DREYFUS STRATEGIC INCOME FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus Strategic
Income Fund. For its annual reporting period ended October 31, 1996, your
Fund produced a total return, consisting of bond price changes and interest
income, of 7.27% per share.* The Merrill Lynch Domestic Master Index, the
Fund's benchmark, produced a total return of 5.72% for the same period.** The
Fund paid income dividends from net investment income of approximately $.978
per share, representing an annualized distribution rate per share of
6.85%.***
THE ECONOMY
The fear of another round of monetary tightening by the Federal Reserve
Board (the "Fed") to ward off a resurgence in inflation has so far proved
unwarranted. Indeed, despite solid economic growth resulting in the creation
of new jobs and an overall tightening in the labor market, inflation has
remained subdued. Both the Consumer and Producer Price Indexes remained in
the 3% range. This is the fifth consecutive year of inflation under 3%, the
longest period since the 1960s. Despite the duration of the economic
recovery, most economic reports underscore the tepid nature of the present
inflationary environment.
The increase in long-term interest rates early this year may have
contributed to the recently reported slowdown in the rate of economic growth.
During the third quarter, the growth rate of Gross Domestic Product cooled to
2.2%, less than half the second quarter's strong 4.7% pace. Consumers - the
initiators of two thirds of all economic activity - remained cautious
throughout the year. In the third quarter, the pace of consumer spending was
at its slowest in five years. Consumer borrowing has also declined from
year-ago levels. Not surprisingly, retail sales growth has also been modest
this year. Consumers may have been restrained by wages not rising as rapidly
as had been previously suspected, given the strength in the labor market. The
Employment Cost Index, considered to be an important gauge of wage inflation
by Federal Reserve Board Chairman Alan Greenspan, rose just .6% in the third
quarter, the lowest reading in over a year. This brought the growth in wages
to 2.8% over the past twelve months, slightly less than the rate of inflation
as measured by the Consumer Price Index.
The booming housing market also seems to have cooled with both new
housing starts and existing home sales slackening since midyear. Industrial
production has slowed somewhat from its more rapid pace earlier in the year.
Given the level of capacity utilization, there appears to be no sign of
production bottlenecks that could push prices higher. Anecdotal evidence
still supports the assertion that corporations are reluctant to raise prices.
The report that the 1996 Federal budget deficit had shrunk to $107.3 billion
_ its lowest level in two decades - provided another favorable sign for
inflation. The final reading of the 1996 deficit marks the fourth straight
decline from fiscal 1992's record $290.4 billion.
Despite the relatively benign current environment for inflation, we are
alert for early signs of its potential resurgence. While wage increases so
far have remained modest, workers should eventually expect compensation that
at least matches their cost of living. Furthermore, we are mindful that price
increases in energy and food may not continue to be as restrained as they
were over the past four years.
MARKET ENVIRONMENT
For 1996, in the U. S. Fixed Income market, inflation fears seem to have
disappeared from investor concerns. This has helped fuel an environment for
dramatically declining interest rates. From September 2 to October 31 the
yield on the ten-year Treasury has declined by 65 basis points. One of the
more technical aspects propelling interest rates to these low levels has been
an inflow of demand from foreign investors. In particular, Japanese investors
have more than doubled
their investments in the U.S. bond markets over the last few quarters of
1996. With the current Dollar/Yen exchange rates continuing to aid this flow,
our expectations are for a continued trend toward lower interest rates. With
expectations that demand from overseas will continue to push the 10- and
30-year Treasury rates lower, it is our expectation that the yield curve will
also flatten. Additionally, with the high likelihood that the Federal Reserve
will remain on the sidelines for the rest of 1996, our outlook is for lower
interest rate volatility.
THE PORTFOLIO
Incorporating our economic outlook and market environment into managing
the portfolio, we have made a number of adjustments to the Fund. We have
lengthened the overall effective duration of the account to 5.2 years
currently from a duration of 4.0 years at April 30. This longer duration
benefitted the Fund as interest rates declined. We have begun to reduce our
agency mortgage-backed holdings and anticipate further sales, since these
securities should underperform alternatives in a declining rate environment.
