh
Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant, is
ordinarily $5,000 and $1,000 for subsequent purchases. Individuals who open an
IRA also may open a non-working spousal IRA with a minimum investment of $5,000.
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. The Fund's investments are valued each
business day using available market quotations or at fair value. Substantially
all of each Fund's fixed-income investments (excluding short-term investments)
are valued 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, Martin Luther
King, Jr. 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 each Fund (other than Dreyfus Real
Estate Mortgage Fund) qualified for the fiscal year ended October 31, 1996 as a
"regulated investment company" under the Code. It is expected that Dreyfus Real
Estate Mortgage Fund 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 during the 90-day period
commencing 45 days before the shares become ex-dividend 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, override or modify 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.
Recently enacted legislation added constructive sale provisions that may
apply if the Fund enters into short sales, or futures, forwards, or offsetting
notional principal contracts with respect to appreciated stock and certain debt
obligations that it holds. In such event, the Fund will be taxed as if the
appreciated property were sold at its fair market value on the date the Fund
entered into such short sale or contract. Such legislation similarly may apply
if the Fund has entered into a short sale, option, futures or forward contract,
or other position with respect to property, that position has appreciated in
value, and the Fund acquires that same or substantially identical property. In
such event, the Fund will be taxed as if the appreciated position were sold at
its fair market value on the date of such acquisition. Transactions that are
identified hedging or straddle transactions under other provisions of the Code
can be subject to the constructive sale provisions.
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 will be less than 100%
for Dreyfus Equity Dividend Fund, less than 200% for Dreyfus Real Estate
Mortgage Fund, and may approach the 200% level for each Dreyfus High Yield Fund
and Dreyfus Strategic Income Fund. 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 year ended October 31, 1994, 1995 and 1996, Dreyfus
Strategic Income Fund paid $25,618, $0 and $28,188 respectively. Gross spreads
and concessions on principal transactions, where determinable, amounted to
$664,750, $633,150 and $1,421,838 for the fiscal years ended October 31, 1994,
1995 and 1996, respectively, for Dreyfus Strategic Income Fund, none of which
was paid to the Distributor. For the period from commencement of operations
through October 31, 1996, Dreyfus Equity Dividend, Dreyfus High Yield Securities
Fund, Dreyfus Short Term High Yield Fund paid $10,205, $5,740 and $250,
respectively. Gross spreads and concessions on principal transactions, where
determinable, amounted to $2,875, $133,234 and $18,500 for Dreyfus Equity
Dividend, Dreyfus High Yield Securities Fund and Dreyfus Short Term High Yield
Fund, respectively, for the fiscal period ended October 31, 1996, none of which
was paid to the Distributor. Dreyfus Real Estate Mortgage Fund has not completed
its first fiscal year.
PERFORMANCE INFORMATION
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN EACH FUND'S PROSPECTUS ENTITLED "PERFORMANCE INFORMATION."
Dreyfus Strategic Income Fund's current yield for the 30-day period ended
April 30, 1997 was 7.11%. Dreyfus High Yield Securities Fund's current yield for
the 30-day period ended April 30, 1997 was 14.70%. During this period, the
Manager was waiving receipt of a portion of the management fee and/or absorbing
certain expenses of the Dreyfus High Yield Securities Fund, without which the
Fund's 30-day yield would have been 14.16%. Dreyfus Short Term High Yield Fund's
current yield for the 30-day period ended April 30, 1997 was 9.84%. Current
yield for a Fund is computed pursuant to a formula which operates as follows:
the amount of the Fund's expenses accrued for the 30-day period (net of
reimbursements) is subtracted from the amount of the dividends and interest
earned (computed in accordance with regulatory requirements) by the Fund during
the period. That result is then divided by the product of: (a) the average daily
number of shares outstanding during the period that were entitled to receive
dividends, and (b) the net asset value per share on the last day of the period
less any undistributed earned income per share reasonably expected to be
declared as a dividend shortly thereafter. The quotient is then added to 1, and
that sum is raised to the 6th power, after which 1 is subtracted. The current
yield is then arrived at by multiplying the result by 2.
