DREYFUS SHORT TERM HIGH YIELD FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus Short Term
High Yield Fund. From inception on August 16, 1996 to the end of its annual
reporting period on October 31, 1996, your Fund produced a total return,
consisting of security price changes and income, of 3.59% per share.* Income
dividends paid from net investment income of approximately $.256 per share
were paid. This amounts to an annualized distribution rate per share of
9.55%. **
THE ECONOMY
Recent fears of another round of monetary tightening by the Federal
Reserve Board (the "Fed") to ward off a resurgence in inflation have so far
proven to be unwarranted. Indeed, despite solid economic growth resulting in
the creation of new jobs and an overall tightening in the labor market,
inflation has remained subdued. Both the Consumer and Producer Price Indexes
remained in the 3% range. This is the fifth consecutive year of inflation
under 3%, the longest period since the 1960s. Despite the duration of the
economic recovery, most economic reports underscore the tepid nature of the
present inflationary environment.
The increase in long-term interest rates early this year may have
contributed to the recently reported slowdown in the rate of economic growth.
During the third quarter, the growth rate of Gross Domestic Product cooled to
2.2%, less than half the second quarter's strong 4.7% pace. Consumers - the
initiators of two thirds of all economic activity - remained cautious
throughout the year. In the third quarter, the pace of consumer spending was
at its slowest in five years. Consumer borrowing has also declined from
levels of a year ago. Not surprisingly, retail sales growth has also been
modest this year. Consumers may have been restrained by wages not rising as
rapidly as had been previously suspected, given the strength in the labor
market. The Employment Cost Index, considered to be an important gauge of
wage inflation by Fed Chairman Alan Greenspan, rose just .6% in the third
quarter, the lowest reading in over a year. This brought the growth in wages
to 2.8% over the past 12 months, slightly less than the rate of inflation as
measured by the Consumer Price Index.
The booming housing market also seems to have cooled with both new
housing starts and existing home sales slackening since midyear. Industrial
production has slowed somewhat from its more rapid pace earlier in the year.
Given the level of capacity utilization, there appears to be no sign of
production bottlenecks that could push prices higher. Anecdotal evidence
still supports the assertion that corporations are reluctant to raise prices.
The report that the 1996 Federal budget deficit had shrunk to $107.3 billion
- - its lowest level in two decades - provided another favorable sign for
inflation. The final reading of the 1996 deficit marks the fourth straight
decline from fiscal 1992's record $290.4 billion.
Despite the relatively benign current environment for inflation, we are
alert for early signs of its potential resurgence. While wage increases so
far have remained modest, workers should eventually expect compensation that
at least matches their cost of living.
MARKET ENVIRONMENT
The strength of the high yield market continues, paced by strong demand
from investors. A major contributing factor is the maturation of this asset
class. During the previous decade, high yield issuance was characterized by a
significant amount of financing for leveraged buyouts, and the average rating
was single B. Currently, most issuance involves refinancing existing debt,
and approximately half of the high yield market is now rated double B. This
increase in rating quality and lower capital structure risk has allowed new
investor classes to participate in the high yield market - insurance
companies, pension plans, and other primarily investment-grade investors. The
typically long investment horizon of these new investors should help reduce
demand volatility over the near term and could allow the current high yield
market rally to continue. Additionally, market fears of a return of higher
interest rates increased demand for shorter maturity investments. This
situation continues. Supply of short-term high yield debt should increase
over time as much of the increased issuance in this decade is approaching its
first call date and the historically low interest rate environment improves
refinancing probabilities.
THE PORTFOLIO
The Dreyfus Short Term High Yield Securities Fund returned 3.59% from its
inception on August 16, 1996 through October 31, 1996. The Fund's return was
affected by the high initial cash position, but it is now fully invested. The
investment philosophy of the Fund is three-pronged: callable bonds in
industries with long-term growth potential, short-term maturities in cyclical
industries, and well-researched special situations where positive credit
characteristics could cause early redemption. Exposure to emerging markets is
very low. No changes in this strategy are contemplated at this time.
Our primary task - to provide high current income from short-term high
yield securities - will guide our portfolio management decisions. We will
continue to use intensive fundamental research to achieve high current
income.
Very truly yours,
[Roger King signature logo]
Roger King
Portfolio Manager
November 15, 1996
New York, New York
* 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.