We are increasing our exposure to credit-sensitive areas of the mortgage
market, namely commercial mortgage-backeds and non-agency residential
mortgage-backed securities. These sectors offer much better call protection
for a modest increase in credit risk. We continue to avoid intermediate
investment grade corporates, and favor instead both high quality and below
investment grade corporates. This has benefited the Fund lately as high yield
bonds have outperformed comparable higher rated alternatives. We continue to
have a relatively small exposure to emerging markets debt because of a
general sense that this sector has come too far, too fast and is overdue for
a significant correction. With emerging market debt returns up by 25% to 30%
so far in 1996, this decision has clearly not helped the Fund in 1996. We
anticipate maintaining modest emerging market and currency risk in the
future, opting instead for the domestic bond market sectors mentioned above.
Of course, we will be monitoring all areas of the fixed income markets for
superior risk/reward relationships and seek to capitalize on them for the
Fund.
Very truly yours,
[Kevin M. McClintock signature logo]
Kevin M. McClintock
Director, Taxable Fixed Income Group
November 15, 1996
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** 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.
***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.
DREYFUS STRATEGIC INCOME FUND OCTOBER 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS STRATEGIC
INCOME FUND AND THE
MERRILL LYNCH DOMESTIC MASTER INDEX
[Exhibit A:
Dollars
$25,172
Dreyfus
Strategic Income Fund
$22,781
Merrill Lynch Domestic
Master Index*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.]
<TABLE>
<CAPTION>
Average Annual Total Returns
<S> <C> <C>
One Year Ended Five Years Ended Ten Years Ended
October 31, 1996 October 31, 1996 October 31, 1996
_________ _________ _________
7.27% 9.17% 9.67%
</TABLE>
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Strategic
Income Fund on 10/31/86 to a $10,000 investment made in the Merrill Lynch
Domestic Master Index on that date. All dividends and capital gain
distributions are reinvested. The Fund invests primarily in debt securities
of domestic and foreign issuers. The Fund's performance shown in the line graph
takes into account all applicable fees and expenses. Unlike the Fund, the
Merrill Lynch Domestic Master Index is an unmanaged performance benchmark
composed of U.S. Government, mortgage and BBB or higher-rated corporate
securities with maturities greater than or equal to one year. Corporate and
Treasury securities in the Index must have par amounts outstanding greater
than or equal to $25 million and generic mortgage-backed securities of $200
million per coupon. The Index does not take into account charges, fees and
other expenses. Further information relating to Fund performance, including
expense reimbursements, if applicable, is contained in the Financial Highlights
section of the Prospectus and elsewhere in this report.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS OCTOBER 31, 1996
Principal
Bonds and Notes-89.2% Amount Value
_______ _______
<S> <C> <C>
Aircraft & Aerospace-2.6% Fairchild,
Sub. Deb., 12%, 2001............... $ 7,500,000 $ 7,612,500
_______
Broadcasting-.5% Spanish Broadcasting System,
Sr. Notes, 7 1/2%, 2002............ 1,500,000 (a) 1,571,250
_______
Commercial Mortgage
Backed-12.1% Asset Securitization Corp., Commercial
Mortgage Pass-Through Ctfs., Ser. 1996-D3:
Cl. A4, 7.822%, 2026........... 5,000,000 (b) 5,152,344
Cl. A5, 8.165%, 2026........... 2,500,000 (b) 2,585,938
