File Nos. 33-7172
811-4748
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 20 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 20 [ X ]
(Check appropriate box or boxes.)
DREYFUS INCOME FUNDS
(formerly, Dreyfus Strategic Income)
(Exact Name of Registrant as Specified in Charter)
c/o The Dreyfus Corporation
200 Park Avenue, New York, New York 10166
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 922-6000
Mark N. Jacobs, Esq.
200 Park Avenue
New York, New York 10166
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
immediately upon filing pursuant to paragraph (b)
----
X on March 2, 1998 pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(i)
----
on (date) pursuant to paragraph (a)(i)
----
75 days after filing pursuant to paragraph (a)(ii)
----
on (date) pursuant to paragraph (a)(ii) of Rule 485
----
If appropriate, check the following box:
this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
----
DREYFUS INCOME FUNDS
Cross-Reference Sheet Pursuant to Rule 495(b)
Page in the
Items in Dreyfus Equity
Dividend Fund
Form N-1A Caption Prospectus
_________ _______ ________________
1 Cover Page Cover
2 Synopsis *
3 Condensed Financial Information 4
4 General Description of Registrant 4
5 Management of the Fund 6
5(a) Management's Discussion of Fund's 16
Performance
6 Capital Stock and Other Securities 17
7 Purchase of Securities Being Offered 7
8 Redemption or Repurchase 12
9 Pending Legal Proceedings *
Page in the
Items in Dreyfus High
Yield Securities
Form N-1A Caption Fund Prospectus
_________ _______ __________________
1 Cover Page Cover
2 Synopsis *
3 Condensed Financial Information 5
4 General Description of Registrant 6
5 Management of the Fund 8
5(a) Management's Discussion of Fund's 18
Performance
6 Capital Stock and Other Securities 19
7 Purchase of Securities Being Offered 9
8 Redemption or Repurchase 14
9 Pending Legal Proceedings *
____________________________
NOTE: * Omitted since answer is negative or inapplicable.
Page in the
Items in Dreyfus Real
Estate Mortgage
Form N-1A Caption Fund Prospectus
_________ _______ __________________
1 Cover Page Cover
2 Synopsis *
3 Condensed Financial Information 4
4 General Description of Registrant 4
5 Management of the Fund 7
5(a) Management's Discussion of Fund's 18
Performance
6 Capital Stock and Other Securities 18
7 Purchase of Securities Being Offered 9
8 Redemption or Repurchase 14
9 Pending Legal Proceedings *
____________________________
NOTE: * Omitted since answer is negative or inapplicable.
DREYFUS INCOME FUNDS
Cross-Reference Sheet Pursuant to Rule 495(b) (continued)
Page in the
Items in Dreyfus Short
Term High Yield
Form N-1A Caption Fund Prospectus
_________ _______ ________________
1 Cover Page Cover
2 Synopsis *
3 Condensed Financial Information 5
4 General Description of Registrant 6
5 Management of the Fund 8
5(a) Management's Discussion of Fund's 19
Performance
6 Capital Stock and Other Securities 20
7 Purchase of Securities Being Offered 10
8 Redemption or Repurchase 15
9 Pending Legal Proceedings *
Page in the
Items in Dreyfus Strategic
Income Fund
Form N-1A Caption Prospectus
_________ _______ ____________________
1 Cover Page Cover
2 Synopsis *
3 Condensed Financial Information 4
4 General Description of Registrant 5
5 Management of the Fund 8
5(a) Management's Discussion of Fund's 18
Performance
6 Capital Stock and Other Securities 19
7 Purchase of Securities Being Offered 9
8 Redemption or Repurchase 14
9 Pending Legal Proceedings *
____________________________
NOTE: * Omitted since answer is negative or inapplicable.
DREYFUS INCOME FUNDS
Cross-Reference Sheet Pursuant to Rule 495(b) (continued)
Items in
Part B of
Form N-1A Caption Page
_________ _______ ____
10 Cover Page Cover
11 Table of Contents Cover
12 General Information and History *
13 Investment Objectives and Policies B-2
14 Management of the Company B-18
15 Control Persons and Principal B-21
Holders of Securities
16 Investment Advisory and Other B-23
Services
Items in
Part B of
Form N-1A Caption Page
_________ _______ _____
17 Brokerage Allocation B-35
18 Capital Stock and Other Securities B-37
19 Purchase, Redemption and Pricing B-25, B-27,
of Securities Being Offered B-32
20 Tax Status B-33
21 Underwriters B-25
22 Calculations of Performance Data B-36
23 Financial Statements B-48
____________________________
NOTE: * Omitted since answer is negative or inapplicable.
DREYFUS INCOME FUNDS
Cross-Reference Sheet Pursuant to Rule 495(b) (continued)
Items in
Part C of
Form N-1A Caption Page
_________ _______ _____
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under C-4
Common Control with Registrant
26 Number of Holders of Securities C-4
27 Indemnification C-4
28 Business and Other Connections of C-5
Investment Adviser
29 Principal Underwriters C-12
30 Location of Accounts and Records C-15
31 Management Services C-15
32 Undertakings C-15
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PROSPECTUS MARCH 1, 1998
DREYFUS EQUITY DIVIDEND FUND
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DREYFUS EQUITY DIVIDEND FUND (THE "FUND") IS A SEPARATE DIVERSIFIED
PORTFOLIO OF DREYFUS INCOME FUNDS, AN OPEN-END, MANAGEMENT INVESTMENT COMPANY
(THE "COMPANY"), KNOWN AS A MUTUAL FUND. THE FUND'S PRIMARY INVESTMENT
OBJECTIVE IS CURRENT INCOME. CAPITAL APPRECIATION IS A SECONDARY OBJECTIVE.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY.
YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING DREYFUS
TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 1, 1998, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 3
CONDENSED FINANCIAL INFORMATION................... 4
DESCRIPTION OF THE FUND........................... 4
MANAGEMENT OF THE FUND............................ 6
HOW TO BUY SHARES................................. 7
SHAREHOLDER SERVICES.............................. 9
HOW TO REDEEM SHARES.............................. 12
SHAREHOLDER SERVICES PLAN......................... 14
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 15
PERFORMANCE INFORMATION........................... 16
GENERAL........................................... 17
APPENDIX.......................................... 18
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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[This Page Intentionally Left Blank]
[PAGE 2]
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<S> <C> <C>
Management Fees.............................................................. .75%
Other Expenses............................................................... 1.88%
Total Fund Operating Expenses................................................ 2.63%
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $27 $82 $140 $296
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by the Fund, the payment of which will reduce
investors' annual return. The information in the foregoing table does not
reflect any fee waivers or expense reimbursement arrangements that may be in
effect. Certain Service Agents (as defined below) may charge their clients
direct fees for effecting transactions in Fund shares; such fees are not
reflected in the foregoing table. See "Management of the Fund," "How to Buy
Shares," "How to Redeem Shares" and "Shareholder Services Plan."
[PAGE 3]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. Further financial data, related
notes and report of independent auditors accompany the Statement of
Additional Information, available upon request.
FINANCIAL HIGHLIGHTS
<TABLE>
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 year indicated. This
information has been derived from the Fund's financial statements.
Year Ended October 31,
__________________________________
PER SHARE DATA: 1996(1) 1997
_________ _________
<S> <C> <C>
Net asset value, beginning of year........................................ $12.50 $13.89
_________ _________
INVESTMENT OPERATIONS:
Investment income-net..................................................... .23 .32
Net realized and unrealized gain on investments........................... 1.38 3.67
_________ _________
TOTAL FROM INVESTMENT OPERATIONS.......................................... 1.61 3.99
_________ _________
DISTRIBUTIONS:
Dividends from investment income-net...................................... (.22) (.32)
Dividends from net realized gain on investments........................... ._ (.28)
_________ _________
TOTAL DISTRIBUTIONS....................................................... (.22) (.60)
Net asset value, end of year.............................................. $13.89 $17.28
_________ _________
TOTAL INVESTMENT RETURN..................................................... 12.93%(2) 29.34%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................................... 1.08%(2) 1.27%
Ratio of net investment income to average net assets...................... 1.76%(2) 1.98%
Decrease reflected in above expense ratios due to undertakings by The
Dreyfus Corporation 1.05%(2) 1.36%
Portfolio Turnover Rate................................................... 98.84%(2) 80.43%
Average commission rate paid(3)........................................... $.0483 $.0546
Net Assets, end of year (000's omitted)................................... $2,858 $4,314
(1) From December 29, 1995 (commencement of operations) to October 31, 1996.
(2) Not annualized.
(3) Reflects average commission rate paid per share for purchases and sales
of investment securities.
</TABLE>
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVES
The Fund's primary investment objective is current income. Capital
appreciation is a secondary objective. The Fund's investment objectives
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of the
Fund's outstanding voting shares. There can be no assurance that the Fund's
investment objectives will be achieved.
MANAGEMENT POLICIES
Under normal market conditions, the Fund will invest at least 65% of
the value of its net assets in equity securities, including dividend-paying
common stocks, preferred stocks and securities that are convertible into
common stocks (collectively, "Equity Securities") of domestic and foreign
issuers. The Fund also may invest in Equity Securities in the form of
American Depositary Receipts, and in warrants to purchase Equity Securities.
The Dreyfus Corporation will be particularly alert to investing in Equity
Securities of companies which pay above-average dividends and which it
believes have the capacity to raise dividends in the future and the potential
for capital appreciation.
[PAGE 4]
In addition, the Fund may invest up to 35% of the value of its total
assets in non-dividend-paying Equity Securities and in debt securities of
domestic and foreign issuers. The debt securities in which the Fund may
invest must be rated investment grade by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P"), Fitch IBCA, Inc.
("Fitch") or Duff & Phelps Credit Rating Co. ("Duff"), or, if unrated,
deemed to be of comparable quality by The Dreyfus Corporation. Investment
grade debt securities are those rated at least Baa by Moody's or at least
BBB by S&P, Fitch or Duff. Debt securities rated Baa by Moody's and
BBB by S&P, Fitch and Duff are considered investment grade obligations which
lack outstanding investment characteristics and may have speculative
characteristics as well. See "Investment Considerations and Risks_Fixed
Income Securities" below.
While seeking desirable investments, the Fund may invest in money
market instruments consisting of U.S. Government securities, certificates of
deposit, time deposits, bankers' acceptances, short-term investment grade
corporate bonds and other short-term debt instruments, and repurchase
agreements, as set forth under "Appendix_Certain Portfolio Securities_Money
Market Instruments." Under normal market conditions, the Fund does not
expect to have a substantial portion of its assets invested in money market
instruments. However, when The Dreyfus Corporation determines that adverse
market conditions exist, the Fund may adopt a temporary defensive posture and
invest all of its assets in money market instruments.
The Fund's annual portfolio turnover rate for the current fiscal year
is not expected to exceed 100%. A turnover rate of 100% is equivalent to the
Fund buying and selling all of the securities in its portfolio once in the
course of the year. Higher portfolio turnover rates usually generate
additional brokerage commissions and expenses and the short-term gains
realized from these transactions are taxable to shareholders as ordinary
income. The Fund may engage in various investment techniques, such as transact
ions in foreign currency, options and futures and short-selling. For a
discussion of the investment techniques and their related risks, see
"Investment Considerations and Risks" and "Appendix_Investment Techniques"
below and "Investment Objectives and Management Policies_Management Policies"
in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ The Fund's net asset value per share should be expected to
fluctuate. Investors should consider the Fund as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objectives and Management Policies" in
the Statement of Additional Information for a further discussion of certain
risks.
EQUITY SECURITIES _ Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced. Changes in the value of the Fund's
investments will result in changes in the value of its shares and thus the
Fund's total return to investors.
FIXED-INCOME SECURITIES _ Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuer. Certain securities purchased by
the Fund, such as those rated Baa by Moody's and BBB by S&P, Fitch and Duff,
may be subject to such risk with respect to the issuing entity and to greater
market fluctuations than certain lower yielding, higher rated fixed-income
securities. Once the rating of a portfolio security has been changed, the
Fund will consider all circumstances deemed relevant in determining whether
to continue to hold the security. See "Appendix" in the Statement of
Additional Information.
FOREIGN SECURITIES _ Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
[PAGE 5]
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Fund will be subject to additional risks which
include possible adverse political and economic developments, seizure or
nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect or restrict the payment of principal and
interest on the foreign securities to investors located outside the country
of the issuer, whether from currency blockage or otherwise.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
USE OF DERIVATIVES _ The Fund may invest in derivatives ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate.
The Derivatives the Fund may use include options and futures. While
Derivatives can be used effectively in furtherance of the Fund's investment
objectives, under certain market conditions, they can increase the volatility
of the Fund's net asset value, decrease the liquidity of the Fund's portfolio
and make more difficult the accurate pricing of the Fund's portfolio. See
"Appendix_Investment Techniques_Use of Derivatives" below and "Investment
Objectives and Management Policies_Management Policies_Derivatives" in the
Statement of Additional Information.
SIMULTANEOUS INVESTMENTS _ Investment decisions for the Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities as the Fund, available
investments or opportunities for sales will be allocated equitably to each
investment company. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price
paid or received by the Fund.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER _ The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of January 31, 1998, The Dreyfus Corporation
managed or administered approximately $96 billion in assets for approximately
1.7 million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the
Company, subject to the authority of the Company's Board in accordance with
Massachusetts law. The Fund's primary portfolio manager is Timothy M.