Dreyfus Strategic Income Fund's average annual return for the one-, five-
and ten-year periods ended April 30, 1997, was 9.42%, 8.95% and 9.97%,
respectively. Dreyfus High Yield Securities Fund's average annual total return
for the one-year period ended April 30, 1997 and for the period March 25, 1996
(commencement of operations) through April 30, 1997 was 19.89% and 18.78%,
respectively. Dreyfus Equity Dividend Fund's average annual total return for the
one-year period ended April 30, 1997 and for the period December 29, 1995
(commencement of operations) through April 30, 1997 was 19.28% and 19.31%,
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 3, 1986
(commencement of operations) through April 30, 1997 was 163.01%. Dreyfus Equity
Dividend Fund's total return for the period December 29, 1995 (commencement of
operations) through April 30, 1997 was 26.69%. Dreyfus High Yield Securities
Fund's total return for the period March 25, 1996 (commencement of operations)
through April 30, 1997 was 20.84%. Dreyfus Short Term High Yield Fund's total
return for the period August 16, 1996 (commencement of operations) through April
30, 1997 was 9.29%. During these periods, receipt of certain fees were being
waived, and operating expenses were borne, by the Manager, without which total
returns for Dreyfus Equity Dividend Fund and each Dreyfus High Yield 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.
No performance information is provided for Dreyfus Real Estate Mortgage
Fund which had not commenced operations as of the date of this Statement of
Additional Information.
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. For the period December 1, 1995 (effective date of transfer
agency agreement) through October 31, 1996, Dreyfus Stategic Income Fund paid
the Transfer Agent $210,083. For the period from commencement of operations
through October 31, 1996, Dreyfus Equity Dividend Fund, Dreyfus High Yield
Securities Fund and Dreyfus Short Term High Yield Fund paid the Transfer Agent
$351, $2,535 and $488, respectively. Dreyfus Real Estate Mortgage Fund has not
completed its first fiscal year.
Mellon Bank, N.A. (the "Custodian"), the Manager's parent, located at One
Mellon Bank Center, Pittsburgh, Pennsylvania 15258, acts as the custodian of
each 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. For the period from May 10, 1996
(effective date of custody agreement) through October 31, 1996, Dreyfus
Strategic Income Fund, Dreyfus Equity Dividend Fund and Dreyfus High Yield
Securities Fund paid the Custodian $20,223, $833 and $6,525, respectively. For
the period from commencement of operations through October 31, 1996, Dreyfus
Short Term High Yield Fund paid the custodian $1,457. Dreyfus Real Estate
Mortgage Fund has not completed its first fiscal year.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Company, has rendered its opinion as to certain
legal matters regarding the due authorization and valid issuance of the shares
being sold pursuant to each Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Company.
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
The Company's Annual Report to Shareholders for the fiscal year ended
October 31, 1996 and Semi-Annual Report to Shareholders for the six-month period
ended April 30, 1997 (unaudited) for each Fund (other than Dreyfus Real Estate
Mortgage Fund which had not commenced operations as of April 30, 1997) are
separate documents supplied with this Statement of Additional Information, and
the financial statements, accompanying notes and, with respect to the Annual
Report to Shareholders, report of independent auditors appearing therein are
incorporated by reference in this Statement of Additional Information.
<PAGE>
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 con ditions 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>
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits. - List
- ------- -----------------------------------------
(a) Financial Statements:
Included in Part A of the Registration Statement:
Not Applicable.
Included in Part B of the Registration Statement:
Statement of Investments.*
Statement of Assets and Liabilities.*
Statement of Operations.*
Statement of Changes in Net Assets.*
Notes to Financial Statements.*
Reports of Independent Auditors.*
___________________
* Incorporated by reference to Registrant's Annual and Semi-Annual Reports to
Shareholders.
All Schedules and other financial statement information, for which
provision is made in the applicable accounting regulations of the Securities and
Exchange Commission, are either omitted because they are not required under the
related instructions, they are inapplicable, or the required information is
presented in the financial statements or notes thereto which are included in the
Registrant's Annual Reports to Shareholders.
Item 24. Financial Statements and Exhibits. - List (continued)
- ------- -----------------------------------------------------
(b) Exhibits:
(1)(a) Amended and Restated Agreement and Declaration of Trust is incorporated
by reference to Exhibit (1)(9) of Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A, filed on December 29, 1995.