Structured Asset Securities:
Mortgage Pass-Through Ctfs.,
REMIC, Ser. Greenpoint 1996-A:
Cl. B-1, 8.441%, 2027.......... 1,810,063 1,812,044
Cl. B-2, 8.441%, 2027.......... 723,627 754,834
Cl. B-4, 8.441%, 2027.......... 434,375 (c) 371,527
Multiclass Pass-Through Ctfs., REMIC, Ser. 1996-CFL:
Cl. B, 6.303%, 2028............ 7,200,000 7,015,500
Cl. C, 6.525%, 2028............ 7,192,927 6,969,272
Cl. F, 7 3/4%, 2028............ 9,000,000 (c) 8,021,250
Cl. H, 7 3/4%, 2028............ 4,750,000 (c) 3,159,492
_______
35,842,201
_______
Consumer-1.4% Avondale Mills,
Gtd. Sr. Sub. Notes, 10 1/4%, 2006. 1,000,000 1,027,500
BPC Holding,
Sr. Secured Notes, 12 1/2%, 2006... 1,250,000 1,306,250
Hosiery Corp. of America,
Sr. Sub. Exchange Notes, 13 3/4%, 2002 (Units) 445,000 (d) 522,875
Microcell Telecommunications,
Sr. Discount Notes, Zero Coupon, 2001 (Units). 2,000,000 (c,e,f) 1,137,500
_______
3,994,125
_______
Energy-4.2% DeepTech International,
Sr. Secured Notes, 12%, 2000....... 4,850,000 5,068,250
Flores & Rucks,
Sr. Sub. Notes, 9 3/4%, 2006....... 1,500,000 1,545,000
Louisiana Land & Exploration,
Deb., 7.65%, 2023.................. 5,450,000 5,468,138
Maxus Energy,
Sinking Fund Deb., 11 1/4%, 2013... 254,000 261,620
_______
12,343,008
_______
Entertainment/Media-.5% Alliance Entertainment,
Sr. Sub. Notes, 11 1/4%, 2005...... 1,500,000 1,372,500
_______
Finance-.7% McDonnell Douglas Finance,
Medium-Term Notes, 9.90%, 2000..... 2,000,000 2,035,736
_______
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Principal
Bonds and Notes (continued) Amount Value
_______ _______
Foreign-6.6% Corporacion Andina de Fomento,
Bonds, 7.10%, 2003................. $ 3,850,000 $ 3,842,177
Dynacare,
Sr. Notes, 10 3/4%, 2006........... 2,000,000 2,035,000
Occidente Y Caribe Celular S.A.,
Sr. Discount Notes, Zero Coupon, 2001 (Units) 8,281,000 (c,f,g) 4,223,310
Petroleos Mexicanos,
Gtd. Notes, 8%, 1998............... 4,500,000 (c) 4,511,250
Teekay Shipping,
First Preferred Ship Mortgage Notes,
8.32%, 2008........................ 5,000,000 4,850,000
_______
19,461,737
_______
Foreign/Governmental-7.5% Province of Newfoundland,
Sinking Fund Deb., 10%, 2020....... 1,000,000 1,273,520
Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5 9/16%, 2000 2,659,200 (b) 2,534,419
Republic of Colombia, Notes:
7 1/4%, 2/15/2003.................. 5,000,000 4,814,465
7 1/4%, 2/23/2004.................. 4,800,000 4,559,909
United Mexican States,
Floating Rate Notes, 7 11/16%, 2001 9,000,000 (b,c) 9,029,700
_______
22,212,013
_______
Gaming-1.0% Casino Magic of Louisiana,
First Mortgage Notes, 13%, 2003.... 2,250,000 (c) 2,283,750
Riviera Holdings,
First Mortgage Notes, 11%, 2002.... 750,000 753,750
_______
3,037,500
_______
Hospital Related-1.2% HMC Acquisition Properties,
Sr. Notes, 9%, 2007................ 3,500,000 3,395,000
_______
Industrial-.2% Remington Arms,
Sr. Sub. Notes, 10%, 2003.......... 750,000 (c) 618,750
_______
Office Equipment-.9% Anacomp,
Sr. Secured Notes, 11 5/8%, 1999... 433,000 438,413
Pierce Leahy,
Sr. Sub. Notes, 11 1/8%, 2006...... 2,000,000 (c) 2,135,000
_______
2,573,413
_______
Residential Mortgage
Backed-7.4% GE Capital Mortgage Services,
REMIC Multiclass Pass-Through Ctfs.:
Ser. 1993-11, Cl. B4, 6%, 2008.... 170,238 (c) 144,011
Ser. 1993-15, Cl. B3, 6%, 2008.... 472,684 (c) 397,203
Ser. 1996-10, Cl. B3, 6 3/4%, 2011 553,962 (c) 466,886
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Principal
Bonds and Notes (continued) Amount Value
_______ _______
Residential Mortgage
Backed (continued) GE Capital Mortgage Services,
REMIC Multiclass Pass-Through Ctfs.