Ghriskey. He has held that position since December 1995 and has been employed
by The Dreyfus Corporation since July 1995. Prior to joining The Dreyfus
Corporation, Mr. Ghriskey was a Vice President and Associate Managing Partner
at Loomis, Sayles & Co. since 1985. The Fund's other portfolio managers are
identified in the Statement of Additional Information. The Dreyfus
Corporation also provides research services for the Fund and for other funds
advised by The Dreyfus Corporation through a professional staff of portfolio
managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$305 billion in assets as of December
[PAGE 6]
31, 1997, including approximately $104 billion in proprietary mutual fund
assets. As of December 31, 1997, Mellon, through various subsidiaries,
provided non-investment services, such as custodial or administration
services, for more than $1.532trillion in assets, including approximately $60
billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to
pay The Dreyfus Corporation a monthly fee at the annual rate of .75 of 1% of
the value of the Fund's average daily net assets. For the fiscal year ended
October 31, 1997, no management fee was paid by the Fund pursuant to an
undertaking by The Dreyfus Corporation. From time to time, The Dreyfus
Corporation may waive receipt of its fees and/or voluntarily assume certain
expenses of the Fund, which would have the effect of lowering the expense
ratio of the Fund and increasing yield to investors. The Fund will not pay
The Dreyfus Corporation at a later time for any amounts it may waive, nor
will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume.
In allocating brokerage transactions, The Dreyfus Corporation seeks
to obtain the best execution of orders at the most favorable net price.
Subject to this determination, The Dreyfus Corporation may consider, among
other things, the receipt of research services and/or the sale of shares of
the Fund or other funds managed, advised or administered by The Dreyfus
Corporation as factors in the selection of broker-dealers to execute
portfolio transactions for the Fund. See "Portfolio Transactions" in the State
ment of Additional Information.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, is the Fund's Custodian.
HOW TO BUY SHARES
Fund shares are sold without a sales charge. You may be charged a fee
if you effect transactions in Fund shares through a securities dealer, bank
or other financial institution (collectively, "Service Agents"). Share
certificates are issued only upon your written request. No certificates are
issued for fractional shares. The Fund reserves the right to reject any
purchase order. See "Appendix _ Additional Information About Purchases,
Exchanges and Redemptions."
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which maintains an omnibus account in the Fund and
has made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. However, the minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including regular
IRAs, spousal IRAs for a non-working spouse, Roth IRAs, SEP-IRAs and rollover
IRAs) and 403(b)(7) Plans with only one participant and $500 for
Dreyfus-sponsored Education IRAs, with no minimum on subsequent purchases.
The initial investment must be accompanied by the Account Application. For
full-time or part-time employees of The Dreyfus Corporation or any of its
affiliates or subsidiaries, directors of The Dreyfus Corporation, Board
members of a fund advised by The Dreyfus Corporation, including members of
the Company's Board, or the spouse or minor child of any of the foregoing,
the minimum initial investment is $1,000. For full-time or part-time
employees of The Dreyfus Corporation or any of its affiliates or subsidiaries
who elect to have a portion of their pay directly deposited into their Fund
[PAGE 7]
accounts, the minimum initial investment is $50. The Fund reserves the right
to offer Fund shares without regard to minimum purchase requirements to
employees participating in certain qualified or non-qualified employee
benefit plans or other programs where contributions or account information
can be transmitted in a manner and form acceptable to the Fund. The Fund
reserves the right to vary further the initial and subsequent investment
minimum requirements at any time. Fund shares also are offered without regard
to the minimum initial investment requirements through Dreyfus-AUTOMATIC
Asset BuilderRegistration Mark, Dreyfus Government Direct Deposit Privilege
or Dreyfus Payroll Savings Plan pursuant to the Dreyfus Step Program
described under "Shareholder Services." These services enable you to make
regularly scheduled investments and may provide you with a convenient way to
invest for long-term financial goals. You should be aware, however, that
periodic investment plans do not guarantee a profit and will not protect an
investor against loss in a declining market.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian" and should specify that you are
investing in the Fund. Payments to open new accounts which are mailed should
be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence, Rhode
Island 02940-9387, together with your Account Application. For subsequent
investments, your Fund account number should appear on the check and an invest
ment slip should be enclosed and sent to The Dreyfus Family of Funds, P.O.
Box 105, Newark, New Jersey 07101-0105. For Dreyfus retirement plan accounts,
both initial and subsequent investments should be sent to The Dreyfus Trust
Company, Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427.
Neither initial nor subsequent investments should be made by third party
check. Purchase orders may be delivered in person only to a Dreyfus Financial
Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY
UPON RECEIPT THEREBY. For the location of the nearest Dreyfus Financial
Center, please call one of the telephone numbers listed under "General
Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA #8900276398/Dreyfus Equity
Dividend Fund, for purchase of Fund shares in your name. The wire must
include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your
wire payment to obtain your Fund account number. Please include your Fund
account number on the Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the
Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made
in U.S. dollars and, to avoid fees and delays, should be drawn only on U.S.
banks. A charge will be imposed if any check used for investment in your
account does not clear. The Fund makes available to certain large institutions
the ability to issue purchase instructions through compatible computer
facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other entity authorized to receive orders on behalf of the
Fund. Net asset value per share is determined as of the close of trading on
the floor of the New York Stock Exchange (currently 4:00 p.m., New York
time), on each day the New York Stock
[PAGE 8]
Exchange is open for business. For purposes of determining net asset value,
options and futures contracts will be valued 15 minutes after the close of
trading on the floor of the New York Stock Exchange. Net asset value per
share is computed by dividing the value of the Fund's net assets (i.e., the
value of its assets less liabilities) by the total number of Fund shares
outstanding. The Fund's investments are valued generally at market value or,
where market quotations are not readily available, at fair value as
determined by or under the direction of the Company's Board. For further
information regarding the methods employed in valuing the Fund's investments,
see "Determination of Net Asset Value" in the Statement of Additional
Information.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by the Distributor
to such plans or programs exceeds $1,000,000 ("Eligible Benefit Plans").
Shares of funds in the Dreyfus Family of Funds then held by Eligible Benefit
Plans will be aggregated to determine the fee payable. The Distributor
reserves the right to cease paying these fees at any time. The Distributor
will pay such fees from its own funds, other than amounts received from the
Fund, including past profits or any other source available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Account Application for further information concerning this requirement.
Failure to furnish a certified TIN to the Fund could subject you to a $50
penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between the bank account designated in one of these documents
and your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Fund may modify or terminate this Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES
FUND EXCHANGES
You may purchase, in exchange for shares of the Fund, shares of
certain other funds managed or administered by The Dreyfus Corporation, to
the extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
If you desire to use this service, you should consult your Service Agent or
call 1-800-645-6561 to determine if it is available and whether any
conditions are imposed on its use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling
1-800-645-6561. Except in the case of personal retirement plans, the shares
being exchanged must have a current
[PAGE 9]
value of at least $500; furthermore, when establishing a new account by
exchange, the shares being exchanged must have a value of at least the
minimum initial investment required for the fund into which the exchange is
being made. The ability to issue exchange instructions by telephone is given
to all Fund shareholders automatically, unless you check the applicable "No"
box on the Account Application, indicating that you specifically refuse this
Privilege. The Telephone Exchange Privilege may be established for an
existing account by written request signed by all shareholders on the
account, by a separate signed Shareholder Services Form, available by calling
1-800-645-6561, or by oral request from any of the authorized signatories on
the account by calling 1-800-645-6561. If you have established the Telephone
Exchange Privilege, you may telephone exchange instructions (including over
The Dreyfus TouchRegistration Mark automated telephone system) by calling
1-800-645-6561. If you are calling from overseas, call 516-794-5452. See "How
to Redeem Shares _ Procedures." Upon an exchange into a new account, the
following shareholder services and privileges, as applicable and where
available, will be automatically carried over to the fund into which the
exchange is made: Telephone Exchange Privilege, Wire Redemption Privilege,
Telephone Redemption Privilege, Dreyfus TELETRANSFER Privilege and the
dividend/capital gain distribution option (except for Dreyfus Dividend Sweep)
selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares you are exchanging
were: (a) purchased with a sales load, (b) acquired by a previous exchange
from shares purchased with a sales load, or (c) acquired through reinvestment
of dividends or distributions paid with respect to the foregoing categories
of shares. To qualify, at the time of the exchange you must notify the
Transfer Agent or your Service Agent must notify the Distributor. Any such
qualification is subject to confirmation of your holdings through a check of
appropriate records. See "Shareholder Services" in the Statement of
Additional Information. No fees currently are charged shareholders directly
in connection with exchanges, although the Fund reserves the right, upon not
less than 60 days' written notice, to charge shareholders a nominal
administrative fee in accordance with rules promulgated by the Securities and
Exchange Commission. The Fund reserves the right to reject any exchange
request in whole or in part. See "Appendix _ Additional Information About
Purchases, Exchanges and Redemptions." The availability of Fund Exchanges may
be modified or terminated at any time upon notice to shareholders. See
"Dividends, Distributions and Taxes."
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
the Fund, in shares of certain other funds in the Dreyfus Family of Funds of
which you are a shareholder. The amount you designate, which can be expressed
either in terms of a specific dollar or share amount ($100 minimum), will be
exchanged automatically on the first and/or fifteenth day of the month
according to the schedule you have selected. Shares will be exchanged at the
then-current net asset value; however, a sales load may be charged with
respect to exchanges into funds sold with a sales load. See "Shareholder
Services" in the Statement of Additional Information. The right to exercise
this Privilege may be modified or canceled by the Fund or the Transfer Agent.
You may modify or cancel your exercise of this Privilege at any time by
mailing written notification to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671. The Fund may charge a service fee for
the use of this Privilege. No such fee currently is contemplated. For more
information concerning this Privilege and the funds in the Dreyfus Family of
Funds eligible to participate in this Privilege, or to obtain a Dreyfus
Auto-Exchange Authorization Form, please call toll free 1-800-645-6561. See
"Dividends, Distributions and Taxes."
[PAGE 10]
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring funds
from the bank account designated by you. Only an account maintained at a
domestic financial institution which is an Automated Clearing House member
may be so designated. To establish a Dreyfus-AUTOMATIC Asset Builder account,
you must file an authorization form with the Transfer Agent. You may obtain
the necessary authorization form by calling 1-800-645-6561. You may cancel
your participation in this Privilege or change the amount of purchase at any
time by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into your
Fund account. You may deposit as much of such payments as you elect. To
enroll in Dreyfus Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment that
you desire to include in this Privilege. The appropriate form may be obtained
by calling 1-800-645-6561. Death or legal incapacity will terminate your
participation in this Privilege. You may elect at any time to terminate your
participation by notifying in writing the appropriate Federal agency. The
Fund may terminate your participation upon 30 days' notice to you.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have part or all of your
paycheck transferred to your existing Dreyfus account electronically through
the Automated Clearing House system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form
with your employer's payroll department. Your employer must complete the
reverse side of the form and return it to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may change the amount of
purchase or cancel the authorization only by written notification to your
employer. It is the sole responsibility of your employer, not the
Distributor, The Dreyfus Corporation, the Fund, the Transfer Agent or any
other person, to arrange for transactions under the Dreyfus Payroll Savings
Plan. The Fund may modify or terminate this Privilege at any time or charge a
service fee. No such fee currently is contemplated.
DREYFUS STEP PROGRAM
Dreyfus Step Program enables you to purchase Fund shares without
regard to the Fund's minimum initial investment requirements through Dreyfus-
AUTOMATIC Asset BuilderRegistration Mark, Dreyfus Government Direct Deposit
Privilege or Dreyfus Payroll Savings Plan. To establish a Dreyfus Step
Program account, you must supply the necessary information on the Account
Application and file the required authorization form(s) with the Transfer
Agent. For more information concerning this Program, or to request the
necessary authorization form(s), please call toll free 1-800-782-6620. You
may terminate your participation in this Program at any time by discontinuing
your participation in Dreyfus-AUTOMATIC Asset BuilderRegistration Mark,
Dreyfus Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan,
as the case may be, as provided under the terms of such Privilege(s). The
Fund may modify or terminate this Program at any time. Investors who wish to
purchase Fund shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plan may do so only for IRAs, SEP-IRAs and IRA
"Rollover Accounts."
[PAGE 11]
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of another fund in the Dreyfus Family of Funds of which you are a
shareholder. Shares of the other fund will be purchased at the then-current
net asset value; however, a sales load may be charged with respect to
investments in shares of a fund sold with a sales load. If you are investing
in a fund that charges a sales load, you may qualify for share prices which
do not include the sales load or which reflect a reduced sales load. If you
are investing in a fund that charges a contingent deferred sales charge, the
shares purchased will be subject on redemption to the contingent deferred
sales charge, if any, applicable to the purchased shares. See "Shareholder
Services" in the Statement of Additional Information. Dreyfus Dividend ACH
permits you to transfer electronically dividends or dividends and capital
gain distributions, if any, from the Fund to a designated bank account. Only
an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. Banks may charge a fee
for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To select a new
fund after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three business
days following receipt. These privileges are available only for existing
accounts and may not be used to open new accounts. Minimum subsequent
investments do not apply for Dreyfus Dividend Sweep. The Fund may modify or
terminate these privileges at any time or charge a service fee. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans are not eligible for Dreyfus Dividend Sweep.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $5,000 minimum account. An application for the Automatic
Withdrawal Plan can be obtained by calling 1-800-645-6561. The Automatic
Withdrawal Plan may be ended at any time by you, the Fund or the Transfer
Agent. Shares for which certificates have been issued may not be redeemed
through the Automatic Withdrawal Plan.
RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs (including regular IRAs, spousal IRAs for a
non-working spouse, Roth IRAs, SEP-IRAs, rollover IRAs and Education IRAs),
401(k) Salary Reduction Plans and 403(b)(7) Plans. Plan support services also
are available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs (except SEP-IRAs), please call 1-800-645-6561; for SEP-IRAs, 401(k)
Salary Reduction Plans, and 403(b)(7) Plans, please call 1-800-322-7880.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form by the Transfer Agent or other entity
authorized to receive orders on behalf of the Fund, the Fund will redeem the
shares at the next determined net asset value. See "Appendix _ Additional
Information About Purchases, Exchanges and Redemptions."
