DREYFUS STRATEGIC INCOME FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for the Dreyfus Strategic
Income Fund. For its semi-annual reporting period ended April 30, 1997 your
Fund produced a total return, including bond price changes and interest
income, of 4.07%* compared to 1.80% for the Merrill Lynch Domestic Master
Index.** Income dividends paid from net investment income during the period
amounted to approximately $.525, representing an annualized distribution rate
per share of 7.41%.***
Economic Review
The U.S. economy just kept rolling ahead over the reporting period.
Inflation remained subdued. The unemployment rate fell to its lowest level in
24 years, and a surge in tax revenues meant good news for the
Administration's budget reduction program. Overall, the economic news has
been stellar.
The economy grew at a robust 5.6% annual rate during the first quarter
of 1997, the best quarter in nine years. Aided by falling energy prices, and
with no sign of shortages of raw materials, inflation remained in check. On
the consumer level, the Consumer Price Index (CPI) remained below 3%.
Excluding volatile food and energy prices, the CPI is actually slowing down
so far this year, running at an annual rate of 2.5%. Inflation has been
further restrained by the strong dollar which has moderated the price of
imports and eased potential strains on domestic production capacity.
The strong economy has put increasing numbers of people to work. This
tightening of the labor market has been a key factor in the implementation of
monetary policy by the Federal Reserve Board's Open Market Committee (FOMC).
The unemployment rate has been less than 5.5% since June 1996, the lowest
sustained rate since the late 1980s. The rate fell to 4.9% in April of this
year, its lowest level in 24 years. So far, neither strong economic growth
nor wage increases have resulted in any price pressure at the consumer level.
Through the first quarter (the latest available data), total employment costs
(including wages and benefits) rose about the same as inflation.
Renewed confidence, spurred by increasing job security and low
inflation, has resulted in a surge in consumer spending. In the first quarter
of this year, spending rose 6.4%, almost double the rate of the previous
year's fourth quarter. The combined six-month performance was the largest
increase in consumer spending over the past ten years. Retail sales have
increased in the early part of this year as well; first quarter results were
sharply higher than in the last quarter of 1996. Not surprisingly, industrial
production has been building momentum over the reporting period. The latest
report on capacity utilization indicated the highest level in two years. So
far, while the potential exists for production bottlenecks, prices for raw
materials and worker wage demands have remained modest.
Continued economic growth and the resulting rise in tax revenues have
slashed further the Federal budget deficit. Administration officials estimate
that this year's deficit will be about $75 billion, its lowest level in
twenty-three years. Such good news on the deficit could make it easier to
negotiate the Administration's bipartisan plan to balance the budget by 2002.
While we seem to be enjoying the best of all possible economic worlds,
the potential for future inflation is what concerns the Fed. Such concern
resulted in the March decision by the FOMC, the policy-making arm of the
Federal Reserve, to raise the Federal Funds rate one-quarter of a percentage
point to 5.50%. (The Federal Funds rate is the rate of interest banks charge
each other for overnight loans.) The traditional assumption that strong
economic growth and low unemployment will eventually result in rising
inflation still drives the Fed's monetary policy initiatives. Although there
was little reported evidence of incipient inflation, the Fed executed a
preemptive move of moderate monetary restraint in March, perhaps to avoid
being forced to act more harshly later. There is little reason to suspect
that the Fed will soon change this policy, although with the economy seeming
to enjoy strong growth without surging inflation, the FOMC may be reluctant
to raise rates again in the immediate future.
Market and Portfolio Focus
Market interest rates have been quite volatile over the past year.
Ten-year U.S. Treasury rates have ranged from a high of 7.05% last June to a
low of 6.05% last December. Despite these interest rate swings, yield spreads
on investment grade corporates and agency mortgages have been surprisingly
stable. These sector spreads have generally varied by less than 10-20 basis
points with few exceptions. Low supply and good demand from insurance
companies, banks, the Federal National Mortgage Association, and the Federal
Home Mortgage Corporation, along with steady economic growth, have kept
spreads at narrow levels.
