<PAGE>
Dreyfus
Strategic Income
Fund
Semi-Annual
Report
April 30, 1998
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to report the performance for the Dreyfus Strategic Income
Fund. For the six-month period ended April 30, 1998, your Fund produced a total
return, including share price changes and interest income, of 6.28%.* Income
dividends paid from net investment income during the period amounted to
approximately $0.510 per share, representing an annualized distribution rate
per share of 6.74%.**
THE ECONOMY
The United States is now in the eighth year of economic expansion. Inflation
continues to rise at the slowest pace since 1964 and the unemployment rate has
fallen to a level not seen in 25 years. Not surprisingly, consumer confidence
has soared. Along with continued evidence of the robustness of the economy have
come heightened expectations that the Federal Reserve Board will raise interest
rates in a preemptive move to avoid a reignition of inflation. The last
increase in short-term rates came in March 1997 when the Federal Open Market
Committee (the policy-making arm of the Fed) hiked the target rates for Federal
Funds by one quarter of a percent to 5.5%. (The Federal Funds rate is the rate
of interest that banks charge one another for overnight loans.)
Inflation has remained benign on all fronts, even in the tight labor market,
an area closely watched by the Fed for signs of incipient inflation. The Labor
Department's Employment Cost Index (ECI), a measure of wage, salary and benefit
costs, suggests that wage inflation so far is not a problem. In fact, the first
quarter increase in the ECI (0.7%) was its smallest quarterly rise in two
years. Another inflation gauge, the broad-based Gross Domestic Product Price
Deflator, rose at an annual rate of only 0.9% in the first quarter, its lowest
rate since 1964. Inflation as measured by the Consumer Price Index has been
similarly tame. Prices at the consumer level have risen at an annual rate of
about 1.5% over the reporting period. The lack of inflation has been even more
dramatic at the production level of the economy where prices have fallen: in
the 12 months ended March 31, 1998, the Producer Price Index declined 1.8%.
Such a generally tepid price environment has been partly fostered by the
economic problems in Asia which have suppressed worldwide demand for
commodities, particularly oil.
Reflecting a level of confidence not seen in three decades, consumers
increased their spending over the reporting period, the first-quarter rate
rising at the fastest pace in six years. Not surprisingly, the growth rate in
new-home construction over the reporting period was the strongest in four
years. Plentiful and well-paying jobs (total wage and salary income is 7%
higher than a year ago), low interest rates, the absence of inflation and
investment market gains have resulted in a financially healthy consumer with a
corresponding propensity to spend. Strong domestic demand for lower-priced
imports has contributed further to the quiescent inflation environment while
offsetting the drag on the economy resulting from the Asian financial crisis.
It is still widely expected that the Asian economic slowdown will have a
further dampening effect on the U. S. economy. Although the surge in domestic
spending has masked the full impact of the fall in Asian demand, our trade
deficit has reached a ten-year high, a dramatic sign of deterioration.
Expectation of an economic slowdown is another reason why the Fed has been
reluctant to raise short-term interest rates.
The production side of the economy has remained robust. Factory utilization
has been high, production rates strong, and while exports to Asia have fallen
sharply, they are growing in the rest of the world. Such resilience has been
characteristic of one of the longest, most healthy economic advances in our
history. Yet we remain mindful that the concept of an economic cycle is not
dead, nor is inflation, and we are alert for indications of a resurgence in
price pressures.
<PAGE>
MARKET ENVIRONMENT AND PORTFOLIO FOCUS
Market interest rates have moved in a relatively narrow range over the past
six months. Ten-year U.S. Treasury rates have traded in a 28 basis-point range
from a peak of 5.96% in late 1997 to a low of 5.68% in January 1998. We have
adjusted the Fund's duration several times during this period, at times being
modestly longer than the benchmark Merrill Lynch Domestic Master Index,*** and
at times modestly shorter. On balance, these adjustments have had a positive
impact on portfolio performance.
In late 1997 we reduced exposure to both corporate and mortgage securities
and purchased U.S. Treasuries as a substitute. During the first few months of
1998 we reversed this strategy, selling Treasuries and increasing exposure to
Corporates and Mortgages. This strategy served the Fund well as spreads
generally widened during the period in which we favored Treasuries due to stock
market volatility and concerns over corporate profits and the Asian Crisis. As
these concerns have subsided, spreads have subsequently narrowed. We are
currently underweighted in U.S. Treasuries versus the benchmark, believing that
the best opportunities exist in other areas of the fixed income market.