(continued):
Ser. 1996-12, Cl. B2, 7 1/4%, 2011 $ 860,971 (c) $ 835,412
Ser. 1996-12, Cl. B3, 7 1/4%, 2011 368,563 (c) 320,074
Ser. 1996-14, Cl. 2B3, 7 1/4%, 2011 275,183 (c) 238,292
MORSERV,
Sub. Multi-Class Mortgage Pass-Through Ctfs.,
Ser. 1996-1:
Cl. B2, 7%, 2011 897,509 866,096
..Cl. B3, 7%, 2011 448,754 (c) 392,660
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC:
Ser. 1996-7:
..Cl. B2, 6 3/4%, 2011 513,486 483,961
Cl. B3, 6 3/4%, 2011 1,975,251 (c) 1,662,915
Cl. B4, 6 3/4%, 2011 910,898 (c) 661,824
Ser. 1996-8:
Cl. B1, 6 3/4%, 2026 2,685,939 2,471,064
Cl. B2, 6 3/4%, 2026 1,611,364 1,443,682
Cl. B3, 6 3/4%, 2026 1,826,478 (c) 1,351,594
Cl. B4, 6 3/4%, 2026 967,017 (c) 528,234
Residential Funding Mortgage Securities I,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-S7, Cl. A-12, 7%, 2026... 10,045,919 9,656,640
_______
21,920,548
_______
Telecommunications-2.3% American Communications Services,
Sr. Discount Notes, Zero Coupon, 2000 800,000 (h) 456,000
CS Wireless Systems,
Sr. Discount Notes, Zero Coupon, 2001 (Units). 800,000 (c,d,i) 376,000
Shared Technologies Fairchild Communications,
Sr. Sub. Notes, Zero Coupon, 1999.. 4,750,000 (j) 3,752,500
Sprint Spectrum L.P.,
Sr. Discount Notes, Zero Coupon, 2001 4,000,000 (k) 2,315,000
_______
6,899,500
_______
Transportation-.8% Great Dane Holdings,
Sr. Sub. Deb., 12 3/4%, 2001....... 1,250,000 1,229,688
Moran Transportation,
First Preferred Ship Mortgage Notes,
11 3/4%, 2004...................... 800,000 852,000
TRISM,
Sr. Sub. Notes, 10 3/4%, 2000...... 165,000 159,225
_______
2,240,913
_______
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Principal
Bonds and Notes (continued) Amount Value
_______ _______
Utilities-2.3% Indiantown Cogeneration,
First Mortgage, Ser. A-10, 9.77%, 2020 $ 6,000,000 $ 6,903,870
_______
U.S. Government
and Agencies-37.0% Federal National Mortgage Association,
9%, 8/1/2026....................... 8,358,365 8,799,770
Government National Mortgage Association I:
7%, 12/15/2008..................... 12,646,126 12,784,349
7 1/2%, 1/15/2002-5/15/2024........ 36,609,190 37,254,370
8%, 8/15/2024-9/15/2024............ 18,458,869 18,960,155
9%, 11/15/2017..................... 15,284,018 16,411,215
Government National Mortgage Association II,
Adjustable Rate Mortgage, 5 1/2%,
10/20/2026 9,900,000 9,810,108
U.S. Treasury Bond,
6%, 2/15/2026...................... 5,500,000 5,019,610
_______
109,039,577
_______
TOTAL BONDS AND NOTES
(cost $260,182,158)................ $263,074,141
=======
Convertible Securities-5.9%
Notes-5.8%
Entertainment/Media-1.3% Thomas Nelson,
Sub. Notes, 5 3/4%, 1999........... $ 4,000,000 (c) $ 3,870,000
_______
Foreign-.6% Scandinavian Broadcasting,
Sub. Deb., 7 1/4%, 2005............ 1,700,000 1,714,875
_______
Industrial-2.9% INAMED,
Notes, 11%, 1999................... 6,650,000 (n) 6,650,000
MagneTek,
Sub. Notes, 8%, 2001............... 1,956,000 1,941,330
_______
8,591,330
_______
Retail-1.0% Michaels Stores,
Sub. Notes, 6 3/4%, 2003........... 4,000,000 2,800,000
_______
Total Notes.......................... $ 16,976,205
=======
Subordinated Debentures-.1%