Due to these historically narrow spreads on traditional high-grade
bonds, we have focused the portfolio on nontraditional sectors of the
fixed-income market. Areas of focus have been commercial mortgage-backed and
residential mortgaged-backed securities, now at 14% and 8% of the portfolio,
respectively. We expect these securities to benefit from further improvement
in real estate values. Our largest corporate sector is now banking, with a
10% portfolio weight. The large supply of bank issuance in the fourth quarter
of 1996 provided an opportunity to purchase bank paper at attractive yield
levels.
While we have made several modest changes to the portfolio's duration
during the year to take advantage of changing market conditions, the
portfolio's current duration is 4.4 years _ slightly shorter than the
duration of the Merrill Lynch Domestic Master Index. Additionally, we have
structured the portfolio to overweight both short and long maturity
investments. We believe this barbelled structure should perform best if the
Treasury yield curve continues to flatten.
As always, we remain focused on the Fund's investment objective to
maximize current income. We will be monitoring all areas of the fixed income
markets for superior risk/reward relationships to capitalize on in the Fund.
Your continued confidence in the Dreyfus Strategic Income Fund and The
Dreyfus Corporation is greatly appreciated.
Very Truly Yours,
[Kevin M. McClintock signature logo]
Kevin M. McClintock
Head of Taxable Fixed Income
May 16, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** The Merrill Lynch Domestic Master Index is an unmanaged performance
benchmark for comparing portfolios that include U.S. Government, Mortgage and
BBB or higher rated corporate securities with maturities greater than or
equal to one year.
***Distribution rate per share is based upon dividends per share paid from
net investment income during the period (annualized), divided by the net
asset value per share at the end of the period.
<TABLE>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Principal
Bonds and Notes_84.4% Amount Value
_____________ _____________
<S> <C> <C>
Aircraft & Aerospace_2.8% Fairchild,
Sub. Deb., 12%, 2001.............. $ 7,500,000 $ 7,575,000
____________
Banking_10.2% BNY Capital I,
Gtd. Capital Securities, Ser. B, 7.97%, 2026 5,000,000 4,910,015
BankBoston Capital Trust II,
Gtd. Capital Securities, 7 3/4%, 2026 4,000,000 3,735,000
Colonial Bancgroup ,
Gtd. Capital Securities, 8.92%, 2027 9,000,000 8,923,680
First Union Institutional Capital I,
Gtd. Capital Securities, 8.04%, 2026 5,000,000 4,894,695
PNC Institutional Capital Trust A,
Gtd. Capital Securities, Ser. A, 7.95%, 2026 5,000,000 (a) 4,753,125
____________
27,216,515
____________
Commercial Mortgage
Backed_13.7% 277 Park Avenue Finance, Ser. 1997-C1,
Commercial Mortgage Pass-Through Ctfs.,
Cl. B-1, 7.88%, 2007.............. 10,000,000 (a) 10,184,375
Asset Securitization Corp., Commercial Mortgage
Pass-Through Ctfs., Ser. 1996-D3:
Cl. A4, 7.80%, 2026 5,000,000 (b) 5,113,281
Cl. A5, 8.143%, 2026 2,500,000 (b) 2,535,156
Structured Asset Securities,
Multiclass Pass-Through Ctfs., REMIC,
Ser. 1996-CFL:
Cl. C, 6.525%, 2028 7,192,927 (a) 7,028,838
Cl. F, 7 3/4%, 2028 9,000,000 (a) 8,699,063
Cl. H, 7 3/4%, 2028 4,750,000 (a) 3,232,969