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
STATEMENT OF INVESTMENTS OCTOBER 31, 1996
Principal
Bonds and Notes-103.4% Amount Value
______ ______
<S> <C> <C> <C>
Aircraft & Aerospace-16.1% Aircraft Lease Portfolio Securitisation 96-1
Pass Through Trust, Ctfs.,
Cl. D, 12 3/4%, 2006................. $ 600,000 (a) $ 621,000
Fairchild,
Sub. Deb., 12%, 2001................. 869,000 882,035
GPA Delaware,
Gtd. Notes, 8 3/4%, 1998............. 500,000 508,125
RHI Holdings,
Sr. Sub. Deb., 11 7/8%, 1999......... 900,000 900,000
Tracor,
Sr. Sub. Notes, 10 7/8%, 2001........ 100,000 106,500
______
3,017,660
______
Auto Related-3.6% Exide,
Sr. Sub. Deb., Zero Coupon, 1997..... 750,000 (b) 679,687
______
Broadcasting-5.3% NWCG Holdings,
Sr. Secured Discount Notes, Ser. B,
Zero Coupon, 1999.................... 500,000 410,000
Park Broadcasting,
Sr. Notes, Ser. B, 11 3/4%, 2004..... 500,000 577,500
______
987,500
______
Chemicals-1.3% Astor,
Sr. Sub. Notes, 10 1/2%, 2006........ 250,000 (a) 250,312
______
Consumer-21.1% Coleman Holdings,
Sr. Secured Discount Notes, Ser. B,
Zero Coupon, 1998.................... 750,000 648,750
Health o meter,
Sr. Sub. Notes, 13%, 2002 (Units).... 500,000 (c) 552,500
MacAndrews & Forbes,
Sr. Sub. Notes, 11 7/8%, 2002........ 500,000 532,500
MagneTek,
Sr. Sub. Deb., 10 3/4%, 1998......... 800,000 826,000
Plastic Containers,
Sr. Secured Notes, 10 3/4%, 2001..... 500,000 528,750
Revlon Worldwide,
Sr. Secured Discount Notes, Zero Coupon, 1998 1,000,000 886,250
______
3,974,750
______
Energy-13.3% AmeriGas Partners, L.P.,
Sr. Notes, Ser. B, 10 1/8%, 2007..... 300,000 312,000
DeepTech International,
Sr. Secured Notes, 12%, 2000......... 1,000,000 1,045,000
Flores & Rucks,
Sr. Notes, 13 1/2%, 2004............. 500,000 591,250
Santa Fe Energy Resources,
Sr. Sub. Deb., 11%, 2004............. 500,000 552,500
______
2,500,750
______
DREYFUS SHORT TERM HIGH YIELD FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Principal
Bonds and Notes (continued) Amount Value
______ ______
Entertainment/Media-2.9% Katz,
Sr. Sub. Notes, 12 3/4%, 2002........ $ 500,000 $ 552,500
______
Foods and Beverages-2.7% Foodmaker,
Sr. Notes, 9 1/4%, 1999.............. 500,000 503,750
______
Foreign-8.2% Net Sat Servicos Ltda.,
Sr. Secured Notes, 12 3/4%, 2001..... 500,000 (a,d) 523,750
Rogers Communications,
Deb., 10 7/8%, 2004.................. 500,000 517,500
Russel Metals,
Sr. Notes, 10 1/4%, 2000............. 500,000 493,750
______
1,535,000
______
Gaming-3.6% Resorts International,
11 3/8%, 2004 (Units)................ 675,000 (e) 673,050
______
Industrial-6.5% Figgie International,
Sr. Notes, 9 7/8%, 1999.............. 500,000 518,125
Republic Engineered Steels,
First Mortgage Notes, 9 7/8%, 2001... 750,000 701,250
______
1,219,375
______
Paper & Paper Related-5.2% Gaylord Container,
Sr. Sub. Discount Deb., 12 3/4%, 2005 500,000 548,750
Stone Container,
Sr. Notes, 12 5/8%, 1998............. 400,000 426,000
______
974,750
______
Retail-3.4% K Mart,
Medium-Term Notes, 7.01%, 2000....... 700,000 638,882
______
Steel-4.4% Weirton Steel,
Sr. Notes:
11 1/2%, 1998......................... 500,000 517,500
10 7/8%, 1999......................... 300,000 310,500
______
828,000
______
Supermarkets-3.2% Fleming Cos.,
Sr. Floating Rate Notes, 7 15/16%, 2001 675,000 (f) 604,125
______
Transportation-2.6% Trism,
Sr. Sub. Notes, 10 3/4%, 2000........ 500,000 482,500
______
TOTAL BONDS AND NOTES
(cost $19,288,310)................... $19,422,591
======
Preferred Stocks-.6% Shares
______
Auto Related; Harvard Industries, Cum., $3.5625
(cost $110,625)...................... 5,000 $ 103,750
======
DREYFUS SHORT TERM HIGH YIELD FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1996
Principal
Short-Term Investments-7.8% Amount Value
______ ______
U.S. Government Agency-7.6% Federal Home Loan Banks,
5.52%, 11/1/1996..................... $ 1,425,000 $ 1,425,000
______
U.S. Treasury Bills-.2%.... 4.84%, 12/12/1996 26,000 (g) 25,852
4.95%, 1/9/1997........................ 10,000 (g) 9,905
______
35,757
______
Total Short-Term Investments
(cost $1,460,762).................... $ 1,460,757
======
TOTAL INVESTMENTS (cost $20,859,697)........................................ 111.8% $20,987,098
==== ======
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (11.8%) $ (2,208,143)
==== ======
NET ASSETS.................................................................. 100.0% $18,778,955
==== ======
Notes to Statement of Investments:
(a) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1996, these securities amounted to $1,395,062 or 7.4% of net assets.