The greatest sector emphasis in the Fund currently is on commercial
mortgages, residential mortgages, and banking and energy-related corporate
bonds. These are sectors that have performed well during that past year and we
are maintaining these positions in anticipation of further positive
performance. We have also benefited from investments in several convertible
bonds such as Quantum, Ecostar Communications, and Rite Aid. Our consistent
underrepresentation in the Agency Mortgage sector has begun to benefit fund
performance recently. These securities have begun prepaying at rapid rates as
homeowners are refinancing their mortgages in this low rate environment.
Investments in Yankee issues of Sumitomo Bancorp and Industrial Bank of Japan
have held back performance as the weakness in the Japanese economy has
continued. We believe recent government policies are likely to strengthen the
Japanese economy and the banking sector, although at a slower rate than we
originally anticipated.
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. It is both an
honor and a pleasure to be managing your investments.
Very truly yours,
/s/ Kevin M. McClintock
Kevin M. McClintock
Head of Taxable Fixed Income
May 18, 1998
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 composed of U.S. Government, mortgage and BBB or higher-rated
corporate securities with maturities greater than or equal to one year.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Investments April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes--99.0% Amount Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Airlines--2.4% America West Airlines Pass-Through Trust,
Pass-Through Ctfs.,
Ser. 1997-1, Cl. C, 7.53%, 2004............ $ 6,837,201 $ 6,991,449
------------
Asset-Backed--2.0% Nomura Asset Securities,
Multiclass Pass-Through Ctfs.,
Ser. 1998-D6, Cl. A4, 7.349%, 2028......... 6,000,000 5,939,063
------------
Banking--8.5% Colonial Bancgroup,
Gtd. Capital Securities, 8.92%, 2027....... 9,000,000 9,741,258
IBJ Preferred Capital, L.L.C.,
Preferred Securities, Ser. A, 8.79%, 2049.. 9,000,000 (a) 8,548,443
Sumitomo Bancorp,
Preferred Securities, Ser. A, 9.40%, 2049.. 6,500,000 (a) 6,610,364
------------
24,900,065
------------
Broadcasting--1.5% Scandinavian Broadcasting System SA,
Conv. Sub. Deb., 7%, 2004.................. 3,650,000 (a) 4,486,471
------------
Commercial Mortgage
Backed--7.5% GS Mortgage Securities II,
Ser. 1997-GL, Cl. G, 7.624%, 2030.......... 4,000,000 (b) 4,051,250
277 Park Avenue Finance, Commercial
Mortgage Pass-Through Ctfs.,
Ser. 1997, Cl. B1, 7.88%, 2007............. 5,000,000 (a) 5,207,813
Structured Asset Securities,
Multiclass Pass-Through Ctfs., REMIC,
Ser. 1996-CFL:
Cl. F, 7.75%, 2028....................... 9,000,000 (a) 8,853,750
Cl. H, 7.75%, 2028....................... 4,750,000 (a) 3,804,453
------------
21,917,266
------------
Energy--5.3% Dual Drilling,
Sr. Sub. Notes, 9.875%, 2004............... 3,000,000 3,210,000
Loews,
Exchangeable Sub. Notes, 3.125%, 2007...... 3,500,000 (c) 3,513,125
Louisiana Land & Exploration,
Deb., 7.65%, 2023.......................... 5,450,000 5,964,725
Michael Petroleum,
Sr, Notes, 11.50%, 2005.................... 3,000,000 (a) 2,977,500
------------
15,665,350
------------
Foreign--8.7% Korea Electric Power,
Deb., 7.75%, 2013.......................... 6,500,000 5,615,798
Petroleos Mexicanos,
Gtd. Notes, 8%, 1998....................... 4,500,000 (a) 4,529,250