The Fund imposes no charges when shares are redeemed. Service Agents
may charge their clients a fee for effecting redemptions of Fund shares. Any
certificates representing Fund shares being redeemed must be submitted with
the redemption request. The value of the shares redeemed may be more or less
than their original cost, depending upon the Fund's then-current net asset
value.
[PAGE 12]
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDERRegistration
Mark AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER
AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK
CLEARANCE OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-
AUTOMATIC ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR
MORE. IN ADDITION, THE FUND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR
TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF
EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK,
THE DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET BUILDER ORDER
AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY
IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A
SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST.
PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL
ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS
OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until the Transfer
Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or through the Telephone Redemption Privilege
which is granted automatically unless you specifically refuse it by checking
the applicable "No" box on the Account Application. The Telephone Redemption
Privilege may be established for an existing account by a separate signed
Shareholder Services Form or by oral request from any of the authorized
signatories on the account by calling 1-800-645-6561. You also may redeem
shares through the Wire Redemption Privilege or the Dreyfus TELETRANSFER
Privilege, if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. Other redemption procedures may be in effect
for clients of certain Service Agents. The Fund makes available to certain
large institutions the ability to issue redemption instructions through
compatible computer facilities. The Fund reserves the right to refuse any
request made by wire or telephone, including requests made shortly after a
change of address, and may limit the amount involved or the number of such
requests. The Fund may modify or terminate any redemption Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans, and shares for which certificates have been issued, are not
eligible for the Wire Redemption, Telephone Redemption or Dreyfus TELETRANSFER
Privileges.
The Telephone Redemption Privilege or Telephone Exchange Privilege
authorizes the Transfer Agent to act on telephone instructions (including
over The Dreyfus TouchRegistration Mark automated telephone system) from any
person representing himself or herself to be you, and reasonably believed by
the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Fund or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption
[PAGE 13]
procedures may result in your redemption request being processed at a later
time than it would have been if telephone redemption had been used. During
the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION _ Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program. If you
have any questions with respect to signature-guarantees, please call one of
the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
WIRE REDEMPTION PRIVILEGE _ You may request by wire, telephone or letter
that redemption proceeds (minimum $1,000) be wired to your account at a bank
which is a member of the Federal Reserve System, or a correspondent bank if
your bank is not a member. Holders of jointly registered Fund or bank
accounts may have redemption proceeds of not more than $250,000 wired within
any 30-day period. You may telephone redemption requests by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire.
TELEPHONE REDEMPTION PRIVILEGE _ You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Telephone Redemption Privilege is granted automatically unless you refuse it.
DREYFUS TELETRANSFER PRIVILEGE _ You may request by telephone that
redemption proceeds (minimum $500 per day) be transferred between your Fund
account and your bank account. Only a bank account maintained in a domestic
financial institution which is an Automated Clearing House member may be
designated. Redemption proceeds will be on deposit in your account at an
Automated Clearing House member bank ordinarily two days after receipt of the
redemption request. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their bank
account not more than $250,000 within any 30-day period.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan, pursuant to which
it pays the Distributor for the provision of certain services to Fund
shareholders a fee at the annual rate of .25 of 1% of the value of the Fund's
average daily net assets. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. The Distributor may make
payments to Service Agents in respect of these services. The Distributor
determines the amounts to be paid to Service Agents.
[PAGE 14]
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. The Fund ordinarily pays
dividends from its net investment income quarterly and distributes net
realized securities gains, if any, once a year, but it may make distributions
on a more frequent basis to comply with the distribution requirements of the
Code, in all events in a manner consistent with the provisions of the 1940
Act. The Fund will not make distributions from net realized securities gains
unless capital loss carryovers, if any, have been utilized or have expired.
You may choose whether to receive dividends and distributions in cash or to
reinvest in additional shares at net asset value. If you elect to receive
dividends and distributions in cash, and your dividend or distribution check
is returned to the Fund as undeliverable or remains uncashed for six months,
the Fund reserves the right to reinvest such dividend or distribution and all
future dividends and distributions payable to you in additional Fund shares
at net asset value. No interest will accrue on amounts represented by
uncashed distribution or redemption checks. All expenses are accrued daily and
deducted before declaration of dividends to investors.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to U.S. shareholders
as ordinary income whether received in cash or reinvested in additional
shares. Depending upon the composition of the Fund's income, all or a portion
of the dividends derived from net investment income may qualify for the
dividends received deduction allowable to certain U.S. corporations.
Distributions from net realized long-term securities gains of the Fund will
be taxable to U.S. shareholders as long-term capital gains for Federal income
tax purposes, regardless of how long shareholders have held their Fund shares
and whether such distributions are received in cash or reinvested in Fund
shares. The Code provides that an individual generally will be taxed on his
or her net capital gain at a maximum rate of 28% with respect to capital
gain from securities held for more than one year but not more than 18 months
and at a maximum rate of 20% with respect to capital gain from securities
held for more than 18 months. Dividends and distributions may be subject to
state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Fund to a foreign investor as well as the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gain or
loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup
withhold
[PAGE 15]
ing as a result of a failure to properly report taxable dividend or interest
income on a Federal income tax return. Furthermore, the IRS may notify the
Fund to institute backup withholding if the IRS determines a shareholder's
TIN is incorrect or if a shareholder has failed to properly report taxable
dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number, IRS individual taxpayer
identification number, or employer identification number of the record owner
of the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account, and
may be claimed as a credit on the record owner's Federal income tax return.
Management of the Company believes that the Fund has qualified for
the fiscal year ended October 31, 1997 as a "regulated investment company"
under the Code. The Fund intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of any liability for Federal income
tax to the extent its earnings are distributed in accordance with
applicable provisions of the Code. The Fund is subject to
a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of current
yield may reflect absorbed expenses pursuant to any undertaking that may be
in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a percentage rate
which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter periods depending upon the
length of time the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's 500 Stock Index, The Dow Jones
Industrial Average, Morningstar, Inc. and other industry publications.
[PAGE 16]
GENERAL INFORMATION
The Company was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated July 24, 1985, and
commenced operations on October 1, 1986. Before January 1, 1996, the
Company's name was Dreyfus Strategic Income. The Company is authorized to
issue an unlimited number of shares of beneficial interest, par value $.001
per share. Each share has one vote.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a
Massachusetts business trust. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Company and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Company or a Trustee. The Trust
Agreement provides for indemnification from the Fund's property for all
losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations
, a possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Company
intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
As discussed under "Management of the Company" in the Statement of Additional
Information, the Fund ordinarily will not hold shareholder meetings; however,
shareholders under certain circumstances may have the right to call a meeting
of shareholders for the purpose of voting to remove Board members.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Fund are being
offered. Other portfolios are sold pursuant to other offering documents.
To date, the Board has authorized the creation of five series of
shares. All consideration received by the Company for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Company) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of the
other series. The Company has the ability to create, from time to time, new
series without shareholder approval.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call
1-718-895-1206; outside the U.S., call 516-794-5452.
[PAGE 17]
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY _ The Fund is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an
amount up to 331/3% of the value of its total assets. The Fund currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
SHORT-SELLING _ In these transactions, the Fund sells a security it does not
own in anticipation of a decline in the market value of the security. To
complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently at the market price at the time of replacement.
The price at such time may be more or less than the price at which the
security was sold by the Fund, which would result in a loss or gain,
respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not sell short
the securities of any single issuer listed on a national securities exchange
to the extent of more than 5% of the value of the Fund's net assets. The Fund
may not make a short sale which results in the Fund having sold short in the
aggregate more than 5% of the outstanding securities of any class of an
issuer.
The Fund also may make short sales "against the box," in which the
Fund enters into a short sale of a security it owns. At no time will more
than 15% of the value of the Fund's net assets be in deposits on short sales
against the box.
FOREIGN CURRENCY TRANSACTIONS _ Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Fund has agreed to buy
or sell; to hedge the U.S. dollar value of securities the Fund already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Fund's success in these transactions will depend principally on
The Dreyfus Corporation's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
USE OF DERIVATIVES _ The Fund may invest in the types of Derivatives
enumerated under "Description of the Fund _ Investment Considerations and
Risks _ Use of Derivatives." These instruments and certain related risks are
described more specifically under "Investment Objectives and Management
Policies _ Management Policies _ Derivatives" in the Statement of
Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to
[PAGE 18]
increase or decrease the level of risk, or change the character of the risk,
to which its portfolio is exposed in much the same way as the Fund can
increase or decrease the level of risk, or change the character of the risk,
of its portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Fund were unable
to liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although the Fund will not be a commodity pool, certain Derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such Derivatives. The
Fund may invest in futures contracts and options with respect thereto for
hedging purposes without limit. However, the Fund may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Fund may write
(i.e., sell) covered call and put options contracts to the extent of 20% of
the value of its net assets at the time such options contracts are written.
When required by the Securities and Exchange Commission, the Fund will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its transactions in Derivatives. To maintain this
required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price.
FORWARD COMMITMENTS _ The Fund may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment
or when-issued security are fixed when the Fund enters into the commitment,
but the Fund does not make payment until it receives delivery from the
counterparty. The Fund will commit to purchase such securities only with the
intention of actually acquiring the securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable. The Fund
will set aside in a segregated account permissible liquid assets at least
equal at all times to the amount of the commitments.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES _ Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock and,
therefore, are deemed to be Equity Securities for purposes of the Fund's
management policies. Convertible securities have characteristics similar to
both fixed-income and equity securities. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities typically have lower
ratings than similar non-convertible securities.
AMERICAN DEPOSITARY RECEIPTS _ The Fund may invest in the securities of
foreign issuers in the form of American Depositary Receipts ("ADRs"). These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
[PAGE 19]
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation.
WARRANTS _ A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. The Fund may
invest up to 5% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Fund that are sold in units with,
or attached to, other securities. Included in such amount, but not to exceed
2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York or American Stock Exchange.
MONEY MARKET INSTRUMENTS _ The Fund may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
BANK OBLIGATIONS. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Description of the Fund_Investment Considerations and
Risks_Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's,
A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, or (c) if unrated, deter
[PAGE 20]
mined by The Dreyfus Corporation to be of comparable quality to those rated
obligations which may be purchased by the Fund.
ILLIQUID SECURITIES _ The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Fund is subject to a risk that should
the Fund desire to sell them when a ready buyer is not available at a price
the Fund deems representative of their value, the value of the Fund's net
assets could be adversely affected.
ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS.
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculation on short-term
market movements. A pattern of frequent purchases and exchanges can be
disruptive to efficient portfolio management and, consequently, can be
detrimental to the Fund's performance and its shareholders. Accordingly, if
the Fund's management determines that an investor is engaged in excessive
trading, the Fund, with or without prior notice, may temporarily or
permanently terminate the availability of Fund exchanges, or reject in whole
or part any purchase or exchange request, with respect to such investor's
account. Such investors also may be barred from purchasing other funds in the
Dreyfus Family of Funds. Generally, an investor who makes more than four
exchanges out of the Fund during any calendar year or who makes exchanges
that appear to coincide with an active market-timing strategy may be deemed
to be engaged in excessive trading. Accounts under common ownership or control
will be considered as one account for purposes of determining a pattern of
excessive trading. In addition, the Fund may refuse or restrict purchase or
exchange requests by any person or group if, in the judgment of the Fund's
management, the Fund would be unable to invest the money effectively in
accordance with its investment objective and policies or could otherwise be
adversely affected or if the Fund receives or anticipates receiving
simultaneous orders that may significantly affect the Fund (e.g., amounts
equal to 1% or more of the Fund's total assets). If an exchange request is
refused, the Fund will take no other action with respect to the shares until
it receives further instructions from the investor. The Fund may delay
forwarding redemption proceeds for up to seven days if the investor redeeming
shares is engaged in excessive trading or if the amount of the redemption
request otherwise would be disruptive to efficient portfolio management or
would adversely affect the Fund. The Fund's policy on excessive trading
applies to investors who invest in the Fund directly or through financial
intermediaries, but does not apply to the Dreyfus Auto-Exchange Privilege,
to any automatic investment or withdrawal privilege described herein, or to
participants in employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components _ redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Fund's next determined net asset value but
the purchase order would be effective only at the net asset value next
determined after the fund being purchased receives the proceeds of the
redemption, which may result in the purchase being delayed.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
[PAGE 21]
[This Page Intentionally Left Blank]
[PAGE 22]
[This Page Intentionally Left Blank]
[PAGE 23]
Equity
Dividend
Fund
Prospectus
Registration Mark
Copy Rights 1998 Dreyfus Service Corporation
042p0398
PAGE 24
- -----------------------------------------------------------------------------
PROSPECTUS MARCH 1, 1998
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
DREYFUS HIGH YIELD SECURITIES FUND (THE "FUND") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS INCOME FUNDS, AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY (THE "COMPANY"), KNOWN AS A MUTUAL FUND. THE FUND'S
INVESTMENT OBJECTIVE IS TO MAXIMIZE TOTAL RETURN, CONSISTING OF CAPITAL
APPRECIATION AND CURRENT INCOME.
THE FUND INVESTS PRINCIPALLY IN FIXED-INCOME SECURITIES RATED BELOW
INVESTMENT GRADE. INVESTMENTS IN LOWER RATED FIXED-INCOME SECURITIES ARE
SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THE FUND.
YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING DREYFUS
TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 1, 1998, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
FEE TABLE...................................................... 4
CONDENSED FINANCIAL INFORMATION................................ 5
DESCRIPTION OF THE FUND........................................ 6
MANAGEMENT OF THE FUND......................................... 8
HOW TO BUY SHARES.............................................. 9
SHAREHOLDER SERVICES........................................... 11
HOW TO REDEEM SHARES........................................... 14
SHAREHOLDER SERVICES PLAN...................................... 17
DIVIDENDS, DISTRIBUTIONS AND TAXES............................. 17
PERFORMANCE INFORMATION........................................ 18
GENERAL INFORMATION............................................ 19
APPENDIX....................................................... 20
[Page 2]
[This Page Intentionally Left Blank]
[Page 3]
<TABLE>
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Redemption Fee* ............................................................. 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.............................................................. .65%
Other Expenses............................................................... ..83%
Total Fund Operating Expenses ............................................... .1.48%
* Shares held for less than six months may be subject to a 1% redemption fee
payable to the Fund. See "How to Redeem Shares."