(1)(b) Articles of Amendment are incorporated by reference to Exhibit (1)(b) of
Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A,
filed on December 29, 1995.
(2) By-Laws are incorporated by reference to Exhibit (2) of Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A, filed on December
29, 1995.
(5) Management Agreement.
(6)(a) Distribution Agreement is incorporated by reference to Exhibit (6)
of Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A,
filed on December 29, 1995.
(6)(b) Shareholder Services Plan Agreements are incorporated by reference to
Exhibits (6)(b) and (6)(c) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A, filed on December 30, 1994.
(8) Amended and Restated Custody Agreement is incorporated by reference to
Exhibit (8) of Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A, filed December 29, 1995.
(9) Shareholder Services Plan is incorporated by reference to Exhibit (9) of
Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A,
filed on December 29, 1995.
(10) Opinion and consent of Stroock & Stroock & Lavan LLP is
incorporated by reference to Exhibit (10) of Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A, filed on October 2, 1986.
(11) Consent of Independent Auditors.
Item 24. Financial Statements and Exhibits. - List (continued)
- ------- -----------------------------------------------------
(16) Schedules of Computation of Performance Data are incorporated by reference
to Exhibit (16) of Post-Effective Amendment Nos. 9 and 14 to the Registration
Statement on Form N-1A, filed on January 20, 1994 and May 30, 1996,
respectively.
(17) Financial Data Schedule is incorporated by reference to Exhibit (17)
of Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A,
filed on February 26, 1997.
Other Exhibits
--------------
(a) Powers of Attorney of the Trustees and officers are incorporated by
reference to Other Exhibits of Post-Effective Amendment Nos. 7 and 9 to the
Registration Statement on Form N-1A, filed on December 31, 1991 and
January 20, 1994, respectively.
(b) Certificate of Assistant Secretary incorporated by reference to Other
Exhibits of Post-Effective Amendment No. 10 to the Registration Statement
on Form N-1A, filed on December 30, 1994.
Item 25. Persons Controlled by or under Common Control with Registrant.
- ------- --------------------------------------------------------------
Not Applicable
Item 26. Number of Holders of Securities.
- ------- --------------------------------
(1) (2)
Number of Record
Title of Class Holders as of July 29, 1997
- -------------- -------------------------------
Beneficial Interest
(Par value $.001)
Dreyfus Equity Dividend Fund 61
Dreyfus High Yield Securities Fund 2,093
Dreyfus Short Term High Yield Fund 2,951
Dreyfus Strategic Income Fund 10,764
Dreyfus Real Estate Mortgage Fund 0
Item 27. Indemnification
- ------- ---------------
The Statement as to the general effect of any contract, arrangements or
statute under which a trustee, officer, underwriter or affiliated person of the
Registrant is insured or indemnified is incorporated by reference to Item 27 of
Part C of Post-Effective Amendment No. 16 to the Registration Statement on Form
N-1A, filed on February 26, 1997.
Reference also is made to the Distribution Agreement filed as Exhibit
(6) to Post-Effective Amendment No. 13 to the Registration Statement on Form
N-1A, filed on December 29, 1995.
Item 28. Business and Other Connections of Investment Adviser.
- ------- ----------------------------------------------------
The Dreyfus Corporation ("Dreyfus") and subsidiary companies comprise a
financial service organization whose business consists primarily of providing
investment management services as the investment adviser, manager and
distributor for sponsored investment companies registered under the Investment
Company Act of 1940 and as an investment adviser to institutional and individual
accounts. Dreyfus also serves as sub-investment adviser to and/or administrator
of other investment companies. Dreyfus Service Corporation, a wholly-owned
subsidiary of Dreyfus, serves primarily as a registered broker-dealer of shares
of investment companies sponsored by Dreyfus and of other investment companies
for which Dreyfus acts as investment adviser, sub-investment adviser or
administrator. Dreyfus Management, Inc., another wholly-owned subsidiary,
provides investment management services to various pension plans, institutions
and individuals.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
(continued)
- -------- -----------------------------------------------------------
Officers and Directors of Investment Adviser
--------------------------------------------
Name and Position
with Dreyfus Other Businesses
- ----------------- ----------------
MANDELL L. BERMAN Real estate consultant and private investor
Director 29100 Northwestern Highway, Suite 370
Southfield, Michigan 48034;
Past Chairman of the Board of Trustees of
Skillman Foundation.