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Foreign (continued) Power Finance, Ltd.,
Notes, 7.50%, 2009......................... $ 5,000,000 (a) $ 4,431,250
Reliance Industries,
Bonds, 10.50%, 2026........................ 2,500,000 (d) 2,478,050
Teekay Shipping,
First Preferred Ship Mortgage Notes,
8.32%, 2008................................ 8,250,000 8,580,000
------------
25,634,348
------------
Foreign/Governmental--11.4% Federative Republic of Brazil,
Global Bonds, 9.375%, 2008................. 2,500,000 2,468,750
Republic of Argentina:
Floating Rate Notes, 9.50%, 2002........... 9,000,000 (b) 8,898,750
(BOTE), Floating Rate Notes,
Ser. 10, 5.6875%, 2000.................. 1,544,640 (b) 1,514,792
Republic of Colombia,
Notes, 8.375%, 2027........................ 5,000,000 4,621,775
Republic of Costa Rica,
Notes, 8%, 2003............................ 2,500,000 (a) 2,521,875
Republic of Kazakhstan:
Notes, 9.25%, 1999......................... 3,500,000 (a) 3,548,125
Sr. Notes, 8.375%, 2002.................... 3,000,000 (a) 2,946,600
Republic of Korea,
Bonds, 8.875%, 2008........................ 2,500,000 2,458,670
United Mexican States,
Global Bonds, 7%, 2003..................... 4,541,009 (e) 4,461,545
------------
33,440,882
------------
Industrial--1.8% Anchor Lamina,
Sr. Sub. Notes, 9.875%, 2008............... 1,025,000 (a) 1,027,563
USA Waste Services,
Conv. Sub. Notes, 4%, 2002................. 3,500,000 4,361,875
------------
5,389,438
------------
Insurance--3.2% AFC Capital Trust I,
Gtd. Capital Securities, 8.207%, 2027...... 5,000,000 5,573,875
Aetna Industries,
Sr. Notes, 11.875%, 2006................... 3,600,000 3,960,000
------------
9,533,875
------------
Mining & Metals--1.0% Inco, Ltd.,
Conv. Deb., 5.75%, 2004.................... 3,000,000 2,928,750
------------
Office Equipment--1.1% Xerox,
Conv. Sub Deb., Zero Coupon, 2003.......... 5,300,000 (a,f) 3,180,000
------------
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Oil & Gas--1.7% Apache Finance Pty Ltd.,
Gtd. Notes, 6.50%, 2007.................... $ 5,000,000 $ 4,937,330
------------
Publishing-Newspapers--1.9% A.H. Belo,
Sr. Notes, 6.875%, 2002.................... 5,500,000 5,633,188
------------
Real Estate--2.7% Crescent Real Estate Equities, L.P.,
Notes, 6.625%, 2002........................ 8,000,000 (a) 7,884,704
------------
Residential
Mortgage Backed--7.2% Bear Stearns Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC, Ser. 1995-1:
Cl. 1B4, 6.475%, 2010.................... 301,040 (a,b) 271,689
Cl. 2B4, 7.40%, 2010..................... 242,030 (a) 227,584
Chase Mortgage Finance,
Multi-Class Mortgage Pass-Through Ctfs., REMIC,
Ser. 1994-E, Cl. B5, 6.25%, 2010........... 164,805 (a) 147,501
GE Capital Mortgage Services:
Home Equity Loan Pass-Through Ctfs.,
Ser. 1996-HE4, Cl. B3, 9.355%, 2026...... 1,394,573 (a,b) 1,359,273
REMIC Multiclass Pass-Through Ctfs.:
Ser. 1993-11, Cl. B4, 6%, 2008........... 155,638 (a) 148,100
Ser. 1993-15, Cl. B3, 6%, 2008........... 431,968 (a) 409,155
Ser. 1994-21, Cl. B4, 6.50%, 2009........ 276,390 (a) 250,133
Ser. 1994-22, Cl. B2, 6%, 2009........... 174,247 167,931
Ser. 1996-10, Cl. B3, 6.75%, 2011........ 518,444 (a) 503,215
Ser. 1996-12, Cl. B2, 7.25%, 2011........ 808,438 (a) 819,302
Ser. 1996-12, Cl. B3, 7.25%, 2011........ 347,390 (a) 345,110
Ser. 1996-14, Cl. 2B3, 7.25%, 2011....... 259,179 (a) 251,971
Ser. 1997-13, Cl. B2, 6.75%, 2012........ 991,004 974,009
Ser. 1998-1, Cl. B2, 6.75%, 2013......... 497,343 488,784
MORSERV,