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $15 $47 $81 $177
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE
EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY
AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by the Fund and investors, the payment of which
will reduce investors' annual return. The redemption fee is charged upon
certain redemptions or exchanges of Fund shares occurring less than six
months following the issuance of such shares, and is retained by the Fund.
The information in the foregoing table does not reflect any fee waivers or
expense reimbursement arrangements that may be in effect. Certain Service
Agents (as defined below) may charge their clients direct fees for effecting
transactions in Fund shares; such fees are not reflected in the foregoing
table. See "Management of the Fund," "How to Buy Shares," "How to Redeem
Shares" and "Shareholder Services Plan."
[Page 4]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. Further financial data, related
notes and the report of independent auditors accompany the Statement of
Additional Information, available upon request.
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 year indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
YEAR ENDED OCTOBER 31,
____________________________
PER SHARE DATA: 1996(1) 1997
______ ______
<S> <C> <C>
Net asset value, beginning of year....................................... $12.50 $13.83
______ ______
Investment Operations:
Investment income-net.................................................... .69 1.58
Net realized and unrealized gain on investments.......................... 1.19 1.14
______ ______
Total from Investment Operations......................................... 1.88 2.72
______ ______
Distributions:
Dividends from investment income-net..................................... (.55) (1.56)
Dividends from net realized gain on investments.......................... __ (.23)
______ ______
TOTAL DISTRIBUTIONS...................................................... __ (1.79)
______ ______
Net asset value, end of year............................................. $13.83 $14.76
====== ======
TOTAL INVESTMENT RETURN.................................................... 25.14%(2,3) 21.23%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets........................ .02%(3) .71%
Ratio of interest expense to average net assets.......................... .27%(3) .34%
Ratio of net investment income to average net assets..................... 11.33%(3) 11.72%
Decrease reflected in above expense ratios due to undertakings
by The Dreyfus Corporation............................................... 1.55%(3) .43%
Portfolio Turnover Rate.................................................. 233.62%(4) 252.50%
Net Assets, end of year (000's omitted).................................. $24,857 $120,818
(1) From March 25, 1996 (commencement of
operations) through October 31, 1996.
(2) Exclusive of redemption fee.
(3) Annualized.
(4) Not annualized.
</TABLE>
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
Debt Outstanding
<TABLE>
YEAR ENDED OCTOBER 31, 1997(1)
_______________________________
<S> <C> <C>
PER SHARE DATA:
Amount of debt outstanding at
end of year (in thousands).............................................. $7,994
Average amount of debt outstanding
throughout year (in thousands)(2)....................................... $3,682
Average number of shares outstanding
throughout year (in thousands)(3)....................................... 4,559
Average amount of debt per
share throughout year................................................... $.81
(1) From March 25, 1996 (commencement of
operations) to October 31, 1996, the Fund had no outstanding debt.
(2) Based upon daily outstanding borrowings.
(3) Based upon month-end balances.
</TABLE>
[Page 5]
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. It cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Fund's outstanding
voting shares. There can be no assurance that the Fund's investment objective
will be achieved.
MANAGEMENT POLICIES
Under normal market conditions, the Fund will invest at least 65% of
the value of its net assets in bonds, debentures, notes and other debt
instruments (collectively, "Fixed-Income Securities") rated below investment
grade, or, if unrated, determined by The Dreyfus Corporation to be of
comparable quality. Fixed-Income Securities also include mortgage-related
securities, asset-backed securities, zero coupon securities, municipal
obligations, preferred stock, convertible debt obligations and convertible pre
ferred stock. The issuers of Fixed-Income Securities may include domestic and
foreign corporations, partnerships, trusts or similar entities, and
governmental entities or their political subdivisions, agencies or
instrumentalities. The Fund may invest in companies in, or governments of,
developing countries. The Fund's portfolio will be invested without regard to
maturity.
Securities rated below investment grade are those rated lower than
Baa by Moody's Investors Service, Inc. ("Moody's") and BBB by Standard &
Poor's Ratings Group ("S&P"), Fitch IBCA, Inc. ("Fitch") or Duff & Phelps
Credit Rating Co. ("Duff"). These securities carry a high degree of risk and
are considered speculative by the credit rating agencies. See "Investment
Considerations and Risks _ High Yield-Lower Rated Securities" and "Appendix _
Certain Portfolio Securities _ High Yield-Lower Rated Securities" below for a
discussion of certain risks, and "Appendix" in the Statement of Additional
Information. The Fund may hold investment grade rated Fixed-Income Securities
(or unrated securities of comparable quality) when the yield differential
between below investment grade and investment grade securities narrows and
the risk of loss may be reduced with only a relatively small reduction in
yield. The Fund also may invest in investment grade rated Fixed-Income
Securities when The Dreyfus Corporation determines that a defensive
investment position is appropriate in light of market or economic conditions.
The Fund may invest in money market instruments consisting of U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as set forth under "Appendix
_Certain Portfolio Securities _ Money Market Instruments." Under normal
market conditions, the Fund does not expect to have a substantial portion of
its assets invested in money market instruments. However, when The Dreyfus
Corporation determines that adverse market conditions exist, the Fund may
adopt a temporary defensive posture and invest all of its assets in money
market instruments.
The Fund's annual portfolio turnover rate for the current fiscal year
is not expected to exceed 300%. A turnover rate of 100% is equivalent to the
Fund buying and selling all of the securities in its portfolio once in the
course of a year. Higher portfolio turnover rates usually generate additional
brokerage commissions and expenses and the short-term gains realized from
these transactions are taxable to shareholders as ordinary income. The Fund
may engage in various investment techniques, such as transactions in foreign
currency, options, futures and swaps, lending portfolio securities and
short-selling. For a discussion of the investment techniques and their
related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies _ Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ The Fund's net asset value per share should be expected to
fluctuate. The Fund's investment principally in below investment grade
Fixed-Income Securities may cause the Fund's share price to be
[Page 6]
highly volatile at times. Investors should consider the Fund as a supplement
to an overall investment program and should invest only if they are willing
to undertake the risks involved. See "Investment Objectives and Management
Policies" in the Statement of Additional Information for a further discussion
of certain risks.
HIGH YIELD-LOWER RATED SECURITIES _ The Fund generally will invest in
Fixed-Income Securities rated below investment grade such as those rated Ba
by Moody's and BB by S&P, Fitch and Duff or as low as the lowest rating
assigned by Moody's, S&P, Fitch or Duff. They may be subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated Fixed-Income Securities. The retail
secondary market for these securities may be less liquid than that of higher
rated securities; adverse conditions could make it difficult at times for the
Fund to sell certain securities or could result in lower prices than those
used in calculating the Fund's net asset value.
Bond prices are inversely related to interest rate changes; however,
bond price volatility also is inversely related to coupon. Accordingly, below
investment grade Fixed-Income Securities may be relatively less sensitive to
interest rate changes than higher quality Fixed-Income Securities of
comparable maturity, because of their higher coupon. This higher coupon is
what the investor receives in return for bearing greater credit risk. The
higher credit risk associated with below investment grade Fixed-Income
Securities potentially can have a greater effect on the value of such
securities than may be the case with higher quality issues of comparable
maturity, and will be a substantial factor in the Fund's relative share price
volatility. See "Appendix _ Certain Portfolio Securities _ High Yield-Lower
Rated Securities" below and "Appendix" in the Statement of Additional
Information.
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities in which the Fund
may invest are complex derivative instruments, subject to both credit and
prepayment risk, and may be more volatile and less liquid than more
traditional debt securities. Some mortgage-related securities have structures
that make their reactions to interest rate changes and other factors
difficult to predict, making their value highly volatile. See
"Appendix_Certain Portfolio Securities_ Mortgage-Related Securities."
FOREIGN SECURITIES _ Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Fund will be subject to additional risks which
include possible adverse political and economic developments, seizure or
nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect or restrict the payment of principal and
interest on the foreign securities to investors located outside the country
of the issuer, whether from currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
USE OF DERIVATIVES _ The Fund may invest in, or enter into, derivatives
("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,
index or interest rate. The Derivatives the Fund may use include options and
futures,
[Page 7]
mortgage-related securities, asset-backed securities and swaps. While
Derivatives can be used effectively in furtherance of the Fund's investment
objective, under certain market conditions, they can increase the volatility
of the Fund's net asset value, decrease the liquidity of the Fund's portfolio
and make more difficult the accurate pricing of the Fund's portfolio. See
"Appendix _ Investment Techniques_Use of Derivatives" below and "Investment
Objectives and Management Policies _ Management Policies _ Derivatives" in
the Statement of Additional Information.
SIMULTANEOUS INVESTMENTS _ Investment decisions for the Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities as the Fund, available
investments or opportunities for sales will be allocated equitably to each
investment company. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price
paid or received by the Fund.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER _ The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of January 31, 1998, The Dreyfus Corporation
managed or administered approximately $96 billion in assets for approximately
1.7 million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the
Company, subject to the authority of the Company's Board in accordance with
Massachusetts law. The Fund's primary portfolio manager is Roger King. He has
held that position since the Fund's inception, and has been employed by The
Dreyfus Corporation since February 1996. Prior thereto, Mr. King was a Vice
President of High Yield Research and, most recently, Director of High Yield
Research at Citibank Securities, Inc. The Fund's other portfolio managers are
identified in the Statement of Additional Information. The Dreyfus
Corporation also provides research services for the Fund and for other funds
advised by The Dreyfus Corporation through a professional staff of portfolio
managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in
assets, including approximately $60 billion in mutual fund assets.
For the fiscal year ended October 31, 1997, the Fund paid The Dreyfus
Corporation a management fee at the annual rate of .65 of 1% of the value of
the Fund's average daily net assets. From time to time, The Dreyfus
Corporation may waive receipt of its fees and/or voluntarily assume certain
expenses of the Fund, which would have the effect of lowering the expense
ratio of the Fund and increasing yield to investors. The Fund will not pay
The Dreyfus Corporation at a later time for any amounts it may waive, nor
will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume.
In allocating brokerage transactions, TheDreyfus Corporation seeks to
obtain the best execution of orders at the most favorable net price. Subject
to this determination, TheDreyfus Corporation may consider, among other
things, the receipt of research services and/or the sale of shares of the
Fund or
[Page 8]
other funds managed, advised or administered by The Dreyfus Corporation as
factors in the selection of broker-dealers to execute portfolio transactions
for the Fund. See "Portfolio Transactions" in the Statement of Additional
Information.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., located at One
Mellon Bank Center, Pittsburgh, Pennsylvania 15258, serves as the Fund's
Custodian.
HOW TO BUY SHARES
Fund shares are sold without a sales charge. You may be charged a fee
if you effect transactions in Fund shares through a securities dealer, bank
or other financial institution (collectively, "Service Agents"). Share
certificates are issued only upon your written request. No certificates are
issued for fractional shares. The Fund reserves the right to reject any
purchase order. See "Appendix _ Additional Information About Purchases,
Exchanges and Redemptions."
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which maintains an omnibus account in the Fund and
has made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. However, the minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including regular
IRAs, spousal IRAs for a non-working spouse, Roth IRAs, SEP-IRAs and rollover
IRAs) and 403(b)(7) Plans with only one participant and $500 for
Dreyfus-sponsored Education IRAs, with no minimum for subsequent purchases.
The initial investment must be accompanied by the Account Application. For
full-time or part-time employees of The Dreyfus Corporation or any of its
affiliates or subsidiaries, directors of The Dreyfus Corporation, Board
members of a fund advised by The Dreyfus Corporation, including members of
the Company's Board, or the spouse or minor child of any of the foregoing, the
minimum initial investment is $1,000. For full-time or part-time employees
of The Dreyfus Corporation or any of its affiliates or subsidiaries who elect
to have a portion of their pay directly deposited into their Fund accounts,
the minimum initial investment is $50. The Fund reserves the right to offer
Fund shares without regard to minimum purchase requirements to employees
participating in certain qualified or non-qualified employee benefit plans or
other programs where contributions or account information can be transmitted
in a manner and form acceptable to the Fund. The Fund reserves the right to
vary further the initial and subsequent investment minimum requirements at
any time. Fund shares also are offered without regard to the minimum initial
investment requirements through Dreyfus-AUTOMATIC Asset BuilderRegistration
Mark, Dreyfus Government Direct Deposit Privilege or Dreyfus Payroll Savings
Plan pursuant to the Dreyfus Step Program described under "Shareholder
Services." These services enable you to make regularly scheduled investments
and may provide you with a convenient way to invest for long-term financial
goals. You should be aware, however, that periodic investment plans do not
guarantee a profit and will not protect an investor against loss in a
declining market.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian" and should specify that you are
investing in the Fund. Payments to open new accounts which are mailed should
be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence, Rhode
Island 02940-9387, together with your Account
[Page 9]
Application. For subsequent investments, your Fund account number should
appear on the check and an investment slip should be enclosed and sent to The
Dreyfus Family of Funds, P.O. Box 105, Newark, New Jersey 07101-0105. For
Dreyfus retirement plan accounts, both initial and subsequent investments
should be sent to The Dreyfus Trust Company, Custodian, P.O. Box 6427,
Providence, Rhode Island 02940-6427. Neither initial nor subsequent
investments should be made by third party check. Purchase orders may be
delivered in person only to a Dreyfus Financial Center. THESE ORDERS WILL BE
FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA# 8900276428/Dreyfus High
Yield Securities Fund, for purchase of Fund shares in your name. The wire
must include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your
wire payment to obtain your Fund account number. Please include your Fund
account number on the Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the
Account Application is received. You may obtain further information about
remitting funds in this manner from your bank. All payments should be made in
U.S. dollars and, to avoid fees and delays, should be drawn only on U.S.
banks. A charge will be imposed if any check used for investment in your
account does not clear. The Fund makes available to certain large
institutions the ability to issue purchase instructions through compatible
computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other entity authorized to receive orders on behalf of the
Fund. Net asset value per share is determined as of the close of trading on
the floor of the New York Stock Exchange (currently 4:00 p.m., New York
time), on each day the New York Stock Exchange is open for business. For
purposes of determining net asset value, options and futures contracts will
be valued 15 minutes after the close of trading on the floor of the New York
Stock Exchange. Net asset value per share is computed by dividing the value
of the Fund's net assets (i.e., the value of its assets less liabilities) by
the total number of Fund shares outstanding. The Fund's investments are
valued generally at market value or, where market quotations are not readily
available, at fair value as determined by or under the direction of the
Company's Board. For further information regarding the methods employed in
valuing the Fund's investments, see "Determination of Net Asset Value" in the
Statement of Additional Information.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250
[Page 10]
employees eligible for participation in such plans or programs or (ii) such
plan's or program's aggregate investment in the Dreyfus Family of Funds or
certain other products made available by the Distributor to such plans or
programs exceeds $1,000,000 ("Eligible Benefit Plans"). Shares of funds in
the Dreyfus Family of Funds then held by Eligible Benefit Plans will be
aggregated to determine the fee payable. The Distributor reserves the right
to cease paying these fees at any time. The Distributor will pay such fees
from its own funds, other than amounts received from the Fund, including past
profits or any other source available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Account Application for further information concerning this requirement.