____________
36,793,682
____________
Consumer_1.7% BPC Holding,
Sr. Secured Notes, 12 1/2%, 2006.. 1,250,000 1,293,750
Revlon Worldwide,
Sr. Secured Discount Notes, Ser. B,
Zero Coupon, 1998................. 3,500,000 3,316,250
____________
4,610,000
____________
Energy_4.0% DeepTech International,
Sr. Secured Notes, 12%, 2000...... 4,850,000 5,141,000
Louisiana Land & Exploration,
Deb., 7.65%, 2023................. 5,450,000 5,335,130
Maxus Energy,
Sinking Fund Deb., 11 1/4%, 2013.. 254,000 262,573
____________
10,738,703
____________
Foreign_5.4% Comunicacion Celular SA,
Bonds, Zero Coupon, 2000.......... 2,500,000 (c) 1,750,000
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1997 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
___________ ___________
Foreign (continued) Petroleos Mexicanos,
Gtd. Notes, 8%, 1998.............. $ 4,500,000 (a) $ 4,539,375
Teekay Shipping,
First Preferred Ship Mortgage Notes,
8.32%, 2008....................... 8,250,000 8,105,625
____________
14,395,000
____________
Foreign/Governmental_5.6% Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5 5/8%, 2000 2,287,680 (b) 2,230,754
Republic of Kazakstan,
Notes, 9 1/4%, 1999............... 3,500,000 (a) 3,565,078
United Mexican States,
Floating Rate Notes, 7 5/8%, 2001. 9,000,000 (a,b) 9,135,900
____________
14,931,732
____________
Industrial_1.1% Renco Metals,
Sr. Notes, 11 1/2%, 2003.......... 1,500,000 1,560,000
Tracor,
Sr. Sub. Notes, 8 1/2%, 2007...... 1,500,000 (a) 1,481,250
____________
3,041,250
____________
Insurance_1.9% AFC Capital Trust I,
Gtd. Capital Securities, 8.207%, 2027 5,000,000 (a) 5,064,460
____________
Residential Mortgage
Backed_7.6% GE Capital Mortgage Services:
Home Equity Loan Pass-Through Ctfs.,
Ser. 1996-HE4, Cl. B3, 9.422%, 2026 1,421,328 (a,b) 1,302,736
REMIC Multiclass Pass-Through Ctfs.:
Ser. 1993-11, Cl. B4, 6%, 2008 165,111 (a) 146,794
Ser. 1993-15, Cl. B3, 6%, 2008 458,677 (a) 405,929
Ser. 1996-10, Cl. B3, 6 3/4%, 2011 542,611 (a) 485,977
Ser. 1996-12, Cl. B2, 7 1/4%, 2011 844,366 (a) 828,798
Ser. 1996-12, Cl. B3, 7 1/4%, 2011 361,454 (a) 332,764
Ser. 1996-14, Cl. 2B3, 7 1/4%, 2011 270,145 (a) 248,365
MORSERV,
Sub. Multi-Class Mortgage Pass-Through Ctfs.,
Ser. 1996-1:
Cl. B2, 7%, 2011 871,765 846,974
Cl. B3, 7%, 2011 435,882 (a) 401,421
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-7:
Cl. B2, 6 3/4%, 2011 502,775 480,151
Cl. B3, 6 3/4%, 2011 1,934,047 (a) 1,731,577
Cl. B4, 6 3/4%, 2011 891,896 (a) 697,630
Residential Funding Mortgage Securities I,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-S7, Cl. A-12, 7%, 2026.. 9,993,652 9,478,355
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1997 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
__________ __________
Residential Mortgage
Backed (continued) Structured Asset Securities,
Mortgage Pass-Through Ctfs.,
REMIC, Ser. Greenpoint 1996-A:
Cl. B-1, 8.441%, 2027 $ 1,798,262 $ 1,822,988
Cl. B-2, 8.441%, 2027 718,909 746,319
Cl. B-4, 8.427%, 2027 431,543 (a,b) 401,201
____________
20,357,979
____________
Telecommunications_.2% American Communications Services,
Sr. Discount Notes, Zero Coupon, 2000 800,000 (d) 420,000
____________
Transportation_.3% Moran Transportation,
First Preferred Ship Mortgage Notes,
11 3/4%, 2004..................... 800,000 860,000
____________
Utilities_2.5% Indiantown Cogeneration,