Sub. Multi-Class Mortgage Pass-Through Ctfs.,
Ser. 1996-1:
Cl. B2, 7%, 2011......................... 821,722 824,804
Cl. B3, 7%, 2011......................... 410,861 (a) 404,185
Norwest Asset Securities, Mortgage Pass-Through Ctfs.:
Ser. 1997-15, Cl. B3, 6.75%, 2012......... 500,503 (a) 472,350
Ser. 1997-17, Cl. B3, 7.25%, 2027......... 1,046,288 975,991
Ser. 1998-2, Cl. B3, 6.50%, 2028........... 500,189 452,515
Ser. 1998-9, Cl. B4, 6.50%, 2028........... 826,000 (a) 747,014
Ser. 1998-11, Cl. B3, 6.50%, 2013.......... 751,000 737,046
Ser. 1998-11, Cl. B4, 6.50%, 2013.......... 901,000 (a) 834,614
PNC Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC, Ser. 1998-2:
Cl. III-B-4, 6.75%, 2013................. 483,484 (a) 449,640
Cl. III-B-5, 6.75%, 2013................. 386,787 (a) 309,550
Cl. IV-B-4, 6.75%, 2027.................. 269,234 (a) 246,602
Cl. IV-B-5, 6.75%, 2027.................. 269,234 (a) 188,548
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Residential
Mortgage Backed (continued) Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-7:
Cl. B2, 6.75%, 2011...................... $ 710,585 $ 705,701
Cl. B3, 6.75%, 2011...................... 1,845,647 (a) 1,790,855
Cl. B4, 6.75%, 2011...................... 851,130 (a) 762,293
Residential Accredit Loans,
Ser. 1997-QS6, Cl. B1, 7.50%, 2012........ 360,350 (a) 353,594
Residential Funding Mortgage Securities I,
Mortgage Pass-Through Ctfs., REMIC:
Ser. 1997-S19, Cl. B-1, 6.50%, 2012...... 798,431 742,541
Ser. 1997-S19, Cl. B-2, 6.50%, 2012...... 342,156 284,418
Ser. 1997-S21, Cl. B-1, 6.50%, 2012...... 463,076 430,661
Structured Asset Securities,
Mortgage Pass-Through Ctfs.,
REMIC, Ser. Greenpoint 1996-A:
Cl. B-1, 8.441%, 2027.................... 1,772,739 1,890,738
Cl. B-2, 8.441%, 2027.................... 709,607 772,975
Cl. B-4, 8.386%, 2027.................... 425,418 (a,b) 415,447
------------
21,155,839
------------
Retail Trade-Drug Stores-- 1.1% Rite Aid,
Conv. Sub. Notes, 5.25%, 2002.............. 3,000,000 (a) 3,382,500
------------
Technology--1.2% Quantum,
Conv. Sub. Notes, 7%, 2004................. 3,500,000 3,504,375
------------
Telecommunications--1.9% Comunicacion Celular SA,
Bonds, Zero Coupon, 2000................... 2,500,000 (g) 1,968,750
Microcell Communications,
Sr. Discount Notes, Zero Coupon, 2001...... 5,000,000 (g) 3,737,500
------------
5,706,250
------------
Transportation--2.3% Golden Ocean Group, Ltd.,
Sr. Notes, 10%, 2001....................... 7,905,000 (a) 6,798,300
------------
Utilities--2.5% Indiantown Cogeneration,
First Mortgage, Ser. A-10, 9.77%, 2020..... 6,000,000 7,288,566
------------
U.S. Government
Agencies--17.1% Federal Home Loan Mortgage,
6.50%, 3/1/2028............................ 25,000,000 (h) 24,750,000
Federal National Mortgage Association:
9%, 8/1/2026............................... 5,188,381 5,499,685
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
U.S. Government
Agencies (continued) Federal National Mortgage Association (continued):
REMIC Trust,
Pass-Through Ctfs. (Collateralized by FNMA
Pass-Through Ctfs.), (Interest Only):
Ser. 1993-137, Cl. PT, 7%, 6/25/2022... $ 8,410,157 (i) $ 1,991,525
Ser. 1997-40, Cl. PF, 7%, 12/18/2026... 11,000,000 (i) 4,510,990
Ser. 1997-56, Cl. PM, 7%, 6/18/2026.... 3,142,293 (i) 904,855
Government National Mortgage Association I:
7.50%, 1/15/2002-7/15/2002................. 405,511 419,956
9%, 11/15/2017............................. 11,133,137 12,096,822
------------
50,173,833