Member of The Board of Vintners Intl.
FRANK V. CAHOUET Chairman of the Board, President and
Director Chief Executive Officer:
Mellon Bank Corporation****
Mellon Bank, N.A.****
Director:
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103;
Saint-Gobain Corporation
750 East Swedesford Road
Valley Forge, Pennsylvania 19482;
Teledyne, Inc.
1901 Avenue of the Stars
Los Angeles, California 90067
BURTON C. BORGELT None
Director
W. KEITH SMITH Chairman and Chief Executive Officer:
Chairman of the Board The Boston Company*****
Vice Chairman of the Board:
Mellon Bank Corporation****
Mellon Bank, N.A.****
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405
CHRISTOPHER M. CONDRON Vice Chairman:
President, Chief Executive Mellon Bank Corporation****
Officer, Chief Operating The Boston Company*****
Officer and Director Deputy Director:
Mellon Trust****
Chief Executive Officer:
The Boston Company Asset Management,
Inc.*****
President:
Boston Safe Deposit and Trust Company*****
STEPHEN E. CANTER Former Chairman and Chief Executive Officer:
Vice Chairman and Kleinwort Benson Investment Management
Chief Investment Officer, Americas Inc.*
and a Director Director:
The Dreyfus Trust Company++
LAWRENCE S. KASH Chairman, President and Chief
Vice Chairman-Distribution Executive Officer:
and a Director The Boston Company Advisors, Inc.
53 State Street
Exchange Place
Boston, Massachusetts 02109
Executive Vice President and Director:
Dreyfus Service Organization, Inc.***;
Director:
The Dreyfus Consumer Credit Corporation*;
The Dreyfus Trust Company++;
Dreyfus Service Corporation*;
President:
The Boston Company*****
Laurel Capital Advisors****
Boston Group Holdings, Inc.
Executive Vice President:
Mellon Bank, N.A.****
Boston Safe Deposit & Trust Company*****
MARK N. JACOBS, Vice President, Secretary and Director:
Vice President, Lion Management, Inc.*;
General Counsel Secretary:
and Secretary The Dreyfus Consumer Credit Corporation*;
Dreyfus Management, Inc.*;
Assistant Secretary:
Dreyfus Service Organization, Inc.***;
Major Trading Corporation*;
The Truepenny Corporation*
PATRICE M. KOZLOWSKI None
Vice President-
Corporate Communications
MARY BETH LEIBIG None
Vice President-
Human Resources
JEFFREY N. NACHMAN President and Director:
Vice President-Mutual Fund Dreyfus Transfer, Inc.
Accounting One American Express Plaza
Providence, Rhode Island 02903
ANDREW S. WASSER Vice President:
Vice President-Information Mellon Bank Corporation****
Services
WILLIAM V. HEALEY Assistant Secretary:
Assistant Secretary Dreyfus Service Corporation*;
Dreyfus Management, Inc.*;
Dreyfus Acquisition Corporation, Inc.*;
The Truepenny Corporation+
- --------------------------------------
* The address of the business so indicated is 200 Park Avenue, New
York, New York 10166.
** The address of the business so indicated is 80 Cutter Mill Road,
Great Neck, New York 11021.
*** The address of the business so indicated is 131 Second Street, Lewes,
Delaware 19958.
**** The address of the business so indicated is One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258.
***** The address of the business so indicated is One Boston Place, Boston,
Massachusetts 02108.
+ The address of the business so indicated is Atrium Building, 80 Route
4 East, Paramus, New Jersey 07652.
++ The address of the business so indicated is 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144.
<PAGE>
Item 29. Principal Underwriters
- -------- ----------------------
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or exclusive
distributor:
1) Comstock Partners Funds, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC GNMA Fund
7) Dreyfus BASIC Money Market Fund, Inc.
8) Dreyfus BASIC Municipal Fund, Inc.