Failure to furnish a certified TIN to the Fund could subject you to a $50
penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between the bank account designated in one of these documents
and your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Fund may modify or terminate this Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES
FUND EXCHANGES
You may purchase, in exchange for shares of the Fund, shares of
certain other funds managed or administered by The Dreyfus Corporation, to
the extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
If you desire to use this service, you should consult your Service Agent or
call 1-800-645-6561 to determine if it is available and whether any
conditions are imposed on its use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling
1-800-645-6561. Except in the case of personal retirement plans, the shares
being exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have
a value of at least the minimum initial investment required for the fund into
which the exchange is being made. The ability to issue exchange instructions
by telephone is given to all Fund shareholders automatically, unless you
check the applicable "No" box on the Account Application, indicating that you
specifically refuse this Privilege. The Telephone Exchange Privilege may be
established for an existing account by written request signed by all
shareholders on the account, by a separate signed Shareholder Services Form,
available by calling 1-800-645-6561, or by oral request from any of the
authorized signatories on the account by calling 1-800-645-6561. If you have
established the Telephone Exchange Privilege, you may telephone exchange instr
uctions (including over The Dreyfus TouchRegistration Mark automated
telephone system) by calling 1-800-645-6561. If you are calling from
overseas, call 516-794-5452. See "How to Redeem Shares _ Procedures." Upon
an exchange into a new account, the following shareholder services and
privileges, as applicable and where available, will be automatically carried
over to the fund into which the exchange is made: Telephone Exchange
Privilege, Wire Redemption Privilege, Telephone Redemption Privilege, Dreyfus
TELETRANSFER Privilege and the dividend/capital gain distribution option
(except for Dreyfus Dividend Sweep) selected by the investor.
The Fund may impose a redemption fee equal to 1% of the net asset
value of Fund shares exchanged out of the Fund where the exchange is made
less than six months after issuance of such shares. See "How
[Page 11]
to Redeem Shares." Otherwise, shares will be exchanged at the next determined
net asset value; however, a sales load may be charged with respect to
exchanges into funds sold with a sales load. If you are exchanging into a
fund that charges a sales load, you may qualify for share prices which do not
include the sales load or which reflect a reduced sales load, if the shares
you are exchanging were: (a) purchased with a sales load, (b) acquired by a
previous exchange from shares purchased with a sales load, or (c) acquired
through reinvestment of dividends or distributions paid with respect to the
foregoing categories of shares. To qualify, at the time of the exchange you
must notify the Transfer Agent or your Service Agent must notify the
Distributor. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal administrative fee in accordance with rules
promulgated by the Securities and Exchange Commission. The Fund reserves the
right to reject any exchange request in whole or in part. See "Appendix _
Additional Information About Purchases, Exchanges and Redemptions." The
availability of Fund Exchanges may be modified or terminated at any time upon
notice to shareholders. See "Dividends, Distributions and Taxes."
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
the Fund, in shares of certain other funds in the Dreyfus Family of Funds of
which you are a shareholder. The amount you designate, which can be expressed
either in terms of a specific dollar or share amount ($100 minimum), will be
exchanged automatically on the first and/or fifteenth day of the month
according to the schedule you have selected. Shares will be exchanged at the
then-current net asset value; however, a sales load may be charged with
respect to exchanges into funds sold with a sales load. See "Shareholder
Services" in the Statement of Additional Information. The right to exercise
this Privilege may be modified or canceled by the Fund or the Transfer Agent.
You may modify or cancel your exercise of this Privilege at any time by
mailing written notification to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671. The Fund may charge a service fee for
the use of this Privilege. No such fee currently is contemplated. For more
information concerning this Privilege and the funds in the Dreyfus Family of
Funds eligible to participate in this Privilege, or to obtain a Dreyfus
Auto-Exchange Authorization Form, please call toll free 1-800-645-6561. See
"Dividends, Distributions and Taxes."
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring funds
from the bank account designated by you. Only an account maintained at a
domestic financial institution which is an Automated Clearing House member
may be so designated. To establish a Dreyfus-AUTOMATIC Asset Builder account,
you must file an authorization form with the Transfer Agent. You may obtain
the necessary authorization form by calling 1-800-645-6561. You may cancel
your participation in this Privilege or change the amount of purchase at any
time by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into your
[Page 12]
Fund account. You may deposit as much of such payments as you elect. To
enroll in Dreyfus Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment that
you desire to include in this Privilege. The appropriate form may be obtained
by calling 1-800-645-6561. Death or legal incapacity will terminate your
participation in this Privilege. You may elect at any time to terminate your
participation by notifying in writing the appropriate Federal agency. The
Fund may terminate your participation upon 30 days' notice to you.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have part or all of your
paycheck transferred to your existing Dreyfus account electronically through
the Automated Clearing House system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form
with your employer's payroll department. Your employer must complete the
reverse side of the form and return it to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may change the amount of
purchase or cancel the authorization only by written notification to your
employer. It is the sole responsibility of your employer, not the
Distributor, The Dreyfus Corporation, the Fund, the Transfer Agent or any
other person, to arrange for transactions under the Dreyfus Payroll Savings
Plan. The Fund may modify or terminate this Privilege at any time or charge a
service fee. No such fee currently is contemplated.
DREYFUS STEP PROGRAM
Dreyfus Step Program enables you to purchase Fund shares without
regard to the Fund's minimum initial investment requirements through Dreyfus-A
UTOMATIC Asset BuilderRegistration Mark, Dreyfus Government Direct Deposit
Privilege or Dreyfus Payroll Savings Plan. To establish a Dreyfus Step
Program account, you must supply the necessary information on the Account
Application and file the required authorization form(s) with the Transfer
Agent. For more information concerning this Program, or to request the
necessary authorization form(s), please call toll free 1-800-782-6620. You
may terminate your participation in this Program at any time by discontinuing
your participation in Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the case may be,
as provided under the terms of such Privilege(s). The Fund may modify or
terminate this Program at any time. Investors who wish to purchase Fund
shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plan may do so only for IRAs, SEP-IRAs and IRA
"Rollover Accounts."
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of another fund in the Dreyfus Family of Funds of which you are a
shareholder. Shares of the other fund will be purchased at the then-current
net asset value; however, a sales load may be charged with respect to
investments in shares of a fund sold with a sales load. If you are investing
in a fund that charges a sales load, you may qualify for share prices which
do not include the sales load or which reflect a reduced sales load. If you
are investing in a fund that charges a contingent deferred sales charge, the
shares purchased will be subject on redemption to the contingent deferred
sales charge, if any, applicable to the purchased shares. See "Shareholder
Services" in the Statement of Additional Information. Dreyfus Dividend ACH
permits you to transfer electronically dividends or dividends and capital
gain distributions, if any, from the Fund to a designated bank account. Only
an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. Banks may charge a fee
for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To select a new
fund
[Page 13]
after cancellation, you must submit a new Dividend Options Form. Enrollment
in or cancellation of these privileges is effective three business days
following receipt. These privileges are available only for existing accounts
and may not be used to open new accounts. Minimum subsequent investments do
not apply for Dreyfus Dividend Sweep. The Fund may modify or terminate these
privileges at any time or charge a service fee. No such fee currently is
contemplated. Shares held under Keogh Plans, IRAs or other retirement plans
are not eligible for Dreyfus Dividend Sweep.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $5,000 minimum account. An Automatic Withdrawal Plan may
be established by filing an Automatic Withdrawal Plan application with the
Transfer Agent or by oral request from any of the authorized signatories on
the account by calling 1-800-645-6561. The Automatic Withdrawal Plan may be
ended at any time by you, the Fund or the Transfer Agent. Shares for which
certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs (including regular IRAs, spousal IRAs for a
non-working spouse, Roth IRAs, SEP-IRAs, rollover IRAs and Education IRAs),
401(k) Salary Reduction Plans and 403(b)(7) Plans. Plan support services also
are available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs (except SEP-IRAs) please call 1-800-645-6561; for SEP-IRAs, 401(k)
Salary Reduction Plans, and 403(b)(7) Plans, please call 1-800-322-7880.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form by the Transfer Agent or other entity
authorized to receive orders on behalf of the Fund, the Fund will redeem the
shares at the next determined net asset value. See "Appendix _ Additional
Information About Purchases, Exchanges and Redemptions."
The Fund will deduct a redemption fee equal to 1% of the net asset
value of Fund shares redeemed or exchanged in less than six months following
the issuance of such shares. The fee will be retained by the Fund and used
primarily to offset the transaction costs that short-term trading imposes on
the Fund and its shareholders. For purposes of calculating the six-month
holding period, any issuance of Fund shares during a month will be deemed to
occur on the first day of such month. The Fund will employ the "first-in,
first-out" method, which assumes that the shares you are redeeming or
exchanging are the ones you have held the longest. No redemption fee will be
charged on the redemption or exchange of shares (1) through the Fund's
Automatic Withdrawal Plan or Dreyfus Auto-Exchange Privilege, (2) through
accounts that are reflected on the records of the Transfer Agent as omnibus
accounts approved by Dreyfus Service Corporation, (3) through accounts
established by Service Agents approved by Dreyfus Service Corporation that
utilize the National Securities Clearing Corporation's networking system, or
(4) acquired through the reinvestment of dividends or capital gains
distributions. The redemption fee may be waived, modified or discontinued at
any time or from time to time. Service Agents may charge their clients a fee
for effecting redemptions of Fund shares. Any certificates representing Fund
shares being redeemed must be submitted with the redemption request. The
value of the shares redeemed may be more or less than their original cost,
depending upon the Fund's then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities
[Page 14]
and Exchange Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK,
BY DREYFUS TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER
Registration Mark AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO
THE TRANSFER AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU
PROMPTLY UPON BANK CLEARANCE OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER
PURCHASE OR DREYFUS-AUTOMATIC ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT
BUSINESS DAYS OR MORE.
IN ADDITION, THE FUND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR
TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF
EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE
CHECK, THE DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET
BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES
WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU
OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE
REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS
ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO
EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be
redeemed until the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or through the Telephone Redemption Privilege
which is granted automatically unless you specifically refuse it by checking
the applicable "No" box on the Account Application. The Telephone Redemption
Privilege may be established for an existing account by a separate signed
Shareholder Services Form or by oral request from any of the authorized
signatories on the account by calling 1-800-645-6561. You also may redeem
shares through the Wire Redemption Privilege or the Dreyfus TELETRANSFER
Privilege, if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. Other redemption procedures may be in effect
for clients of certain Service Agents. The Fund makes available to certain
large institutions the ability to issue redemption instructions through
compatible computer facilities. The Fund reserves the right to refuse any
request made by wire or telephone, including requests made shortly after a
change of address, and may limit the amount involved or the number of such
requests. The Fund may modify or terminate any redemption Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans, and shares for which certificates have been issued, are not
eligible for the Wire Redemption, Telephone Redemption or Dreyfus TELETRANSFER
Privilege.
The Telephone Redemption Privilege or Telephone Exchange Privilege
authorizes the Transfer Agent to act on telephone instructions (including
over The Dreyfus TouchRegistration Mark automated telephone system) from any
person representing himself or herself to be you, and reasonably believed by
the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Fund or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
[Page 15]
REGULAR REDEMPTION _ Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to TheDreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program. If you
have any questions with respect to signature-guarantees, please call one of
the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
WIRE REDEMPTION PRIVILEGE _ You may request by wire, telephone or letter
that redemption proceeds (minimum $1,000) be wired to your account at a bank
which is a member of the Federal Reserve System, or a correspondent bank if
your bank is not a member. Holders of jointly registered Fund or bank
accounts may have redemption proceeds of not more than $250,000 wired within
any 30-day period. You may telephone redemption requests by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire.
TELEPHONE REDEMPTION PRIVILEGE _ You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Telephone Redemption Privilege is granted automatically unless you refuse it.