First Mortgage, Ser. A-10, 9.77%, 2020 6,000,000 6,783,234
____________
Utilities/Telephone_1.8% Wisconsin Bell,
Deb., 6.35%, 2006................. 5,000,000 (e) 4,805,935
____________
U.S. Government
Agencies_9.7% Federal National Mortgage Association:
9%, 8/1/2026...................... 7,358,804 7,715,191
REMIC, Trust,
Pass-Through Ctfs. (Collateralized by FNMA
Pass-Through Ctfs.), Ser. 1993-137,
Cl. PT, 7%, 6/25/2022
(Interest Only Obligation).... (f) 2,520,419
Government National Mortgage Association I:
7 1/2%, 1/15/2002-7/15/2002....... 601,317 608,269
9%, 11/15/2017.................... 14,175,770 15,110,379
____________
25,954,258
____________
U.S. Government_15.9% U.S. Treasury Bonds,
7 7/8%, 11/15/2004................ 39,805,000 42,516,716
____________
TOTAL BONDS AND NOTES
(cost $224,725,156)............... $226,064,464
=================
Equity-Related Securities_6.0%
Common Stocks_0.0% Shares
_____________
Industrial; INAMED.............................. 33,250 (i) $ 88,320
____________
Warrants_.2% Shares
_____________
Broadcasting_.1% Spanish Broadcasting System 2,000 (a,g) 220,000
__________
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) APRIL 30, 1997 (UNAUDITED)
Equity-Related Securities (continued) Shares Value
__________ __________
Warrants (continued)
Foreign_.1% Comunicacion Celular SA................. 2,500 (g) $ 176,250
____________
Total Warrants...................... 396,250
____________
Preferred Stocks_1.5%
Broadcasting_.6% Spanish Broadcasting System,
Cum.,$142.50...................... 2,000 (a) 1,760,000
____________
Healthcare_.9% McKesson Financing Trust,
Cum. Conv.,$2.50.................. 40,000 (a) 2,310,000
____________
Total Preferred Stocks.............. 4,070,000
____________
Principal
Convertible Notes_4.3% Amount
__________
Foreign_.6% Scandinavian Broadcasting,
Sub. Deb., 7 1/4%, 2005........... $ 1,700,000 1,513,000
____________
Industrial_3.7% INAMED,
Notes, 11%, 1999.................. 6,650,000 (i) 6,650,000
MagneTek,
Sub. Notes, 8%, 2001.............. 2,956,000 3,288,550
____________
9,938,550
____________
Total Convertible Notes............. 11,451,550
____________
TOTAL EQUITY-RELATED SECURITIES
(cost $15,600,171)................ $ 16,006,120
=============
Short-Term Investments_8.3%
Time Deposits_8.0% Chase Manhattan Bank (London),
5 5/8%, 5/1/1997.................. $ 10,491,000 $ 10,491,000
Republic National Bank of New York (London),
5 5/8%, 5/1/1997.................. 11,000,000 11,000,000
____________
21,491,000
____________
U.S. Treasury Bills_.3% 5.08%, 6/12/1997 786,000 (h) 781,504
____________
TOTAL SHORT-TERM INVESTMENTS
(cost $22,272,342)................ $ 22,272,504
=============
TOTAL INVESTMENTS (cost $262,597,669).................................... 98.7% $264,343,088
====== =============
CASH AND RECEIVABLES (NET)............................................... 1.3% $ 3,527,083
====== =============
NET ASSETS............................................................... 100.0% $267,870,171
====== =============
DREYFUS STRATEGIC INCOME FUND
Notes to Statement of Investments:
(a) Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
April 30, 1997, these securities amounted to $68,957,625 or 25.7% of net
assets.
(b) Variable rate security - interest rate subject to periodic change.