Industrial; Outboard Marine,
7%, 2002........................... 358,000 342,338
_______
TOTAL CONVERTIBLE SECURITIES
(cost $17,909,920)................. $ 17,318,543
=======
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Preferred Stocks-2.6% Shares Value
_______ _______
Consumer-1.7% Cablevision Systems, Depositary Shares, Ser. M,
Cum., $11.125...................... 53,570 $ 4,928,440
_______
Media/Entertainment-.9% Paxson Communications,
Cum., $125.00...................... 2,750 2,626,250
_______
TOTAL PREFERRED STOCKS
(cost $8,076,603).................. $ 7,554,690
=======
Principal
Short-Term Investments-1.1% Amount
_______
Foreign Treasury Bills-1.0% Republic of Mexico (Cetes),
32%, 2/13/1997..................... $ 3,273,433 (l) $ 2,946,090
_______
U.S. Treasury Bills-.1% 4.97%, 11/21/1996 308,000 (m) 307,171
4.85%, 12/12/1996.................... 60,000 (m) 59,658
_______
366,829
_______
TOTAL SHORT-TERM INVESTMENTS
(cost $3,564,051).................. $ 3,312,919
=======
TOTAL INVESTMENTS (cost $289,732,732)..................................... 98.8% $291,260,293
==== =======
CASH AND RECEIVABLES (NET)................................................ 1.2% $ 3,650,574
==== =======
NET ASSETS................................................................ 100.0% $294,910,867
==== =======
</TABLE>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Notes to Statement of Investments:
(a) 7 1/2% coupon rate until 6/15/1997, date on which a stated coupon rate of
12 1/2% becomes effective.
(b) Variable rate security - interest rate subject to periodic change.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1996, these securities amounted to $46,736,634 or 15.8% of net assets.
(d) With Common Stock attached.
(e) Zero coupon until 12/1/2001, date on which a stated coupon rate of 14%
becomes effective; the stated maturity date is 6/1/2006.
(f) With warrants to purchase Common Stock.
(g) Zero coupon until 3/15/2001, date on which a stated coupon rate of 14%
becomes effective; the stated maturity date is 3/15/2004.
(h) 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.
(i) Zero coupon until 3/1/2001, date on which a stated coupon rate of 11 3/8%
becomes effective; the stated maturity date is 3/1/2006.
(j) Zero coupon until 3/1/1999, date on which a stated coupon rate of 12 1/4%
becomes effective; the stated maturity date is 3/1/2006.
(k) Zero coupon until 8/15/2001, date on which a stated coupon rate of 12 1/2%
becomes effective; the stated maturity date is 8/15/2006.
(l) Denominated in Mexican Pesos.
(m) Held by the custodian in a segregated account as collateral for open
Financial Futures positions.
(n) Security restricted as to public resale. Investment in a restricted
security, with a value of $6,650,000 represents approximately 2.3% of net
assets;
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Acquisition Purchase Percentage of
Issuer Date Price Net Assets Valuation*
___ ______ _____ ________ ______
INAMED, Conv. Notes, 11%, 3/31/1999........ 1/23/1996 $100 2.3% cost
*The valuation of this security has been determined in good faith under the
direction of the Board of Trustees.