DREYFUS TELETRANSFER PRIVILEGE _ You may request by telephone that
redemption proceeds (minimum $500 per day) be transferred between your Fund
account and your bank account. Only a bank account maintained in a domestic
financial institution which is an Automated Clearing House member may be
designated. Redemption proceeds will be on deposit in your account at an
Automated Clearing House member bank ordinarily two days after receipt of the
redemption request. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their bank
account not more than $250,000 within any 30-day period.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan, pursuant to which
it pays the Distributor for the provision of certain services to Fund
shareholders a fee at the annual rate of .25 of 1% of the value of the Fund's
average daily net assets. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. The Distributor may make
payments to Service Agents in respect of these services. The Distributor
determines the amounts to be paid to Service Agents.
[Page 16]
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. The Fund ordinarily declares and
pays dividends from its net investment income quarterly, and distributes net
realized securities gains, if any, once a year, but it may make distributions
more regularly to comply with the distribution requirements of the Code, in
all events in a manner consistent with the provisions of the 1940 Act. The
Fund will not make distributions from net realized securities gains unless
capital loss carryovers, if any, have been utilized or have expired. You may
choose whether to receive dividends and distributions in cash or to reinvest
in additional shares at net asset value. If you elect to receive dividends
and distributions in cash, and your dividend or distribution check is
returned to the Fund as undeliverable or remains uncashed for six months, the
Fund reserves the right to reinvest such dividend or distribution and all
future dividends and distributions payable to you in additional Fund shares
at net asset value. No interest will accrue on amounts represented by
uncashed distribution or redemption checks. All expenses are accrued daily
and deducted before declaration of dividends to investors.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to U.S. shareholders
as ordinary income whether received in cash or reinvested in additional
shares. No dividend paid by the Fund will qualify for the dividends received
deduction allowable to certain U.S. corporations. Distributions from net reali
zed long-term securities gains of the Fund will be taxable to U.S.
shareholders as long-term capital gains for Federal income tax purposes,
regardless of how long shareholders have held their Fund shares and whether
such distributions are received in cash or reinvested in Fund shares. The
Code provides that an individual generally will be taxed on his or her net
capital gain at a maximum rate of 28% with respect to capital gain from
securities held for more than one year but not more than 18 months and at a
maximum rate of 20% with respect to capital gain from securities held for
more than 18 months. Dividends and distributions may be subject to state and
local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Fund to a foreign investor as well as the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gain or
loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct
[Page 17]
or that such shareholder has not received notice from the IRS of being
subject to backup withholding as a result of a failure to properly report
taxable dividend or interest income on a Federal income tax return.
Furthermore, the IRS may notify the Fund to institute backup withholding if
the IRS determines a shareholder's TIN is incorrect or if a shareholder has
failed to properly report taxable dividend and interest income on a Federal
income tax return.
A TIN is either the Social Security number, IRS individual taxpayer
identification number, or employer identification number of the record owner
of the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account, and
may be claimed as a credit on the record owner's Federal income tax return.
Management of the Company believes that the Fund has qualified for
the fiscal year ended October 31, 1997 as a "regulated investment company"
under the Code. The Fund intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of any liability for Federal income tax to
the extent its earnings are distributed in accordance with applicable
provisions of the Code. The Fund is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of current
yield may reflect absorbed expenses pursuant to any undertaking that may be
in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a percentage rate
which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter periods depending upon the
length of time the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
[Page 18]
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares,
including data from Lipper Analytical Services, Inc., Moody's Bond Survey
Bond Index, Bond Buyer's 20-Bond Index, Morningstar, Inc. and other industry
publications.
GENERAL INFORMATION
The Company was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated July 24, 1985, and
commenced operations on October 1, 1986. Before January 2, 1996, the
Company's name was Dreyfus Strategic Income. The Company is authorized to
issue an unlimited number of shares of beneficial interest, par value $.001
per share. Each share has one vote.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a
Massachusetts business trust. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Company and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Company or a Trustee. The Trust
Agreement provides for indemnification from the Fund's property for all
losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations
, a possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Company
intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Fund are being
offered. Other portfolios are sold pursuant to other offering documents.
To date, the Board has authorized the creation of five series of
shares. All consideration received by the Company for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Company) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of the
other series. The Company has the ability to create, from time to time, new
series without shareholder approval.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call
1-718-895-1206; outside the U.S., call 516-794-5452.
[Page 19]
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS _ Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Fund has agreed to buy
or sell; to hedge the U.S. dollar value of securities the Fund already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Fund's success in these transactions will depend principally on
The Dreyfus Corporation's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
SHORT-SELLING _ In these transactions, the Fund sells a security it does not
own in anticipation of a decline in the market value of the security. To
complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently at the market price at the time of replacement.
The price at such time may be more or less than the price at which the
security was sold by the Fund, which would result in a loss or gain, respectiv
ely.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not sell short
the securities of any single issuer listed on a national securities exchange
to the extent of more than 5% of the value of the Fund's net assets. The Fund
may not make a short sale which results in the Fund having sold short in the
aggregate more than 5% of the outstanding securities of any class of an
issuer.
The Fund also may make short sales "against the box," in which the
Fund enters into a short sale of a security it owns. At no time will more
than 15% of the value of the Fund's net assets be in deposits on short sales
against the box.
LENDING PORTFOLIO SECURITIES _ The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest or other distributions
payable on the loaned securities which affords the Fund an opportunity to
earn interest on the amount of the loan and on the loaned securities'
collateral. Loans of portfolio securities may not exceed 331/3% of the value
of the Fund's total assets, and the Fund will receive collateral consisting
of cash, U.S. Government securities or irrevocable letters of credit which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Such loans are terminable by
the Fund at any time upon specified notice. The Fund might experience risk of
loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund.
LEVERAGE _ Leveraging exaggerates the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money
borrowed for leveraging will be limited to 331/3% of the value of the Fund's
total assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the
[Page 20]
return received on the securities purchased.
The Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund
of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal plus accrued
interest. Except for these transactions, the Fund's borrowings generally will
be unsecured.
USE OF DERIVATIVES _ The Fund may invest in, or enter into, the types of
Derivatives enumerated under "Description of the Fund _ Investment
Considerations and Risks _ Use of Derivatives." These instruments and
certain related risks are described more specifically under "Investment
Objectives and Management Policies _ Derivatives" in the Statement of
Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Fund were unable
to liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although the Fund will not be a commodity pool, certain Derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such Derivatives. The
Fund may invest in futures contracts and options with respect thereto for
hedging purposes without limit. However, the Fund may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Fund may write
(i.e, sell) covered call and put option contracts to the extent of 20% of the
value of its net assets at the time such option contracts are written. When
required by the Securities and Exchange Commission, the Fund will set aside
permissible liquid assets in a segregated account to cover its obligations
relating to its transactions in Derivatives. To maintain this required cover,
the Fund may have to sell portfolio securities at disadvantageous prices or
times since it may not be possible to liquidate a Derivative position at a
reasonable price.
FORWARD COMMITMENTS _ The Fund may purchase or sell securities on a
forward commitment, when-issued or delayed delivery basis, which means
delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the Fund
assumes the rights and risks of ownership of the security, including the risk
of price and yield fluctuations, and takes such fluctuations into account
when determining its net asset value. Because the Fund is not required to pay
for these securities until the delivery date, these risks are in addition to
the risks associated with the Fund's other investments. If the Fund is
[Page 21]
fully or almost fully invested when forward commitment purchases are
outstanding, such purchases may result in a form of leverage. The Fund
intends to engage in forward commitments to increase its portfolio's
financial exposure to the types of securities in which it invests. Leveraging
the portfolio in this manner will increase the Fund's exposure to changes in
interest rates and will increase the volatility of its returns. The Fund will
set aside in a segregated account permissible liquid assets at least equal at
all times to the amount of the Fund's purchase commitments. At no time will
the Fund have more than 33 1\3% of its assets committed to purchase
securities on a forward commitment basis.
CERTAIN PORTFOLIO SECURITIES
HIGH YIELD-LOWER RATED SECURITIES _ Securities rated Ba by Moody's are
judged to have speculative elements; their future cannot be considered as
well assured and often the protection of interest and principal payments may
be very moderate. Securities rated BB by S&P, Fitch or Duff are regarded as
having predominantly speculative characteristics and, while such obligations
have less near-term vulnerability to default than other speculative grade
debt, they face major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. Securities rated C by Moody's
are regarded as having extremely poor prospects of ever attaining any real
investment standing. Securities rated D by S&P, Fitch and Duff are in default
and the payment of interest and/or repayment of principal is in arrears. Such
securities, though high yielding, are characterized by great risk. See
"Appendix" in the Statement of Additional Information for a general descriptio
n of securities ratings.
These securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of
such securities. In addition, it is likely that any such economic downturn
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
The ratings of Moody's, S&P, Fitch and Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety or interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, The Dreyfus
Corporation also will evaluate these securities and the ability of the issuers
of such securities to pay interest and principal. The Fund's ability to
achieve its investment objective may be more dependent on The Dreyfus
Corporation's credit analysis than might be the case for a fund that invested
in higher rated securities.
<TABLE>
The average distribution of investments of the Fund in corporate
bonds (excluding preferred stock, convertible preferred stock and convertible
bonds) by ratings for the fiscal year ended October 31, 1997, calculated
monthly on a dollar-weighted basis, was as follows:
MOODY'S OR S&P, FITCH OR DUFF PERCENTAGE
_______ _________________ ____________
<S> <C> <C>
Aaa AAA 1.1%
Baa BBB .6%
Ba BB 4.6%
B B 53.6%
Caa CCC 7.4%
NR NR 25.5%*
_______
92.8%**
=======
</TABLE>
[Page 22]
The actual distribution of the Fund's corporate bond investments by
ratings on any given date will vary, and the
distribution of the Fund's investments by ratings as set forth above should
not be considered as representative of the Fund's
future portfolio composition.
* These unrated securities (25.5%) have been determined by The Dreyfus
Corporation to be of comparable quality to securities: B (5.1%), CCC (19.7%)
and convertible bonds_B(.7%).
** The Fund also owns equity securities (.8%), preferred stock_BBB (.2%),
preferred stock_B (6.7%), preferred stock_CCC (5.0%) and convertible bonds_B
(.6%). Approximately (6.1%) of the Fund's assets were invested in cash or
cash equivalents.
CONVERTIBLE SECURITIES _ Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
PARTICIPATION INTERESTS. The Fund may invest in corporate obligations,
denominated in U.S. dollars or foreign currencies, that are originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting
of commercial banks, thrift institutions, insurance companies, finance
companies or other financial institutions one or more of which administers
the security on behalf of the syndicate (the "Agent Bank"). Co-Lenders may
sell such securities to third parties called "Participants." The Fund may
invest in such securities either by participating as a Co-Lender at
origination or by acquiring an interest in the security from a Co-Lender or a
Participant (collectively, "participation interests"). Co-Lenders and
Participants interposed between the Fund and the corporate borrower (the
"Borrower"), together with Agent Banks, are referred to herein as
"Intermediate Participants." The Fund also may purchase a participation
interest in a portion of the rights of an Intermediate Participant. The Fund
will not act as an Agent Bank, guarantor, sole negotiator or sole structuror
with respect to securities that are the subject of a participation interest.
A participation interest gives the Fund an undivided interest in the security
in the proportion that the Fund's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating
or variable rates of interest. For certain participation interests, the Fund
will have the right to demand payment, on not more than seven days' notice,
for all or any part of the Fund's participation interest in the security,
plus accrued interest. As to these instruments, the Fund intends to exercise
its right to demand payment only upon a default under the terms of the
security, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio. The Fund will not invest
more than 15% of the value of its net assets in participation interests
maturing in more than seven days that do not have this demand feature, and in
other securities that are illiquid.
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities are a form of
Derivative collateralized by pools of commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, real estate investment trusts ("REITs"), including
debt and preferred stock issued by REITs, as well as other real
estate-related securities. The mortgage-related securities in which the Fund
may invest include those with fixed, floating or variable interest rates,
those with interest rates that change based on multiples of changes in a
specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest.
Mortgage-related securities are subject to credit risks associated
with the performance of the underlying mortgage properties. Adverse changes
in economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on certain types of
commer
[Page 23]
cial properties than on those secured by loans on residential properties. In
addition, these securities are subject to prepayment risk, although
commercial mortgages typically have shorter maturities than residential
mortgages and prepayment protection features. In certain instances, the
credit risk associated with mortgage-related securities can be reduced by
third party guarantees or other forms of credit support. Improved credit risk
does not reduce prepayment risk which is unrelated to the rating assigned to
the mortgage-related security. Prepayment risk can lead to fluctuations in
value of the mortgage-related security which may be pronounced. If a
mortgage-related security is purchased at a premium, all or part of the
premium may be lost if there is a decline in the market value of the
security, whether resulting from changes in interest rates or prepayments on
the underlying mortgage collateral. Certain mortgage-related securities that
may be purchased by the Fund, such as inverse floating rate collateralized
mortgage obligations, have coupons that move inversely to a multiple of a
specific index which may result in a form of leverage. As with other
interest-bearing securities, the prices of certain mortgage-related
securities are inversely affected by changes in interest rates. However,
although the value of a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Fund. Moreover, with respect to
certain stripped mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Fund may fail to fully recoup its initial investment even if the securities
are rated in the highest rating category by a nationally recognized
statistical rating organization. During periods of rapidly rising interest
rates, prepayments of mortgage-related securities may occur at slower than
expected rates. Slower prepayments effectively may lengthen a
mortgage-related security's expected maturity which generally would cause the
value of such security to fluctuate more widely in response to changes in
interest rates. Were the prepayments on the Fund's mortgage-related
securities to decrease broadly, the Fund's effective duration, and thus
sensitivity to interest rate fluctuations, would increase.