(c) Zero coupon until 11/15/2000, date on which a stated coupon rate of
13 1/8% becomes effective; the stated maturity date is 11/15/2003.
(d) Zero coupon until 11/1/2000, date on which a stated coupon rate of
13% becomes effective; the stated maturity date is 11/1/2005.
(e) Reflects date security can be redeemed at holder's option; the
stated maturity date is 12/1/2026.
(f) Notional face $8,410,157.
(g) Non-income producing.
(h) Held by the custodian in a segregated account as collateral for open
Financial Futures positions.
(i) Securities restricted as to public resale. Investments in restricted
securities, with a value of $6,738,320 represent approximately 2.5% of
net assets;
</TABLE>
<TABLE>
Acquisition Purchase Percentage of
Issuer Date Price Net Assets Valuation*
___ ____________ _________ _____________ _____________
<S> <C> <C> <C> <C>
INAMED:
Common Stock.............................. 1/27/1997 $ 8 0.0% 85% of market value
Conv. Notes, 11%, 3/31/1999............... 1/23/1996 100 2.5% cost
*The valuation of these securities has been determined in good faith
under the direction of the Board of Trustees.
STATEMENT OF FINANCIAL FUTURES APRIL 30, 1997 (UNAUDITED)
Market Value Unrealized
Covered Appreciation
Financial Futures Contracts by Contracts Expiration at 4/30/97
________ ____________ ____________ _________ _______________
U.S. Treasury 10yr bonds (Short)............. 120 $13,113,750 June `97 $30,000
============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1997 (UNAUDITED)
Cost Value
_____________ _____________
<S> <C> <C>
ASSETS: Investments in securities _See Statement of Investments $262,597,669 $264,343,088
Cash....................................... 389,671
Receivable for investment securities sold.. 49,041,543
Interest receivable........................ 4,512,916
Receivable for shares of Beneficial Interest subscribed 6,000
Prepaid expenses and other assets.......... 19,277
_____________
318,312,495
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates 154,046
Due to Distributor......................... 54,715
Payable for investment securities purchased 49,671,875
Payable for shares of Beneficial Interest redeemed 494,028
Accrued expenses........................... 67,660
_____________
50,442,324
_____________
NET ASSETS.................................................................. $267,870,171
===============
REPRESENTED BY: Paid-in capital............................ $274,367,137
Accumulated net realized gain (loss) on investments (8,272,385)
Accumulated net unrealized appreciation (depreciation)
on investments [including $30,000 net unrealized
appreciation on financial futures]_Note 4(b) 1,775,419
_____________
NET ASSETS.................................................................. $267,870,171
===============
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED)............. 18,746,345
NET ASSET VALUE, offering and redemption price per share.................... $14.29
========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
INCOME: Interest Income............................ $11,686,703
Cash Dividends............................. 272,007
_______________
Total Income......................... $11,958,710
EXPENSES: Management fee_Note 3(a)................... 849,952
Shareholder servicing costs_Note 3(b)...... 507,358
Interest expense_Note 2.................... 113,364
Professional fees.......................... 37,363
Trustees' fees and expenses_Note 3(c)...... 17,637
Custodian fees_Note 3(b)................... 16,004
Registration fees.......................... 12,716
Prospectus and shareholders' reports....... 11,358
Miscellaneous.............................. 7,845
_______________
Total Expenses....................... 1,573,597
_____________
INVESTMENT INCOME_NET....................................................... 10,385,113
_____________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS_Note 4:
Net realized gain (loss) on investments.... $ 1,434,531
Net realized gain (loss) on financial futures (776,644)
_______________
Net Realized Gain (Loss)............. 657,887
Net unrealized appreciation (depreciation) on investments
[including $203,750 unrealized appreciation on