------------
U.S. Government--5.0% U.S. Treasury Bonds,
6.125%, 11/15/2027......................... 14,300,000 14,645,488
------------
TOTAL BONDS AND NOTES
(cost $283,932,983)........................ $291,117,330
============
Equity-Related Securities--11.9% Shares
- -------------------------------------------------------------------------------- ------------
Warrants--.5%
Broadcasting--.4% Spanish Broadcasting System.................... 6,250 (a) 1,281,250
Foreign--.1% Comunicacion Celular SA........................ 2,500 175,000
Transportation--0.0% Golden Ocean Group, Ltd........................ 5,270 (a) 53
------------
Total Warrants................................ 1,456,303
------------
Preferred Stocks--11.4%
Banking--2.9% Sanwa International Finance (Bermuda) Trust,
Cum., $293.66.............................. 385 (a) 8,426,852
------------
Broadcasting--3.7% Spanish Broadcasting System,
Cum., $142.50.............................. 10,485 (a) 11,009,250
------------
Cable Television--1.6% Echostar Communications,
Ser. C, Cum. Conv., $3.375................. 75,000 4,668,750
------------
Consumer--1.5% Paxson Communications,
Cum., $125.00.............................. 4,250 4,356,250
------------
</TABLE>
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stocks (continued) Shares Value
- ------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Containers--.6% Sealed Air,
Ser. A, Cum. Conv., $2.00.................. 30,000 $ 1,891,875
------------
Transportation--1.1% Union Pacific Capital Trust,
Cum. Conv., $3.125......................... 60,000 (a) 3,142,500
------------
Total Preferred Stocks........................ 33,495,477
------------
TOTAL EQUITY-RELATED SECURITIES
(cost $33,361,756)......................... $ 34,951,780
============
Options--.1% Contracts
---------
Call Options; U.S. Treasury Notes, 5.50%, 2/15/2008
April '99 @ $99.125
(cost $250,781)............................ 150 $ 230,100
============
Principal
Short-Term Investments--.4% Amount
- ------------------------------------------------------------------------------- ------------
U.S. Treasury Bills; 4.96%, 7/2/1998
(cost $1,275,995).......................... $ 1,287,000 (j) $ 1,276,266
============
TOTAL INVESTMENTS ($318,821,515)............................................... 111.4% $327,575,476
======= ============
LIABILITIES, LESS CASH AND RECEIVABLES......................................... (11.4%) $(33,425,396)
======= ============
NET ASSETS..................................................................... 100.0% $294,150,080
======= ============
</TABLE>
Notes to Statement of Investments:
- -------------------------------------------------------------------------------
(a) 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 April 30, 1998,
these securities amounted to $116,306,591 or 39.5% of net assets.
(b) Variable rate security - interest rate subject to periodic changes.
(c) Exchangeable into the common stock of Diamond Offshore Drilling.
(d) Reflects date security can be redeemed at holders' option; the stated
maturity is 8/6/2046.
(e) Denominated in Canadian Dollars.
(f) Reflects date security can be redeemed at holders' option; the stated
maturity is 4/21/2018.
(g) Zero coupon until year shown at which time a stated coupon rate becomes
effective.
(h) Purchased on a forward commitment basis.
(i) Notional face amount shown.
(j) Held by the custodian in a segregated account as collateral for open
financial futures positions.