(b) Zero coupon until 12/15/1997, date on which a stated coupon rate of 12
1/4% becomes effective; the stated maturity is 12/15/2004.
(c) With warrants to purchase Common Stock.
(d) Reflects date security can be redeemed at
holders' option; the stated maturity date is 8/5/2004.
(e) With Common Stock attached.
(f) Variable rate security-interest rate subject to periodic change.
(g) Held by the custodian in a segregated
account as collateral for open Financial Futures positions.
</TABLE>
<TABLE>
STATEMENT OF FINANCIAL FUTURES OCTOBER 31, 1996
Market Value Unrealized
Covered (Depreciation)
Financial Futures Sold Short Contracts by Contracts Expiration at 10/31/96
_____________ ______ _______ _______ _______
<S> <C> <C> <C> <C>
U.S. Treasury 5yr Note....................... 5 $536,172 December `96 $(4,062)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
Cost Value
______ ______
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $20,859,697 $20,987,098
Cash....................................... 638,690
Interest receivable........................ 499,230
Prepaid expenses and other assets.......... 2,522
Due from The Dreyfus Corporation........... 19,166
______
22,146,706
______
LIABILITIES: Due to Distributor......................... 3,041
Payable for investment securities purchased 3,185,242
Payable for shares of Beneficial Interest redeemed 160,126
Accrued expenses and other liabilities..... 19,342
______
3,367,751
______
NET ASSETS.................................................................. $18,778,955
======
REPRESENTED BY: Paid-in capital............................ $18,548,629
Accumulated net realized gain (loss) on investments 106,987
Accumulated net unrealized appreciation (depreciation)
on investments [including $4,062 net unrealized
(depreciation) on financial futures]-Note 4(b) 123,339
______
NET ASSETS.................................................................. $18,778,955
======
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED)
........................................................................... 1,479,536
NET ASSET VALUE, offering and redemption price per share.................... $12.69
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
STATEMENT OF OPERATIONS
FROM AUGUST 16, 1996 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1996
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME Interest Income............................ $304,981
EXPENSES: Management fee-Note 3(a)................... $ 18,501
Legal fees................................. 23,092
Audit fees................................. 12,000
Shareholder servicing costs-Note 3(b)...... 7,839
Registration fees.......................... 5,749
Prospectus and shareholders' reports....... 2,567
Custodian fees............................. 1,457
Trustees' fees and expenses-Note 3(c)...... 488
Miscellaneous.............................. 830
_____
Total Expenses....................... 72,523
Less-expense reimbursement from the Manager due to
undertaking-Note 3 (a)................. (46,180)
_____
Net Expenses......................... 26,343
_____
INVESTMENT INCOME-NET....................................................... 278,638
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $119,375
Net realized gain (loss) on financial futures (12,388)
_____
Net Realized Gain (Loss)............. 106,987
_____
Net unrealized appreciation (depreciation) on investments
[including $4,062 unrealized (depreciation) on
financial futures]..................... 123,339
_____
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.......................... 230,326
_____
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $508,964
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
FROM AUGUST 16, 1996 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1996
<S> <C> <C>
OPERATIONS:
Investment income-net................................................................... $ 278,638
Net realized gain (loss) on investments................................................. 106,987
Net unrealized appreciation (depreciation) on investments............................... 123,339
______
Net Increase (Decrease) in Net Assets Resulting from Operations..................... 508,964
______
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................................... (278,638)
______
BENEFICIAL INTEREST TRANSACTIONS :
Net proceeds from shares sold........................................................... 25,885,033
Dividends reinvested.................................................................... 258,303
Cost of shares redeemed................................................................. (7,594,707)
______
Increase (Decrease) in Net Assets from Beneficial Interest Transactions............. 18,548,629
______
Total Increase (Decrease) in Net Assets........................................... 18,778,955
NET ASSETS:
Beginning of Period..................................................................... __
______
End of Period........................................................................... $18,778,955
======
CAPITAL SHARE TRANSACTIONS: Shares
______
Shares sold............................................................................. 2,058,351
Shares issued for dividends reinvested.................................................. 20,416
Shares redeemed......................................................................... (599,231)
______
Net Increase (Decrease) in Shares Outstanding....................................... 1,479,536
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS SHORT TERM HIGH YIELD FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for the period from August 16, 1996
(commencement of operations) to October 31, 1996. This information has been
derived from the Fund's financial statements.