STATEMENT OF FINANCIAL FUTURES OCTOBER 31, 1996
Market Value Unrealized
Covered (Depreciation)
Issuer Contracts by Contracts Expiration at 10/31/96
___ _______ ______ ________ _______
U.S. Treasury 10yr Note (Short).............. 130 $14,251,250 December '96 $(173,750)
======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
Cost Value
_______ _______
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $289,732,732 $291,260,293
Cash....................................... 518,822
Interest receivable........................ 3,398,846
Receivable for investment securities sold.. 2,662,689
Prepaid expenses and other assets.......... 22,947
_______
297,863,597
_______
LIABILITIES: Due to The Dreyfus Corporation and affiliates 188,146
Due to Distributor......................... 62,337
Payable for investment securities purchased 2,331,289
Payable for shares of Beneficial Interest redeemed 246,892
Interest Payable........................... 26,822
Accrued expenses and other liabilities..... 97,244
_______
2,952,730
_______
NET ASSETS.................................................................. $294,910,867
=======
REPRESENTED BY: Paid-in capital............................ $302,453,250
Accumulated undistributed investment income-net 34,078
Accumulated net realized gain (loss) on investments (8,930,272)
Accumulated net unrealized appreciation
(depreciation) on investments
[including $173,750 net unrealized (depreciation)
on financial futures]-Note 4(b) 1,353,811
_______
NET ASSETS.................................................................. $294,910,867
=======
SHARES OUTSTANDING
(unlimited number of $ .001 par value shares of Beneficial Interest authorized) 20,705,566
NET ASSET VALUE, offering and redemption price per share.................... $14.24
====
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME: Interest Income............................ $23,787,638
Dividend Income............................ 445,867 $ 24,233,505
_______
EXPENSES: Management fee-Note 3(a)................... 1,829,326
Shareholder servicing costs-Note 3(b)...... 1,097,471
Interest-Note 2............................ 75,937
Professional fees.......................... 67,143
Custodian fees-Note 3(b)................... 49,811
Trustees' fees and expenses-Note 3(c)...... 49,070
Registration fees.......................... 26,291
Prospectus and shareholders' reports....... 21,497
Miscellaneous.............................. 19,101
_______
Total Expenses....................... 3,235,647
_______
INVESTMENT INCOME-NET....................................................... 20,997,858
_______
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $ 13,303,174
Net realized gain (loss) on financial futures 58,476
_______
Net Realized Gain (Loss)............. 13,361,650
Net unrealized appreciation (depreciation) on investments
[including $173,750 unrealized (depreciation)
on financial futures].................. (13,110,345)
_______
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.......................... 251,305
_______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 21,249,163
=======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
October 31, 1996 October 31, 1995
_________ _________
<S> <C> <C>
OPERATIONS:
Investment income-net.................................................... $ 20,997,858 $ 21,735,685
Net realized gain (loss) on investments.................................. 13,361,650 (8,706,304)
Net unrealized appreciation (depreciation) on investments................ (13,110,345) 38,489,861
_______ _______
Net Increase (Decrease) in Net Assets Resulting from Operations...... 21,249,163 51,519,242
_______ _______
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net.................................................... (20,963,780) (21,735,685)
_______ _______
BENEFICIAL INTEREST TRANSACTIONS :
Net proceeds from shares sold............................................ 27,107,019 17,545,801
Dividends reinvested..................................................... 15,493,693 15,878,061
Cost of shares redeemed.................................................. (68,320,151) (65,349,244)
_______ _______
Increase (Decrease) in Net Assets from Beneficial Interest Transactions (25,719,439) (31,925,382)
_______ _______
Total Increase (Decrease) in Net Assets............................ (25,434,056) (2,141,825)
NET ASSETS:
Beginning of Period...................................................... 320,344,923 322,486,748
_______ _______
End of Period............................................................ $294,910,867 $320,344,923
======= =======
Undistributed investment income-net........................................ $ 34,078 -
_______
CAPITAL SHARE TRANSACTIONS: Shares Shares
_______ _______
Shares sold.............................................................. 1,909,503 1,300,295
Shares issued for dividends reinvested................................... 1,092,669 1,172,881
Shares redeemed.......................................................... (4,816,766) (4,864,735)
_______ _______
Net Increase (Decrease) in Shares Outstanding........................ (1,814,594) (2,391,559)
======= =======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
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.