ASSET-BACKED SECURITIES _ Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Fund may
invest in these and other types of asset-backed securities that may be
developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may provide the
Fund with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
MUNICIPAL OBLIGATIONS _ Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities. Municipal obligations bear fixed,
floating or variable rates of interest. Certain municipal obligations are
subject to redemption at a date earlier than their stated maturity pursuant
to call options, which may be separated from the related municipal
obligations and purchased and sold separately. The Fund also may acquire call
options on specific municipal obligations. The Fund generally would purchase
these call options to protect the Fund from the issuer of the related
municipal obligation redeeming, or other holder of the call option from
calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are tax
[Page 24]
able obligations, offering yields comparable to, and in some cases greater
than, the yields available on other permissible Fund investments. Dividends
received by shareholders on Fund shares which are attributable to interest
income received by the Fund from municipal obligations generally will be
subject to Federal income tax. The Fund may invest in municipal obligations,
the ratings of which correspond with the ratings of other permissible Fund
investments. The Fund currently intends to invest no more than 25% of its
assets in municipal obligations. However, this percentage may be varied from
time to time without shareholder approval.
ZERO COUPON SECURITIES _ The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool
of underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and is sold at a discount to its face
value at maturity. The market prices of zero coupon securities generally are
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES _ The
Fund may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Fund may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTS _ The Fund may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
BANK OBLIGATIONS. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Fund
[Page 25]
may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations
of U.S. domestic issuers. See "Description of the Fund _ Investment
Considerations and Risks _ Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's,
A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus Corporatio
n to be of comparable quality to those rated obligations which may be
purchased by the Fund.
ILLIQUID SECURITIES _ The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, certain mortgage-backed
securities, and certain privately negotiated, non-exchange traded options and
securities used to cover such options. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer
is not available at a price the Fund deems representative of their value, the
value of the Fund's net assets could be adversely affected.
ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculation on short-term
market movements. A pattern of frequent purchases and exchanges can be
disruptive to efficient portfolio management and, consequently, can be
detrimental to the Fund's performance and its shareholders. Accordingly, if
the Fund's management determines that an investor is engaged in excessive
trading, the Fund, with or without prior notice, may temporarily or
permanently terminate the availability of Fund exchanges, or reject in whole
or part any purchase or exchange request, with respect to such investor's
account. Such investors also may be barred from purchasing other funds in the
Dreyfus Family of Funds. Generally, an investor who makes more than four
exchanges out of the Fund during any calendar year or who makes exchanges that
appear to coincide with an active market-timing strategy may be deemed to be
engaged in excessive trading. Accounts under common ownership or control will
be considered as one account for purposes of determining a pattern of
excessive trading.
In addition, the Fund may refuse or restrict purchase or exchange
requests by any person or group if, in the judgment of the Fund's management,
the Fund would be unable to invest the money effectively in accordance with
its investment objective and policies or could otherwise be adversely
affected or if the Fund receives or anticipates receiving simultaneous orders
that may significantly affect the Fund (e.g., amounts equal to 1% or more of
the Fund's total assets). If an exchange request is refused, the Fund will
take no other action with respect to the shares until it receives further
instructions from the investor. The Fund may delay forwarding redemption
proceeds for up to seven days if the investor redeeming shares is engaged in
excessive trading or
[Page 26]
if the amount of the redemption request otherwise would be disruptive to
efficient portfolio management or would adversely affect the Fund. The Fund's
policy on excessive trading applies to investors who invest in the Fund
directly or through financial intermediaries, but does not apply to the
Dreyfus Auto-Exchange Privilege, to any automatic investment or withdrawal
privilege described herein, or to participants in employer-sponsored
retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components _ redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Fund's next determined net asset value but
the purchase order would be effective only at the net asset value next
determined after the fund being purchased receives the proceeds of the
redemption, which may result in the purchase being delayed.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
[Page 27]
High Yield
Securities Fund
Prospectus
Registration Mark
Copy Rights 1998 Dreyfus Service Corporation
043p0398
[Page 28]
- ------------------------------------------------------------------------------
PROSPECTUS March 1, 1998
Dreyfus Real Estate Mortgage Fund
- ------------------------------------------------------------------------------
Dreyfus Real Estate Mortgage Fund (the "Fund") is a separate
non-diversified portfolio of Dreyfus Income Funds, an open-end, management
investment company (the "Company"), known as a mutual fund. The Fund's
investment objective is to maximize total return, consisting of capital
appreciation and current income. The Fund will invest primarily in
mortgage-related securities, including those rated below investment grade.
Investments in lower rated mortgage-related securities are subject to a
greater risk of loss of principal and non-payment of interest. Investors
should carefully assess the risks associated with an investment in the Fund.
You can purchase or redeem shares by telephone using Dreyfus
TELETRANSFER.
The Dreyfus Corporation professionally manages the Fund's portfolio.
This Prospectus sets forth concisely information about the Fund that
you should know before investing. It should be read and retained for future
reference.
The Statement of Additional Information, dated March 1, 1998, which
may be revised from time to time, provides a further discussion of certain
areas in this Prospectus and other matters which may be of interest to some
investors. It has been filed with the Securities and Exchange Commission and
is incorporated herein by reference. The Securities and Exchange Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding the Fund. For a free copy of the Statement of
Additional Information, write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call 1-800-645-6561. When telephoning, ask
for Operator 144.
Mutual fund shares are not deposits or obligations of, or guaranteed
or endorsed by, any bank, and are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
The net asset value of funds of this type will fluctuate from time to time.
<TABLE>
TABLE OF CONTENTS
Page Page
<S> <C> <C>
<C>
Fee Table................................... 3 How to Redeem Shares...................... 14
Condensed Financial Information............. 4 Shareholder Services Plan................. 16
Description of the Fund..................... 4 Dividends, Distributions and Taxes........ 16
Management of the Fund...................... 7 Performance Information................... 18
How to Buy Shares........................... 9 General Information....................... 18
Shareholder Services........................ 11 Appendix................................. 20
</TABLE>
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
[This Page Intentionally Left Blank]
[Page 2]
<TABLE>
Fee Table
<S> <C> <C>
Shareholder Transaction Expenses:
Redemption Fee* (as a percentage
of amount redeemed)............................................ 1.00%
Annual Fund Operating Expenses
(as a percentage of average daily net assets)
Management Fees................................................ .65%
Other Expenses................................................. ..50%
Total Fund Operating Expenses ................................. .1.15%
* Shares held for less than six months may be subject to a 1% redemption fee
payable to the Fund. See "How to Redeem Shares."
EXAMPLE:
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at 1 YEAR 3 YEARS
the end of each time period: $12 $37
</TABLE>
- -------------------------------------------------------------------------------
The amounts listed in the example should not be considered as repre-
sentative of past or future expenses and actual expenses may be greater or
less than those indicated. Moreover, while the example assumes a 5% annual
return, the Fund's actual performance will vary and may result in an actual
return greater or less than 5%.
- -------------------------------------------------------------------------------
The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by the Fund and investors, the payment of which
will reduce investors' annual return. Other Expenses are based on estimated
amounts for the current fiscal year. The information in the foregoing table
does not reflect any fee waivers or expense reimbursement arrangements that
may be in effect. Certain Service Agents (as defined below) may charge their
clients direct fees for effecting transactions in Fund shares; such fees are
not reflected in the foregoing table. For a further description of the
various costs and expenses incurred in the operation of the Fund, as well as
expense reimbursement or waiver arrangements, see "Management of the Fund,"
"How to Buy Shares," "How to Redeem Shares" and "Shareholder Services Plan."
[Page 3]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. Further financial data, related
notes and report of independent auditors accompany the Statement of
Additional Information, available upon request.
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 September
30, 1997 (commencement of operations) to October 31, 1997. 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..................................................... .06
Net realized and unrealized gain on investments........................... .13
___-
TOTAL FROM INVESTMENT OPERATIONS.......................................... .19
___-
Net asset value, end of period............................................ $12.69
====
TOTAL INVESTMENT RETURN..................................................... 17.34%(1,2)
====
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................................... .90%(1)
Ratio of net investment income to average net assets...................... 5.39%(1)
Decrease reflected in above expense ratio due to undertaking by The Dreyfus
Corporation 2.77%(1)
Portfolio Turnover Rate................................................... 244.61%(3)
Net Assets, end of period (000's omitted)................................. $10,396
(1) Annualized.
(2) Exclusive of redemption fee.
(3) Not annualized.
</TABLE>
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
Description of the Fund
Investment Objective
The Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. The Fund's investment
objective cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
of the Fund's outstanding voting shares. There can be no assurance that the
Fund's investment objective will be achieved.
Management Policies
Under normal market conditions, the Fund will invest at least 65% of
the value of its total assets in mortgage-related securities.
Mortgage-related securities are collateralized by pools of loans on
commercial or residential real estate. These securities are a form of
derivative and include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, real estate investment trusts ("REITs"), including
debt, preferred stock, and common stock issued by REITs, as well as other
real estate-related securities. The mortgage-related securities in which the
Fund may invest include those with fixed, floating or variable interest
rates, those with interest rates that change based on multiples of changes in
a specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest. In addition,
[Page 4]
the Fund may invest in asset-backed securities, zero coupon securities,
preferred stock, convertible preferred stock and convertible debt obligations
and other corporate debt securities. The Fund also may invest in equity
securities, such as common stocks and securities convertible into common
stocks, issued by companies that primarily invest or deal in real estate. The
issuers of the securities in which the Fund may invest may include domestic
and foreign corporations, partnerships, trusts or similar entities, and
governmental entities or their political subdivisions, agencies or
instrumentalities. The foreign securities in which the Fund may invest must
be U.S. dollar denominated. The fixed-income securities in which the Fund
will invest typically will have an average effective duration ranging between
two and six years. See "Appendix_Certain Portfolio Securities."
The Fund also may invest in money market instruments consisting of
U.S. Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as set forth under
"Appendix_Certain Portfolio Securities_Money Market Instruments." Under
normal market conditions, the Fund does not expect to invest more than 25% of
its assets in money market instruments. However, when The Dreyfus Corporation
determines that adverse market conditions exist, the Fund may adopt a
temporary defensive posture and invest all of its assets in money market
instruments.
The Fund may invest without limitation in securities rated below
investment grade, or, if unrated, determined by The Dreyfus Corporation to be
of comparable quality. Securities rated below investment grade are those
rated lower than Baa by Moody's Investors Service, Inc. ("Moody's") and BBB
by Standard & Poor's Ratings Group ("S&P"), Fitch IBCA, Inc. ("Fitch") or
Duff & Phelps Credit Rating Co. ("Duff"). These securities carry a high
degree of risk and are considered speculative by the credit rating agencies.
The average dollar-weighted credit rating of the debt securities (including
preferred stock) held by the Fund, however, as measured on the basis of the
dollar value of the securities purchased and their credit rating without
reference to rating subcategories, will be at least Baa by Moody's or BBB by
S&P, Fitch or Duff. Securities rated Baa by Moody's and BBB by S&P, Fitch and
Duff are considered investment grade obligations which lack outstanding
investment characteristics and may have speculative characteristics as well.
See "Investment Considerations and Risks_Lower Rated and Non-Rated Lower
Quality Securities" below for a discussion of certain risks, and "Appendix"
in the Statement of Additional Information.
The Fund's annual portfolio turnover rate for the current fiscal year
is not expected to exceed 200%. A turnover rate of 100% is equivalent to the
Fund buying and selling all of the securities in its portfolio once in the
course of a year. Higher portfolio turnover rates usually generate additional
brokerage commissions and expenses and the short-term gains realized from
these transactions are taxable to shareholders as ordinary income. In an
effort to increase returns, the Fund may engage in various investment
techniques, such as transactions in options, futures and swaps, leveraging,
lending portfolio securities, and short-selling. For a discussion of the
investment techniques and their related risks, see "Investment Considerations
and Risks" and "Appendix_Investment Techniques" below and "Investment
Objective and Management Policies_Management Policies" in the Statement of
Additional Information.
Investment Considerations and Risks
General_The Fund's net asset value per share should be expected to fluctuate.
Investors should consider the Fund as a supplement to an overall investment
program and should invest only if they are willing to undertake the risks
involved. You could lose money by investing in the Fund. See "Investment
Objective and Management Policies" in the Statement of Additional Information
for a further discussion of certain risks.
Mortgage-Related Securities_Mortgage-related securities are complex
derivative instruments, subject to both credit and prepayment risk. Although
they may provide opportunities for enhanced total return, you should be aware
that the lower rated mortgage-related securities in which the Fund may
[Page 5]
invest are likely to be more volatile and less liquid, and more difficult to
price accurately, than more traditional debt securities. These securities may
be particularly susceptible to economic downturns. It is likely that an
economic recession could disrupt severely the market for such securities and
may have an adverse impact on the value of such securities.
Mortgage-related securities generally are subject to credit risks
associated with the performance of the underlying mortgage properties and to
prepayment risk. In certain instances, the credit risk associated with
mortgage-related securities can be reduced by third party guarantees or other
forms of credit support. Improved credit risk does not reduce prepayment risk
which is unrelated to the rating assigned to the mortgage-related security.
Prepayment risk can lead to fluctuations in value of the mortgage-related
security which may be pronounced. If a mortgage-related security is purchased
at a premium, all or part of the premium may be lost if there is a decline in
the market value of the security, whether resulting from changes in interest
rates or prepayments on the underlying mortgage collateral. Certain
mortgage-related securities that may be purchased by the Fund, such as
inverse floating rate collateralized mortgage obligations, have coupons that
move inversely to a multiple of a specific index which may result in a form
of leverage. As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Fund. Moreover, with respect to
certain stripped mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Fund may fail to fully recoup its initial investment even if the securities
are rated in the highest rating category by a nationally recognized
statistical rating organization. During periods of rapidly rising interest
rates, prepayments of mortgage-related securities may occur at slower than
expected rates. Slower prepayments effectively may lengthen a
mortgage-related security's expected maturity which generally would cause the
value of such security to fluctuate more widely in response to changes in
interest rates. Were the prepayments on the Fund's mortgage-related
securities to decrease broadly, the Fund's effective duration, and thus
sensitivity to interest rate fluctuations, would increase. Commercial real
property loans, however, often contain provisions that reduce the likelihood
that such securities will be prepaid. The provisions generally impose
significant prepayment penalties on loans and in some cases there may be
prohibitions on principal prepayments for several years following
origination.