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Financial Futures April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Unrealized
Market Value Appreciation
Covered (Depreciation)
Financial Futures Long Contracts by Contracts Expiration at 4/30/98
- ---------------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Canadian Dollars................................. 100 $ 6,996,000 June '98 ($103,000)
U.S. Treasury 5 year Notes....................... 470 51,178,594 June '98 157,813
---------
$ 54,813
=========
Financial Futures Short
- -----------------------
Standard & Poor's 500............................ 30 8,394,000 June '98 ($116,900)
U.S. Treasury 10 year Notes...................... 15 1,684,688 June '98 1,406
U.S. Treasury 30 year Bonds...................... 140 16,830,625 June '98 99,844
---------
($ 15,650)
=========
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Options Written April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Call Options
Issuer Contracts Value
- ------ --------- ---------
<S> <C> <C>
U.S. Treasury Notes, 5.50%, 2/15/2008, April '99 @ 101.75
(Premiums received $128,906)........................................... 150 $ 119,850
---------
Put Options
Issuer
- ------
U.S. Treasury Notes, 5.50%, 2/15/2008, April '99 @ $94.15625
(Premiums received $121,875)........................................... 150 133,650
---------
Total Options Written (premiums received $250,781).................. $ 253,500
=========
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Assets and Liabilities April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Cost Value
------------ ------------
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of
Investments.................................... $318,821,515 $327,575,476
Cash............................................. 4,403,684
Dividends and interest receivable................ 4,743,008
Net unrealized appreciation on forward currency
exchange contracts--Note 4(a)................... 357,473
Receivable for investment securities sold........ 115,917
Receivable for shares of Beneficial Interest
subscribed..................................... 50,555
------------
337,246,113
------------
LIABILITIES: Due to The Dreyfus Corporation and affiliates.... 172,139
Due to Distributor............................... 59,641
Payable for investment securities purchased...... 32,481,700
Bank loan payable--Note 2......................... 9,713,000
Payable for shares of Beneficial Interest redeemed 302,912
Outstanding options written, at value
(premiums received $250,781)--see statement..... 253,500
Interest payable--Note 2.......................... 32,694
Accrued expenses................................. 80,447
------------
43,096,033
------------
NET ASSETS..................................................................... $294,150,080
============
REPRESENTED BY: Paid-in capital.................................. $282,430,312
Accumulated undistributed investment income--net.. 927,372
Accumulated net realized gain (loss) on investments 1,644,518
Accumulated net unrealized appreciation (depreciation)
on investments, options written and forward
currency exchange contracts (including $39,163
net unrealized appreciation on on financial
futures)--Note 4(b)............................ 9,147,878
------------
NET ASSETS..................................................................... $294,150,080
============
SHARES OUTSTANDING
(unlimited number of $.001 par value shares of Beneficial Interest authorized). 19,264,749
NET ASSET VALUE, offering and redemption price per share....................... $15.27
======
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Operations Six Months Ended April 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME: Interest................................... $10,322,038
Cash dividends............................. 1,084,621
-----------
Total Income.......................... $11,406,659
EXPENSES: Management fee--Note 3(a)................... 839,414
Shareholder servicing costs--Note 3(b)...... 502,190
Interest expense--Note 2.................... 85,546
Registration fees.......................... 16,997
Prospectus and shareholders' reports....... 16,086
Professional fees.......................... 15,031
Custodian fees--Note 3(b)................... 11,545
Trustees' fees and expenses--Note 3(c)...... 10,141
-----------
Total Expenses........................ 1,496,950
-----------
INVESTMENT INCOME--NET.................................................... 9,909,709
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments:
Long transactions (including foreign currency
transactions and options transactions) $ 3,851,035
Short sale transactions.................. (115,547)
Net realized gain (loss) on financial futures 2,879,103
-----------
Net Realized Gain (Loss).............. 6,614,591
Net unrealized appreciation (depreciation)
on investments, options written and foreign
currency transactions [including ($427,494) net
unrealized depreciation on financial futures] 563,610
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.................... 7,178,201
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $17,087,910
===========
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
April 30, 1998 Year Ended
(Unaudited) October 31, 1997
--------------- ----------------
<S> <C> <C>
OPERATIONS:
Investment income--net.................................................. $ 9,909,709 $ 20,181,619
Net realized gain (loss) on investments................................ 6,614,591 3,960,199
Net unrealized appreciation (depreciation) on investments.............. 563,610 7,230,457
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... 17,087,910 31,372,275
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net.................................................. (9,542,315) (19,655,719)
------------ ------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold.......................................... 33,850,756 43,361,960
Dividends reinvested................................................... 6,950,515 14,143,094
Cost of shares redeemed................................................ (29,714,699) (88,614,564)
------------ ------------
Increase (Decrease) in Net Assets from Beneficial Interest Transactions 11,086,572 (31,109,510)
------------ ------------
Total Increase (Decrease) in Net Assets.......................... 18,632,167 (19,392,954)
NET ASSETS:
Beginning of Period.................................................... 275,517,913 294,910,867
------------ ------------
End of Period.......................................................... $294,150,080 $275,517,913
============ ============
Undistributed investment income--net....................................... $ 927,372 $ 559,978
------------ ------------
CAPITAL SHARE TRANSACTIONS: Shares Shares
------------ ------------
Shares sold............................................................ 2,239,534 2,978,218
Shares issued for dividends reinvested................................. 459,762 970,962
Shares redeemed........................................................ (1,970,471) (6,118,822)
------------ ------------
Net Increase (Decrease) in Shares Outstanding.................... 728,825 (2,169,642)
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
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.