financial futures]..................... 421,608
_____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 1,079,495
_____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $11,464,608
===============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
April 30, 1997 Year Ended
(Unaudited) October 31, 1996
__________________ __________________
<S> <C> <C>
OPERATIONS:
Investment income_net.......................................... $ 10,385,113 $ 20,997,858
Net realized gain (loss) on investments........................ 657,887 13,361,650
Net unrealized appreciation (depreciation) on investments...... 421,608 (13,110,345)
__________________ __________________
Net Increase (Decrease) in Net Assets Resulting from Operations 11,464,608 21,249,163
__________________ __________________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income_net.......................................... (10,419,191) (20,963,780)
__________________ __________________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold.................................. 16,212,080 27,107,019
Dividends reinvested........................................... 7,509,678 15,493,693
Cost of shares redeemed........................................ (51,807,871) (68,320,151)
__________________ __________________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions (28,086,113) (25,719,439)
__________________ __________________
Total Increase (Decrease) in Net Assets.................... (27,040,696) (25,434,056)
NET ASSETS:
Beginning of Period............................................ 294,910,867 320,344,923
__________________ __________________
End of Period.................................................. $267,870,171 $294,910,867
__________________ __________________
UNDISTRIBUTED INVESTMENT INCOME_NET.............................. ___ $ 34,078
__________________ __________________
Shares Shares
__________________ __________________
CAPITAL SHARE TRANSACTIONS:
Shares sold.................................................... 1,124,612 1,909,503
Shares issued for dividends reinvested......................... 521,803 1,092,669
Shares redeemed................................................ (3,605,636) (4,816,766)
__________________ __________________
Net Increase (Decrease) in Shares Outstanding................ (1,959,221) (1,814,594)
================= ==================
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Six Months Ended
April 30, 1997 Year Ended October 31,
______________________________________________
PER SHARE DATA: (Unaudited) 1996 1995 1994 1993 1992
_________ _______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $14.24 $14.22 $12.95 $15.36 $14.02 $13.44
_______ _______ ______ ______ ______ ______
Investment Operations:
Investment income_net................. .52 .98 .93 .95 1.01 1.07
Net realized and unrealized gain (loss)
on investments...................... .05 .02 1.27 (2.04) 1.41 .58
_______ _______ ______ ______ ______ ______
Total from Investment Operations...... .57 1.00 2.20 (1.09) 2.42 1.65
_______ _______ ______ ______ ______ ______
Distributions:
Dividends from investment income_net.. (.52) (.98) (.93) (.95) (1.01) (1.07)
Dividends from net realized gain on investments __ __ __ (.37) (.07) __
_______ _______ ______ ______ ______ ______
Total Distributions................... (.52) (.98) (.93) (1.32) (1.08) (1.07)
_______ _______ ______ ______ ______ ______
Net asset value, end of period........ $14.29 $14.24 $14.22 $12.95 $15.36 $14.02
======== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN................... 8.21%(1) 7.27% 17.57%(2) (7.44%)(2) 17.93%(2) 12.64%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets 1.03%(1) 1.04% 1.04% .94% .84% .85%
Ratio of interest expense to average net assets .08%(1) .02% __ __ __ __
Ratio of net investment income
to average net assets............... 7.33%(1) 6.89% 6.87% 6.84% 6.83% 7.58%
Decrease reflected in above expense ratios
due to undertakings by the Manager.. __ __ __ .11% .24% .40%
Portfolio Turnover Rate............... 208.25%(3) 214.55% 176.59% 161.35% 118.38% 72.82%
Net Assets, end of period (000's Omitted) $267,870 $294,911 $320,345 $322,487 $375,459 $149,801
(1) Annualized.
(2) Exclusive of sales load.