Year Ended October 31,
____________________________________________________________
PER SHARE DATA: 1996 1995 1994 1993 1992
___ ___ ___ ___ ___
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $14.22 $12.95 $15.36 $14.02 $13.44
___ ___ ___ ___ ___
Investment Operations:
Investment income-net........................ .98 .93 .95 1.01 1.07
Net realized and unrealized gain(loss)
on investments............................. .02 1.27 (2.04) 1.41 .58
___ ___ ___ ___ ___
Total from Investment Operations............. 1.00 2.20 (1.09) 2.42 1.65
___ ___ ___ ___ ___
Distributions:
Dividends from investment income-net......... (.98) (.93) (.95) (1.01) (1.07)
Dividends from net realized gain on investments - - (.37) (.07) -
___ ___ ___ ___ ___
Total Distributions.......................... (.98) (.93) (1.32) (1.08) (1.07)
___ ___ ___ ___ ___
Net asset value, end of period............... $14.24 $14.22 $12.95 $15.36 $14.02
___ ___ ___ ___ ___
___ ___ ___ ___ ___
TOTAL INVESTMENT RETURN.......................... 7.27% 17.57%* (7.44%)* 17.93%* 12.64%*
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets 1.04% 1.04% .94% .84% .85%
Ratio of interest expense to average net assets .02% - - - -
Ratio of net investment income
to average net assets...................... 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...................... 214.55% 176.59% 161.35% 118.38% 72.82%
Net Assets, end of period (000's Omitted).... $294,911 $320,345 $322,487 $375,459 $149,801
*Exclusive of sales load.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Income Funds (the "Company") is registered under the Investment
Company Act of 1940 ("Act") as a diversified open-end management investment
company and operates as a series company currently offering four series,
including the Dreyfus Strategic Income Fund (the "Fund"). The Fund's
investment objective is to maximize current income by investing principally
in debt securities of domestic and foreign issuers. The Dreyfus Corporation
("Manager") serves as the Fund's investment adviser. The Manager is a direct
subsidiary of Mellon Bank, N.A. ("Mellon"). Premier Mutual Fund Services,
Inc. (the "Distributor") acts as the distributor of the Fund's shares which
are sold to the public without a sales load.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: The Fund's investments (excluding short-term
investments and U.S. Government obligations) are valued each business day by
an independent pricing service ("Service") approved by the Board of Trustees.
Investments for which quoted bid prices are readily available and are
representative of the bid side of the market in the judgment of the Service
are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. Securities for which there are no such
valuations are valued at fair value as determined in good faith under the dire
ction of the Board of Trustees. Investments in U.S. Government obligations
are valued at the mean between quoted bid and asked prices. Short-term
investments are carried at amortized cost, which approximates value.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange.
(b) Securities transactions and investment income: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
Income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(c) Dividends to shareholders: It is the policy of the Fund to declare
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.
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.
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2-BANK LINE OF CREDIT:
The Fund may borrow up to $10 million for leveraging purposes under a
short-term unsecured line of credit and participates with other
Dreyfus-managed funds in a $100 million unsecured line of credit primarily to
be utilized for temporary or emergency purposes, including the financing of
redemptions. Interest is charged to the Fund at rates which are related to
the Federal Funds rate in effect at the time of borrowings. At October 31,
1996, there were no outstanding borrowings under either line of credit.
The average daily amount of borrowings outstanding under both
arrangements during the period ended October 31, 1996 was approximately $1.2
million, with a related weighted average annualized interest rate of 6.32%.
The maximum amount borrowed at any time during the period ended October 31,
1996 was $18.8 million.
NOTE 3-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .60 of 1% of the value
of the Fund's average daily net assets and is payable monthly. The Agreement
provides that if in any full fiscal year the aggregate expenses, exclusive of
taxes, brokerage, interest on borrowings and extraordinary expenses, exceed
the expense limitation of any state having jurisdiction over the Fund, the
Fund may deduct from payments to be made to the Manager, or the Manager will
bear the amount of such excess to the extent required by state law. The most
stringent state expense limitation applicable to the Fund presently requires
reimbursement of expenses in any full fiscal year that such expenses
(exclusive of certain expenses as described above) exceed 2 1/2% of the first
$30 million, 2% of the next $70 million and 1 1/2% of the excess over $100
million of the value of the Fund's average net assets in accordance with
California "blue sky" regulations. There was no expense reimbursement for the
period ended October 31, 1996.