<TABLE>
<CAPTION>
Six Months Ended Year Ended October 31,
April 30, 1998 -----------------------------------------------------
PER SHARE DATA: (Unaudited) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $14.86 $14.24 $14.22 $12.95 $15.36 $14.02
------ ------ ------ ------ ------ ------
Investment Operations:
Investment income--net................. .53 1.05 .98 .93 .95 1.01
Net realized and unrealized gain (loss)
on investments..................... .39 .59 .02 1.27 (2.04) 1.41
------ ------ ------ ------ ------ ------
Total from Investment Operations...... .92 1.64 1.00 2.20 (1.09) 2.42
------ ------ ------ ------ ------ ------
Distributions:
Dividends from investment income--net.. (.51) (1.02) (.98) (.93) (.95) (1.01)
Dividends from net realized gain
on investments.................... -- -- -- -- (.37) (.07)
------ ------ ------ ------ ------ ------
Total Distributions................... (.51) (1.02) (.98) (.93) (1.32) (1.08)
------ ------ ------ ------ ------ ------
Net asset value, end of period........ $15.27 $14.86 $14.24 $14.22 $12.95 $15.36
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN.................. 12.66%(1) 11.94% 7.27% 17.57%(2) (7.44%)(2) 17.93%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average
net assets......................... 1.01%(1) 1.03% 1.04% 1.04% .94% .84%
Ratio of interest expense to average
net assets......................... .06%(1) .06% .02% -- -- --
Ratio of net investment income to average
net assets......................... 7.08%(1) 7.25% 6.89% 6.87% 6.84% 6.83%
Decrease reflected in above expense ratios
due to undertakings by the Manager. -- -- -- -- .11% .24%
Portfolio Turnover Rate............... 139.14%(3) 347.68% 214.55% 176.59% 161.35% 118.38%
Net Assets, end of period
(000's Omitted).................... $294,150 $275,518 $294,911 $320,345 $322,487 $375,459
<FN>
- ----------------
(1) Annualized.
(2) Exclusive of sales load.
(3) Not annualized.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Significant Accounting Policies:
Dreyfus Strategic Income Fund (the "Fund") is a separate diversified series
of Dreyfus Income Funds (the "Company") which is registered under the
Investment Company Act of 1940 ("Act") as an open-end management investment
company and operates as a series company currently offering five 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, other than U.S. Treasury Bills, and financial futures) 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. Short-term investments, excluding U.S.
Treasury Bills, 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) Forerign currency transactions: The Fund does not isolate that portion
of the results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in the market prices
of securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized on securities transactions and the difference between
the amount of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in exchange rates. Such gains and
losses are included with net realized and unrealized gain or loss on
investments.
(c) 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.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) 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.
(e) 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 $4,470,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1997. If not
applied, the carryover expires in fiscal 2003.
NOTE 2--Bank Lines 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.
The average daily amount of borrowings outstanding under both arrangements
during the period ended April 30, 1998 was approximately $2,898,000 with a
related weighted average annualized interest rate of 5.95%.
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, 1998, the Fund was charged $349,756 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. During the period
ended April 30, 1998, the Fund was charged $113,507 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement to provide custodial
services for the Fund. During the period ended April 30, 1998, the Fund was
charged $11,545 pursuant to the custody agreement.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(c) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $2,500 and an attendance fee of $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
(a) The following summarizes the aggregate amount of purchases and sales
(including paydowns) of investment securities and securities sold short,
excluding short-term securities, financial futures and options transactions,
during the period ended April 30, 1998:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Long transactions.................................................... $449,472,565 $423,861,119
Short sale transactions.............................................. 50,337,500 50,221,953
------------ ------------
Total.......................................................... $499,810,065 $474,083,072
============ ============
</TABLE>
The Fund is engaged in short-selling which obligates the Fund to replace the
security borrowed by purchasing the security at current market value. The Fund
would incur a loss if the price of the security increases between the date of
the short sale and the date on which the Fund replaces the borrowed security.