<TABLE>
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period..................................................... $12.50
___
Investment Operations:
Investment income-net.................................................................... .26
Net realized and unrealized gain (loss)
on investments......................................................................... .19
___
Total from Investment Operations......................................................... .45
___
Distributions:
Dividends from investment income-net..................................................... (.26)
___
Net asset value, end of period........................................................... $12.69
===
TOTAL INVESTMENT RETURN...................................................................... 17.02% (1)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.................................................. .92% (1)
Ratio of net investment income
to average net assets.................................................................. 9.76% (1)
Decrease reflected in above expense ratios due to undertaking by the Manager............. 1.62% (1)
Portfolio Turnover Rate.................................................................. 77.79% (2)
Net Assets, end of period (000's Omitted)................................................ $18,779
(1) Annualized.
(2) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS SHORT TERM HIGH YIELD 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 funds,
including the Dreyfus Short Term High Yield Fund (the "Fund") which commenced
operations on August 16, 1996. The Fund's investment objective is to provide
high current income. The Dreyfus Corporation ("Manager") serves as the Fund's
investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A.
("Mellon"). Premier Mutual Fund Services, Inc. (the "Distributor") acts as
the distributor of the Fund's shares, which are sold to the public without a
sales charge.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
As of October 31, 1996, Allomon Corporation, a subsidiary of Mellon Bank
Investments Corporation, the parent company of which is Mellon Bank, held
547,312 shares of the Fund.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: The Fund's investments (excluding short-term
investments and U.S. Government obligations) are valued each business day by
an independent pricing service ("Service") approved by the Board of Trustees.
Investments for which quoted bid prices are readily available and are
representative of the bid side of the market in the judgment of the Service
are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. Securities for which there are no such
valuations are valued at fair value as determined in good faith under the
direction of the Board of Trustees. Investments in U.S. Government obligations
are valued at the mean between quoted bid and asked prices. Short-term
investments are carried at amortized cost, which approximates value.
Investments denominated in foreign currencies are translated into 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 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 SHORT TERM HIGH YIELD 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. For the period
ended October 31, 1996, the Fund did not borrow under either line of credit.
NOTE 3-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .65 of 1% of the value
of the Fund's average daily net assets and is payable monthly. The Agreement
provides that if in any full fiscal year the aggregate expenses of the Fund,
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 Portfolio's average net assets in
accordance with California "blue sky" regulations. The Manager has undertaken
from August 16, 1996 through December 31, 1996 to reduce the management fee
paid by, or reimburse such excess expenses of the Fund, to the extent that
the Fund's aggregate annual expenses (exclusive of certain expenses as
described above) exceed an annual rate of 1% of the value of the Fund's
average daily net assets. The expense reimbursement pursuant to the
undertaking, amounted to $46,180 for the period ended October 31, 1996.
The undertaking may be extended, modified or terminated by the Manager
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(b) 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 an 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. For the period ended
October 31, 1996, the Fund was charged $7,116 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 $488 for the period from August 16, 1996 through
October 31, 1996.
The Fund has entered into a custody agreement with Mellon to provide
custodial services for the Fund. During the period ended October 31, 1996,
$1,457 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 SHORT TERM HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended October 31, 1996
amounted to $26,948,968 and $8,393,826, 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 $123,339, consisting of $168,336 gross unrealized
appreciation and $44,997 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 SHORT TERM HIGH YIELD FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Short Term High Yield Fund
We have audited the accompanying statement of assets and liabilities,
including the statement of investments and financial futures, of Dreyfus
Short Term High Yield Fund (one of the Funds constituting Dreyfus Income
Funds) as of October 31, 1996, and the related statements of operations and
changes in net assets and financial highlights for the period from August 16,
1996 (commencement of operations) to October 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included verification by
examination of securities held by the custodian as of October 31, 1996 and
confirmation of securities not held by the custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Short Term High Yield Fund at October 31, 1996, and the
results of its operations, the changes in its net assets and the financial
highlights for the period from August 16, 1996 to October 31, 1996, in
conformity with generally accepted accounting principles.
[ERNST & YOUNG LLP signature logo]
New York, New York
December 10, 1996
[Dreyfus lion "d" logo]
DREYFUS SHORT TERM HIGH YIELD 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. 044AR9610
[Dreyfus logo]
Short Term
High Yield Fund
Annual Report
October 31, 1996