9) Dreyfus BASIC U.S. Government Money Market Fund
10) Dreyfus California Intermediate Municipal Bond Fund
11) Dreyfus California Tax Exempt Bond Fund, Inc.
12) Dreyfus California Tax Exempt Money Market Fund
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) Dreyfus Florida Intermediate Municipal Bond Fund
18) Dreyfus Florida Municipal Money Market Fund
19) The Dreyfus Fund Incorporated
20) Dreyfus Global Bond Fund, Inc.
21) Dreyfus Global Growth Fund
22) Dreyfus GNMA Fund, Inc.
23) Dreyfus Government Cash Management
24) Dreyfus Growth and Income Fund, Inc.
25) Dreyfus Growth and Value Funds, Inc.
26) Dreyfus Growth Opportunity Fund, Inc.
27) Dreyfus Income Funds
28) Dreyfus Institutional Money Market Fund
29) Dreyfus Institutional Short Term Treasury Fund
30) Dreyfus Insured Municipal Bond Fund, Inc.
31) Dreyfus Intermediate Municipal Bond Fund, Inc.
32) Dreyfus International Funds, Inc.
33) The Dreyfus/Laurel Funds, Inc.
34) The Dreyfus/Laurel Funds Trust
35) The Dreyfus/Laurel Tax-Free Municipal Funds
36) Dreyfus Stock Index Fund, Inc.
37) Dreyfus LifeTime Portfolios, Inc.
38) Dreyfus Liquid Assets, Inc.
39) Dreyfus Massachusetts Intermediate Municipal Bond Fund
40) Dreyfus Massachusetts Municipal Money Market Fund
41) Dreyfus Massachusetts Tax Exempt Bond Fund
42) Dreyfus MidCap Index Fund
43) Dreyfus Money Market Instruments, Inc.
44) Dreyfus Municipal Bond Fund, Inc.
45) Dreyfus Municipal Cash Management Plus
46) Dreyfus Municipal Money Market Fund, Inc.
47) Dreyfus New Jersey Intermediate Municipal Bond Fund
48) Dreyfus New Jersey Municipal Bond Fund, Inc.
49) Dreyfus New Jersey Municipal Money Market Fund, Inc.
50) Dreyfus New Leaders Fund, Inc.
51) Dreyfus New York Insured Tax Exempt Bond Fund
52) Dreyfus New York Municipal Cash Management
53) Dreyfus New York Tax Exempt Bond Fund, Inc.
54) Dreyfus New York Tax Exempt Intermediate Bond Fund
55) Dreyfus New York Tax Exempt Money Market Fund
56) Dreyfus 100% U.S. Treasury Intermediate Term Fund
57) Dreyfus 100% U.S. Treasury Long Term Fund
58) Dreyfus 100% U.S. Treasury Money Market Fund
59) Dreyfus 100% U.S. Treasury Short Term Fund
60) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
61) Dreyfus Pennsylvania Municipal Money Market Fund
62) Dreyfus Short-Intermediate Government Fund
63) Dreyfus Short-Intermediate Municipal Bond Fund
64) Dreyfus Investment Grade Bond Funds, Inc.
65) The Dreyfus Socially Responsible Growth Fund, Inc.
66) Dreyfus Tax Exempt Cash Management
67) The Dreyfus Third Century Fund, Inc.
68) Dreyfus Treasury Cash Management
69) Dreyfus Treasury Prime Cash Management
70) Dreyfus Variable Investment Fund
71) Dreyfus Worldwide Dollar Money Market Fund, Inc.
72) General California Municipal Bond Fund, Inc.
73) General California Municipal Money Market Fund
74) General Government Securities Money Market Fund, Inc.
75) General Money Market Fund, Inc.
76) General Municipal Bond Fund, Inc.
77) General Municipal Money Market Fund, Inc.
78) General New York Municipal Bond Fund, Inc.
79) General New York Municipal Money Market Fund
80) Dreyfus Premier Insured Municipal Bond Fund
81) Dreyfus Premier California Municipal Bond Fund
82) Dreyfus Premier Equity Funds, Inc.
83) Dreyfus Premier Global Investing, Inc.