The Fund would realize a gain if the price of the security declines between
those dates. Until the Fund replaces the borrowed security, the Fund will
maintain daily, a segregated account with a broker and custodian, of cash
and/or U.S. Government securities sufficient to cover its short position. At
April 30, 1998, there were no securities sold short outstanding.
In addition, the following summarizes open forward currency exchange
contracts at April 30, 1998:
<TABLE>
<CAPTION>
Foreign
Currency Unrealized
Forward Currency Exchange Contracts Amount Proceeds Value Appreciation
----------------------------------- --------------- ------------ ------------ ------------
Sales:
------
<S> <C> <C> <C> <C>
Japanese Yen, expiring 5/18/98 1,155,000,000 $9,076,264 $8,718,791 $357,473
========
</TABLE>
The Fund enters into forward currency exchange contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. When executing forward currency exchange contracts, the
Fund is obligated to buy or sell a foreign currency at a specified rate on a
certain date in the future. With respect to sales of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract increases
between the date the forward contract is opened and the date the forward
contract is closed. The Fund realizes a gain if the value of the contract
decreases between those dates. With respect to purchases of forward currency
exchange contracts, the Fund would incur a loss if the value of the contract
decreases between the date the forward contract is opened and the date the
forward contract is closed. The Fund realizes a gain if the value of the
contract increases between those dates. The Fund is also exposed to credit risk
associated with counter party nonperformance on these forward currency exchange
contracts which is typically limited to the unrealized gain on each open
contract.
<PAGE>
Dreyfus Strategic Income Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
In addition, the following table summarizes the Fund's call/put options
written for the period ended April 30, 1998:
<TABLE>
<CAPTION>
Options Terminated
---------------------------------
Net
Number of Premiums Realized
OPTIONS WRITTEN: Contracts Received Cost Gain/(Loss)
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Contracts outstanding October 31, 1997.......... 100 $200,000
Contracts written............................ 500 339,844
--- --------
600 539,844
--- --------
Contracts Terminated:
Closed....................................... 100 200,000 $237,500 ($37,500)
Expired...................................... 200 89,063 -- 89,063
--- -------- -------- -------
Total contracts terminated................ 300 289,063 $237,500 $51,563
--- -------- ======== =======
Contracts outstanding April 30, 1998............ 300 $250,781
=== ========
</TABLE>
The Fund may purchase and write (sell) put and call options in order to gain
exposure to or protect against changes in the market.
As a writer of call options, the Fund receives a premium at the outset and
then bears the market risk of unfavorable changes in the price of the financial
instrument underlying the option. Generally, the Fund would incur a gain, to
the extent of the premium, if the price of the underlying financial instrument
decreases between the date the option is written and the date on which the
option is terminated. Generally, the Fund would realize a loss if the price of
the financial instrument increases between those dates. Contracts open at April
30, 1998 are set forth in the Statement of Options Written.
As a writer of put options, the Fund receives a premium at the outset and
then bears the market risk of unfavorable changes in the price of the financial
instrument underlying the option. Generally, the Fund would incur a gain, to
the extent of the premium, if the price of the underlying financial instrument
increases between the date the option is written and the date on which the
option is terminated. Generally, the Fund would realize a loss if the price of
the financial instrument decreases between those dates. Contracts open at April
30, 1998 are set forth in the Statement of Options Written.
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.
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 unrealized 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 contract 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, 1998 are set forth in the Statement of Financial Futures.
(b) At April 30, 1998, accumulated net unrealized appreciation on
investments, financial futures, options and forward currency exchange contracts
was $9,147,878, consisting of $12,393,086 gross unrealized appreciation and
$3,245,208 gross unrealized depreciation.
At April 30, 1998, 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).
<PAGE>
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 BankCenter
Pittsburgh, PA 15258
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 031SA984