(3) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1_SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Strategic Income Fund (the "Fund") is a series of Dreyfus Income
Funds (the "Company") which is registered under the Investment Company Act of
1940 ("Act") as a diversified open-end management investment company and
operates as a series company currently offering four series, including the
Fund. The Fund's investment objective is to maximize current income by
investing principally in debt securities of domestic and foreign issuers. The
Dreyfus Corporation ("Manager") serves as the Fund's investment adviser. The
Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon"). Premier
Mutual Fund Services, Inc. (the "Distributor") is the distributor of the
Fund's shares which are sold to the public without a sales load.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding short-term
investments, financial futures and U.S. Government obligations) are valued
each business day by an independent pricing service ("Service") approved by
the Board of Trustees. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. Securities for which
there are no such valuations are valued at fair value as determined in good
faith under the direction of the Board of Trustees. Investments in U.S.
Government obligations are valued at the mean between quoted bid and asked
prices. Short-term investments are carried at amortized cost, which
approximates value. Financial futures are valued at the last sales price on
the securities exchange on which such securities are primarily traded or at
the last sales price on the national securities market on each business day.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Fund has an unused capital loss carryover of approximately $9,221,000
available for Federal income tax purposes to be
applied against future net securities profits, if any, realized subsequent to
October 31, 1996. If not applied, $622,000 of the carryover expires in fiscal
2002, and $8,599,000 expires in fiscal 2003.
NOTE 2_BANK LINE OF CREDIT:
The Fund may borrow up to $20 million for leveraging purposes under a
short-term unsecured line of credit and participates with other
Dreyfus-managed funds in a $100 million unsecured line of credit primarily to
be utilized for temporary or emergency purposes, including the financing of
redemptions. Interest is charged to the Fund at rates which are related to
the Federal Funds rate in effect at the time of borrowings. At April 30,
1997, there were no outstanding borrowings under either line of credit.
The average daily amount of borrowings outstanding under both
arrangements during the period ended April 30, 1997 was approximately $3.9
million, with a related weighted average annualized interest rate of 5.90%.
The maximum amount borrowed at any time during the period ended April 30,
1997 was $26.4 million.
NOTE 3_MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement with the Manager, the management
fee is computed at the annual rate of .60 of 1% of the value of the Fund's
average daily net assets and is payable monthly.
(B) Under the Shareholder Services Plan, the Fund pays the Distributor,
at an annual rate of .25 of 1% of the value of the Fund's average daily net
assets for the provision of certain services. The services provided may
include personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
The Distributor may make payments to Service Agents (a securities dealer,
financial institution or other industry professional) in respect of these
services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended April 30, 1997, $354,147 was charged to the
Fund by the Distributor pursuant to the Shareholder Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such
compensation amounted to $116,174 during the period ended April 30, 1997.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended April 30, 1997,
$16,004 was charged by Mellon pursuant to the custody agreement.
(C) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $2,500 and an attendance fee of
$500 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 4_SECURITIES TRANSACTIONS:
(A) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities and financial futures,
during the year ended April 30, 1997, amounted to $619,396,821 and
$667,567,098, respectively.
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is exposed to
market risk as a result of changes in the value of the underlying financial
instruments (see the Statement of Financial Futures). Investments in
financial futures require the Fund to "mark to market" on a daily basis,
which reflects the change in market value of the contracts at the close of
each day's trading. Accordingly, variation margin
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
payments are received or made to reflect daily realized gains or losses. When
the contracts are closed, the Fund recognizes a realized gain or loss. These
investments require initial margin deposits with a custodian, which consist
of cash or cash equivalents, up to approximately 10% of the contracts amount.
The amount of these deposits is determined by the exchange or Board of Trade
on which the contract is traded and is subject to change. Contracts open at
April 30, 1997, and their related unrealized appreciation are set forth in
the Statement of Financial Futures.
(B) At April 30, 1997, accumulated net unrealized appreciation on
investments and financial futures was $1,775,419, consisting of $4,031,071
gross unrealized appreciation and $2,255,652 gross unrealized depreciation.
At April 30, 1997, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
[Dreyfus lion "d" logo]
Registration Mark
DREYFUS STRATEGIC INCOME FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 031SA974
[Dreyfus logo]
Registration Mark
Strategic
Income Fund
Semi-Annual
Report
April 30, 1997