84) Dreyfus Premier GNMA Fund
85) Dreyfus Premier Worldwide Growth Fund, Inc.
86) Dreyfus Premier Municipal Bond Fund
87) Dreyfus Premier New York Municipal Bond Fund
88) Dreyfus Premier State Municipal Bond Fund
89) Dreyfus Premier Strategic Growth Fund
90) Dreyfus Premier Value Fund
(b)
Name and principal Positions and offices with Positions and offices
business address the Distributor with Registrant
- ------------------ --------------------------- ---------------------
Marie E. Connolly+ Director, President, Chief President and
Executive Officer and Compliance Treasurer
Joseph F. Tower, III+ Senior Vice President, Treasurer Vice President and
and Chief Financial Officer Assistant Tresurer
John E. Pelletier+ Senior Vice President, General Vice President
Counsel, Secretary and Clerk and Secretary
Roy M. Moura+ First Vice President None
Dale F. Lampe+ Vice President None
Mary A. Nelson+ Vice President Vice President and
Assistant Tresurer
Paul Prescott+ Vice President None
Elizabeth A. Kelley++ Vice President Vice President and
Assistant Secretary
Jean M. O'Leary+ Assistant Secretary and None
Assistant Clerk
Joan W. Gomez+ Director None
William J. Nutt+ Director None
- ----------------------
+ Principal business address is One Exchange Place, Boston Massachusetts
02109.
++ Principal business address is 200 Park Avenue, New York, New York 10166.
Item 30. Location of Accounts and Records
--------------------------------
1. First Data Investor Services Group, Inc.,
a subsidiary of First Data Corporation
P.O. Box 9671
Providence, Rhode Island 02940-9671
2. Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
3. The Bank of New York
90 Washington Street
New York, New York 10286
4. Dreyfus Transfer, Inc.
One American Express Plaza
Providence, Rhode Island 02903
5. The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Item 31. Manangement Services
--------------------
Item 32. Undertakings
------------
(1) To file a post-effective amendment, using financial
statements which need not be certified, within four to six
months from the effective date of Registrant's 1933 Act
Registration Statement with respect to the Registrant's
Dreyfus Real Estate Mortgage Fund.
(2) To call a meeting of shareholders for the purpose of voting
upon the question of removal of a Board member or Board
members when requested in writing to do so by the holders
of at least 10% of the Registrant's outstanding shares
and in connection with such meeting to comply
with the provisions of Section 16(c) of the Investment
Company Act of 1940 relating to shareholder communications.
(3) To furnish each person to whom a prospectus is delivered
with a copy of the Fund's latest Annual Report to
Shareholders, upon request and without charge.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York on the
16th day of September, 1997.
DREYFUS INCOME FUNDS
BY: /s/ Marie E. Connolly*
Marie, E. Connolly, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signatures Title Date
- -------------------------- ------------------------------ ----------
/s/Marie E. Connolly* President and Treasurer (Principal 9/16/97
- ---------------------- Executive, Financial and Accounting
Marie E. Connolly Officer)
/s/David W. Burke* Trustee 9/16/97
- ---------------------
David W. Burke
/s/Diane Dunst* Trustee 9/16/97
- ----------------------
Diane Dunst
/s/Joseph S. DiMartino* Chairman of the Board 9/16/97
- ----------------------
Joseph S. DiMartino
/s/Rosalind Gersten Jacobs* Trustee 9/16/97
- ---------------------
Rosalind Gersten Jacobs
/s/Jay I. Meltzer* Trustee 9/16/97
- ---------------------
Jay I. Meltzer
/s/Daniel Rose* Trustee 9/16/97
- ---------------------
Daniel Rose
/s/Warren B. Rudman* Trustee 9/16/97
- ---------------------
Warren B. Rudman
/s/Sander Vanocur* Trustee 9/16/97
- ---------------------
Sander Vanocur
*BY: /s/ Elizabeth A. Keeley
--------------------------
Elizabeth A. Keeley,
Attorney-in-Fact
<PAGE>
Dreyfus Income Funds
Post-Effective Amendment No. 19 to
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
--------------------------------------
EXHIBITS
--------------------------------------
<PAGE>
INDEX TO EXHIBITS
PAGE
(5) Management Agreement..................................