(b) Pursuant to the Fund's Shareholder Services Plan, the Fund pays the
Distributor, at an annual rate of .25 of 1% of the value of the Fund's
average daily net assets for the provision of certain services. The services
provided may include personal services relating to shareholder accounts, such
as answering shareholder inquiries regarding the Fund and providing reports
and other information, and services related to the maintenance of shareholder
accounts. The Distributor may make payments to Service Agents (a securities
dealer, financial institution or other industry professional) in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended October 31, 1996, $762,219 was charged to the
Fund by the Distributor pursuant to the Shareholder Services Plan.
Effective December 1, 1995, the Fund compensates Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of the Manager, under a transfer agency agreement
for providing personnel and facilities to perform transfer agency services
for the Fund. Such compensation amounted to $210,083 during the period from
December 1, 1995 through October 31, 1996.
Effective May 10, 1996, the Fund entered into a custody agreement with
Mellon to provide custodial services for the Fund. During the period from May
10, 1996 through October 31, 1996, $20,223 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.
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the year ended
October 31, 1996, amounted to $638,501,318 and $664,920,199, respectively.
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is exposed to
market risk as a result of changes in the value of the underlying financial
instruments (see the Statement of Financial Futures). Investments in
financial futures require the Fund to "mark to market" on a daily basis,
which reflects the change in market value of the contracts at the close of
each day's trading. Accordingly, variation margin payments are received or
made to reflect daily realized gains or losses. When the contracts are
closed, the Fund recognizes a realized gain or loss. These investments
require initial margin deposits with a custodian, which consist of cash or
cash equivalents, up to approximately 10% of the contracts amount. The amount
of these deposits is determined by the exchange or Board of Trade on which
the contract is traded and is subject to change. Contracts open at October
31, 1996 and their related unrealized depreciation are set forth in the
Statement of Financial Futures.
(b) At October 31, 1996, accumulated net unrealized appreciation on
investments was $1,353,811, consisting of $4,705,802 gross unrealized
appreciation and $3,351,991 gross unrealized depreciation.
At October 31, 1996, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS STRATEGIC INCOME FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Strategic Income Fund
We have audited the accompanying statement of assets and liabilities,
including the statements of investments and financial futures, of Dreyfus
Strategic Income Fund, one of the Funds constituting Dreyfus Income Funds, as
of October 31, 1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
in the period then ended, and financial highlights for each of the years
indicated therein. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included verification by
examination of securities held by the custodian as of October 31, 1996 and
confirmation of securities not held by the custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Strategic Income Fund at October 31, 1996, the results of
its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the indicated years, in conformity with generally accepted
accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
December 10, 1996
[Dreyfus lion "d" logo]
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. 031AR9610
[Dreyfus logo]
Strategic
Income Fund
Annual Report
October 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS STRATEGIC INCOME AND THE
MERRILL LYNCH DOMESTIC MASTER INDEX
EXHIBIT A:
______________________________________________
| | MERRILL LYNCH | |
| | DOMESTIC | DREYFUS |
| PERIOD | MASTER | STRATEGIC |
| | INDEX * | INCOME |
|-----------| ------------------|--------------|
| 10/31/86 | 10,000 | 10,000 |
| 10/31/87 | 10,216 | 10,174 |
| 10/31/88 | 11,383 | 11,874 |
| 10/31/89 | 12,711 | 13,471 |
| 10/31/90 | 13,521 | 13,649 |
| 10/31/91 | 15,647 | 16,233 |
| 10/31/92 | 17,236 | 18,285 |
| 10/31/93 | 19,308 | 21,564 |
| 10/31/94 | 18,609 | 19,959 |
| 10/31/95 | 21,549 | 23,466 |
| 10/31/96 | 22,781 | 25,172 |
----------------------------------------------
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