(11) Consent of Independent Auditors........................
Exhibit (5)
MANAGEMENT AGREEMENT
DREYFUS INCOME FUNDS
200 Park Avenue
New York, New York 10166
August 24, 1994
As Amended, December 6, 1995
The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Dear Sirs:
The above-named investment company (the "Fund") consisting of the series
named on Schedule 1 hereto, as such Schedule may be revised from time to time
(each, a "Series"), herewith confirms its agreement with you as follows:
The Fund desires to employ its capital by investing and reinvesting the
same in investments of the type and in accordance with the limitations specified
in its charter documents and in its Prospectus and Statement of Additional
Information as from time to time in effect, copies of which have been or will be
submitted to you, and in such manner and to such extent as from time to time may
be approved by the Fund's Board. The Fund desires to employ you to act as its
investment adviser.
In this connection it is understood that from time to time you will employ
or associate with yourself such person or persons as you may believe to be
particularly fitted to assist you in the performance of this Agreement. Such
person or persons may be officers or employees who are employed by both you and
the Fund. The compensation of such person or persons shall be paid by you and no
obligation may be incurred on the Fund's behalf in any such respect.
Subject to the supervision and approval of the Fund's Board, you will
provide investment management of each Series' portfolio in accordance with such
Series' investment objectives and policies as stated in the Fund's Prospectus
and Statement of Additional Information as from time to time in effect. In
connection therewith, you will obtain and provide investment research and will
supervise each Series' investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of such
Series' assets. You will furnish to the Fund such statistical information, with
respect to the investments which a Series may hold or contemplate purchasing, as
the Fund may reasonably request. The Fund wishes to be informed of important
developments materially affecting any Series' portfolio and shall expect you, on
your own initiative, to furnish to the Fund from time to time such information
as you may believe appropriate for this purpose.
In addition, you will supply office facilities (which may be in your own
offices), data processing services, clerical, accounting and bookkeeping
services, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; prepare reports to
each Series' stockholders, tax returns, reports to and filings with the
Securities and Exchange Commission and state Blue Sky authorities; calculate the
net asset value of each Series' shares; and generally assist in all aspects of
the Fund's operations. You shall have the right, at your expense, to engage
other entities to assist you in performing some or all of the obligations set
forth in this paragraph, provided each such entity enters into an agreement with
you in form and substance reasonably satisfactory to the Fund. You agree to be
liable for the acts or omissions of each such entity to the same extent as if
you had acted or failed to act under the circumstances.
You shall exercise your best judgment in rendering the services to be
provided to the Fund hereunder and the Fund agrees as an inducement to your
undertaking the same that you shall not be liable hereunder for any error of
judgment or mistake of law or for any loss suffered by one or more Series,
provided that nothing herein shall be deemed to protect or purport to protect
you against any liability to the Fund or a Series or to its security holders to
which you would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your duties hereunder, or by reason of
your reckless disregard of your obligations and duties hereunder.
In consideration of services rendered pursuant to this Agreement, the Fund
will pay you on the first business day of each month a fee at the rate set forth
opposite each Series' name on Schedule 1 hereto. Net asset value shall be
computed on such days and at such time or times as described in the Fund's then-
current Prospectus and Statement of Additional Information. The fee for the
period from the date of the commencement of the public sale of a Series' shares
to the end of the month during which such sale shall have been commenced shall
be pro-rated according to the proportion which such period bears to the full
monthly period, and upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to you, the value of each
Series' net assets shall be computed in the manner specified in the Fund's
charter documents for the computation of the value of each Series' net assets.
You will bear all expenses in connection with the performance of your
services under this Agreement. All other expenses to be incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by you. The expenses to be borne by the Fund include,
without limitation, the following: 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 your
officers, directors or employees or holders of 5% or more of your outstanding
voting securities, Securities and Exchange Commission fees and 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 Fund'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
stockholders, costs of stockholders' reports and meetings, and any extraordinary
expenses.
As to each Series, if in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement, but excluding interest, taxes,
brokerage and, with the prior written consent of the necessary state securities
commissions, extraordinary expenses) exceed the expense limitation of any state
having jurisdiction over the Series, the Fund may deduct from the fees to be
paid hereunder, or you will bear, such excess expense to the extent required by
state law. Your obligation pursuant hereto will be limited to the amount of your
fees here under. 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 Fund understands that you now act, and that from time to time hereafter
you may act, as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Fund has no objection to your so
acting, provided that when the purchase or sale of securities of the same issuer
is suitable for the investment objectives of two or more companies or accounts
managed by you which have available funds for investment, the available
securities will be allocated in a manner believed by you to be equitable to each
company or account. It is recognized that in some cases this procedure may
adversely affect the price paid or received by one or more Series or the size of
the position obtainable for or disposed of by one or more Series.
In addition, it is understood that the persons employed by you to assist in
the performance of your duties hereunder will not devote their full time to such
service and nothing contained herein shall be deemed to limit or restrict your
right or the right of any of your affiliates to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
You shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on your part in the performance of your duties or from
reckless disregard by you of your obligations and duties under this Agreement.
Any person, even though also your officer, director, partner, employee or agent,
who may be or become an officer, Board member, employee or agent of the Fund,
shall be deemed, when rendering services to the Fund or acting on any business
of the Fund, to be rendering such services to or acting solely for the Fund and
not as your officer, director, partner, employee or agent or one under your
control or direction even though paid by you.
As to each Series, this Agreement shall continue until the date set forth
opposite such Series' name on Schedule 1 hereto (the "Reapproval Date") and
thereafter shall continue automatically for successive annual periods ending on
the day of each year set forth opposite the Series' name on Schedule 1 hereto
(the "Reapproval Day"), provided such continuance is specifically approved at
least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in
the Investment Company Act of 1940) of such Series' outstanding voting
securities, provided that in either event its continuance also is approved by a
majority of the Fund's Board members who are not "interested persons" (as
defined in said Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. As to each Series,
this Agreement is terminable without penalty, on 60 days' notice, by the Fund's
Board or by vote of holders of a majority of such Series' shares or, upon not
less than 90 days' notice, by you. This Agreement also will terminate
automatically, as to the relevant Series, in the event of its assignment (as
defined in said Act).
The Fund recognizes that from time to time your directors, officers and
employees may serve as directors, trustees, partners, officers and employees of
other corporations, business trusts, partnerships or other entities (including
other investment companies) and that such other entities may include the name
"Dreyfus" as part of their name, and that your corporation or its affiliates may
enter into investment advisory or other agreements with such other entities. If
you cease to act as the Fund's investment adviser, the Fund agrees that, at your
request, the Fund will take all necessary action to change the name of the Fund
to a name not including "Dreyfus" in any form or combination of words.
This Agreement has been executed on behalf of the Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The obligations
of this Agreement shall only be binding upon the assets and property of the Fund
and shall not be binding upon any Board member, officer or shareholder of the
Fund individually.
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
DREYFUS INCOME FUNDS
By:___________________________
Accepted:
THE DREYFUS CORPORATION
By:_______________________________
<PAGE>
SCHEDULE 1
Annual Fee as
a Percentage
of Average
Daily Net
Name of Series Assets Reapproval Date Reapproval Day
Dreyfus Equity
Dividend Fund .75% September 11, 1997 September 11
Dreyfus High Yield
Securities Fund .65% September 11, 1997 September 11
Dreyfus Real Estate .65% September 11, 1998 September 11
Mortgage Fund
Dreyfus Short Term
High Yield Fund .65% September 11, 1997 September 11
Dreyfus Strategic
Income Fund .60% September 11, 1997 September 11
Revised: August 6, 1997
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Transfer and Dividend
Disbursing Agent, Custodian, Counsel and Independent Auditors" and to the use of
our reports dated December 10, 1996 on Dreyfus Equity Dividend Fund, Dreyfus
High Yield Securities Fund, Dreyfus Short Term High Yield Fund and Dreyfus
Strategic Income Fund (four of the Funds constituting Dreyfus Income Funds),
which are incorporated by reference, in this Registration Statement (Form N-1A
No. 33-7172) of Dreyfus Income Funds.
ERNST & YOUNG LLP
New York, New York
September 15, 1997