REAL ESTATE-RELATED EQUITY SECURITIES _ Equity securities fluctuate in
value, often based on factors unrelated to the value of the issuer of the
securities, and such fluctuations can be pronounced. Changes in the value of
the Fund's investments will result in changes in the value of its shares and
thus the Fund's total return to investors.
An investment in the Fund will generally be subject to the risks
associated with real estate. These risks include declines in the value of
real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
variations in rental income, changes in neighborhood values, the appeal of
properties to tenants and increases in interest rates. The value of securities
of companies that service the real estate industry will also be affected by
these risks.
The Fund's use of leverage may increase fluctuations in its net asset
value and increase the gain or loss on your investment.
Fixed-Income Securities_Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income
[Page 6]
securities also may be affected by changes in the credit rating or financial
condition of the issuer. Certain securities purchased by the Fund, such as
those rated Baa or lower by Moody's and BBB or lower by S&P, Fitch and Duff,
may be subject to such risk with respect to the issuing entity and to greater
market fluctuations than certain lower yielding, higher rated fixed-income
securities. Once the rating of a portfolio security has been changed, the
Fund will consider all circumstances deemed relevant in determining whether
to continue to hold the security. See "Lower Rated and Non-Rated Lower
Quality Securities" and "Appendix_Certain Portfolio Securities_Ratings" below
and "Appendix" in the Statement of Additional Information.
Lower Rated and Non-Rated Lower Quality Securities_The Fund may invest
without limitation in higher yielding (and, therefore, higher risk)
mortgage-related securities such as those rated Ba by Moody's or BB by S&P,
Fitch or Duff or as low as the lowest rating assigned by Moody's, S&P, Fitch
or Duff, or non-rated subordinated classes of equivalent quality. They may be
subject to certain risks with respect to the issuing entity and to greater
market fluctuations and greater risk of loss of income and principal, than
certain lower yielding, higher rated fixed-income securities. The retail
secondary market for these securities may be less liquid than that of higher
rated securities; adverse conditions could make it difficult at times for the
Fund to sell certain securities or could result in lower prices than those
used in calculating the Fund's net asset value. See "Appendix_Certain
Portfolio Securities_Ratings."
Foreign Securities_Foreign securities markets generally are not as developed
or efficient as those in the United States. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the United States and, at times, volatility of price can be
greater than in the United States.
Use of Derivatives_In addition to mortgage-related securities and
asset-backed securities, the Fund may invest in, or enter into, other
derivatives ("Derivatives") such as options, futures and swaps. These are
financial instruments which derive their performance, at least in part, from
the performance of an underlying asset, index or interest rate. While
Derivatives can be used effectively in furtherance of the Fund's investment
objective, under certain market conditions, they can increase the volatility
of the Fund's net asset value, decrease the liquidity of the Fund's portfolio
and make more difficult the accurate pricing of the Fund's portfolio. See
"Appendix _ Investment Techniques _ Use of Derivatives" below and "Investment
Objectives and Management Policies _ Management Policies _ Derivatives" in
the Statement of Additional Information.
Non-Diversified Status_The classification of the Fund as a "non-diversified"
investment company means that the proportion of the Fund's assets that may be
invested in the securities of a single issuer is not limited by the 1940 Act.
A "diversified" investment company is required by the 1940 Act generally,
with respect to 75% of its total assets, to invest not more than 5% of such
assets in the securities of a single issuer. Since a relatively high
percentage of the Fund's assets may be invested in the securities of a
limited number of issuers, the Fund's portfolio securities may be more
sensitive to changes in the market value of a single issuer. However, to meet
Federal tax requirements, at the close of each quarter the Fund may not have
more than 25% of its total assets invested in any one issuer and, with
respect to 50% of total assets, not more than 5% of its total assets invested
in any one issuer. These limitations do not apply to U.S. Government
securities.
Simultaneous Investments_Investment decisions for the Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities as the Fund, available
investments or opportunities for sales will be allocated equitably to each
investment company. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price
paid or received by the Fund.
[Page 7]
Management of the Fund
Investment Adviser_The Dreyfus Corporation, located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as the Fund's investment
adviser. The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank,
N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of January 31, 1998, The Dreyfus Corporation managed or
administered approximately $96 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the
Company, subject to the authority of the Company's Board in accordance with
Massachusetts law. The Fund's primary portfolio manager is Michael Hoeh. He
has held that position since the Fund's inception and has been employed by
The Dreyfus Corporation since October 1996. Prior to joining The Dreyfus
Corporation, Mr. Hoeh was Vice President of Portfolio Management at ARM Capita
l Advisors, Inc. From 1993 to 1994, Mr. Hoeh was Vice President in the Risk
Management division of Blackrock Financial Management where he was employed
since January 1992. The Fund's other portfolio managers are identified in the
Statement of Additional Information. The Dreyfus Corporation also provides
research services for the Fund and for other funds advised by The Dreyfus
Corporation through a professional staff of portfolio managers and securities
analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in
assets, including approximately $60 billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to
pay The Dreyfus Corporation a monthly fee at the annual rate of .65 of 1% of
the value of the Fund's average daily net assets. For the period September
30, 1997 (commencement of operations) through October 31, 1997, no management
fee was paid by the Fund pursuant to an undertaking by The Dreyfus
Corporation. From time to time, The Dreyfus Corporation may waive receipt of
its fees and/or voluntarily assume certain expenses of the Fund, which would
have the effect of lowering the expense ratio of the Fund and increasing
yield to investors. The Fund will not pay The Dreyfus Corporation at a later
time for any amounts it may waive, nor will the Fund reimburse The Dreyfus
Corporation for any amounts it may assume.
In allocating brokerage transactions, The Dreyfus Corporation seeks
to obtain the best execution of orders at the most favorable net price.
Subject to this determination, The Dreyfus Corporation may consider, among
other things, the receipt of research services and/or the sale of shares of
the Fund or other funds managed, advised or administered by The Dreyfus
Corporation as factors in the selection of broker-dealers to execute
portfolio transactions for the Fund. See "Portfolio Transactions" in the State
ment of Additional Information.
Expenses_All expenses incurred in the operation of the Company are borne by
the Company, except to the extent specifically assumed by The Dreyfus
Corporation. The expenses borne by the Company include: organizational costs,
taxes, interest, loan commitment fees, interest and distributions paid on
securities sold short, brokerage fees and commissions, if any, fees of Board
members who are not officers, directors, employees or holders of 5% or more
of the outstanding voting securities of The Dreyfus Corporation or any of its
affiliates, Securities and Exchange Commission fees, state Blue Sky qualifica
[Page 8]
tion fees, advisory fees, charges of custodians, transfer and dividend
disbursing agents' fees, certain insurance premiums, industry association
fees, outside auditing and legal expenses, costs of independent pricing
services, costs of maintaining the Company's existence, costs attributable to
investor services (including, without limitation, telephone and personnel
expenses), costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to
existing shareholders, costs of shareholders' reports and meetings, and any
extraordinary expenses. Expenses attributable to the Fund are charged against
the assets of the Fund; other expenses of the Company are allocated among the
Company's portfolios on the basis determined by the Board, including, but not
limited to, proportionately in relation to the net assets of each portfolio.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
Distributor_The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at 60 State Street, Boston, Massachusetts 02109. The
Distributor's ultimate parent is Boston Institutional Group, Inc.
Transfer and Dividend Disbursing Agent and Custodian_Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, is the Fund's Custodian.
How to Buy Shares
Fund shares are sold without a sales charge. You may be charged a fee
if you effect transactions in Fund shares through a securities dealer, bank
or other financial institution (collectively, "Service Agents"). Stock
certificates are issued only upon your written request. No certificates are
issued for fractional shares. The Fund reserves the right to reject any
purchase order. See "Appendix_Additional Information About Purchases,
Exchanges and Redemptions."
The minimum initial investment is $10,000. Subsequent investments,
other than those made through an automatic investment privilege described
under "Shareholder Services," must be at least $1,000. However, the minimum
initial investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including
regular IRAs, spousal IRAs for a non-working spouse, Roth IRAs, SEP-IRAs and
rollover IRAs) and 403(b)(7) Plans with only one participant and $500 for
Dreyfus-sponsored Education IRAs, with no minimum for subsequent purchases.
The initial investment must be accompanied by the Account Application. The
Fund reserves the right to offer Fund shares without regard to minimum
purchase requirements to employees participating in certain qualified or
non-qualified employee benefit plans or other programs where contributions or
account information can be transmitted in a manner and form acceptable to the
Fund. The Fund reserves the right to vary further the initial and subsequent
investment minimum requirements at any time.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian" and should specify that you are
investing in the Fund. Payments to open new accounts which are mailed should
be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence, Rhode
Island 02940-9387, together with your Account Application. For subsequent
investments, your Fund account number should appear on the check and an invest
ment slip should be enclosed and sent to The Dreyfus Family of Funds, P.O.
Box 105, Newark, New Jersey 07101-0105. For Dreyfus retirement plan accounts,
both initial and subsequent investments should be sent to The Dreyfus Trust
Company, Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427.
Neither initial nor subsequent investments should be made by
[Page 9]
third party check. Purchase orders may be delivered in person only to a
Dreyfus Financial Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND WILL
BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the nearest
Dreyfus Financial Center, please call one of the telephone numbers listed
under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA# 8900336692/Dreyfus Real
Estate Mortgage Fund, for purchase of Fund shares in your name. The wire must
include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account registra-
tion and dealer number, if applicable. If your initial purchase of Fund shares
is by wire, please call 1-800-645-6561 after completing your wire payment to
obtain your Fund account number. Please include your Fund account number on
the Account Application and promptly mail the Account Application to the
Fund, as no redemptions will be permitted until the Account Application is
received. You may obtain further information about remitting funds in this
manner from your bank. All payments should be made in U.S. dollars and, to
avoid fees and delays, should be drawn only on U.S. banks. A charge will be
imposed if any check used for investment in your account does not clear. The
Fund makes available to certain large institutions the ability to issue
purchase instructions through compatible computer facilities.
Fund shares also may be purchased through Dreyfus-AUTOMATIC Asset
BuilderRegistration Mark, Dreyfus Government Direct Deposit Privilege and
Dreyfus Payroll Savings Plan described under "Shareholder Services." These
services enable you to make regularly scheduled investments and may provide
you with a convenient way to invest for long-term financial goals. You should
be aware, however, that periodic investment plans do not guarantee a profit
and will not protect an investor against loss in a declining market.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other entity authorized to receive orders on behalf of the
Fund. Net asset value per share is determined as of the close of trading on
the floor of the New York Stock Exchange (currently 4:00 p.m., New York
time), on each day the New York Stock Exchange is open for business. For
purposes of determining net asset value, options and futures contracts will
be valued 15 minutes after the close of trading on the floor of the New York
Stock Exchange. Net asset value per share is computed by dividing the value
of the Fund's net assets (i.e., the value of its assets less liabilities) by
the total number of Fund shares outstanding. The Fund's investments will be
valued based on market value or, where market quotations are not readily
available, based on fair value as determined in good faith by or under the
direction of the Company's Board. For further information regarding the
methods employed in valuing the Fund's investments, see "Determination of Net
Asset Value" in the Statement of Additional Information.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or
[Page 10]
program's aggregate investment in the Dreyfus Family of Funds or certain
other products made available by the Distributor to such plans or programs
exceeds $1,000,000 ("Eligible Benefit Plans"). Shares of funds in the Dreyfus
Family of Funds then held by Eligible Benefit Plans will be aggregated to
determine the fee payable. The Distributor reserves the right to cease paying
these fees at any time. The Distributor will pay such fees from its own
funds, other than amounts received from the Fund, including past profits or
any other source available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Account Application for further information concerning this requirement.
Failure to furnish a certified TIN to the Fund could subject you to a $50
penalty imposed by the Internal Revenue Service (the "IRS").
Dreyfus TeleTransfer Privilege_You may purchase shares (minimum $1,000,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between the bank account designated in one of these documents
and your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Fund may modify or terminate this Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
Shareholder Services
Fund Exchanges
You may purchase, in exchange for shares of the Fund, shares of
certain other funds managed or administered by The Dreyfus Corporation, to
the extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
If you desire to use this service, you should consult your Service Agent or
call 1-800-645-6561 to determine if it is available and whether any
conditions are imposed on its use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling 1-80
0-645-6561. Except in the case of personal retirement plans, the shares being
exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have
a value of at least the minimum initial investment required for the fund into
which the exchange is being made. The ability to issue exchange instructions
by telephone is given to all Fund shareholders automatically, unless you
check the applicable "No" box on the Account Application, indicating that you
specifically refuse this Privilege. The Telephone Exchange Privilege may be
established for an existing account by written request signed by all
shareholders on the account, by a separate signed Shareholder Services Form,
available by calling 1-800-645-6561, or by oral request from any of the
authorized signatories on the account by calling 1-800-645-6561. If you have
established the Telephone Exchange Privilege, you may telephone exchange
instructions (including over The Dreyfus TouchRegistration Mark automated
telephone system) by calling 1-800-645-6561. If you are calling from
overseas, call 516-794-5452. See "How to Redeem Shares_Procedures." Upon an
exchange into a new account, the following shareholder services and
privileges, as applicable and where available, will be automatically carried
over to the fund into which the exchange is made: Telephone Exchange
Privilege, Wire Redemption Privilege, Telephone Redemption Privilege, Dreyfus
TELETRANSFER Privilege and the dividend/capital gain distribution option
(except for Dreyfus Dividend Sweep) selected by the investor.
[Page 11]
The Fund will impose a redemption fee equal to 1% of the net asset
value of Fund shares exchanged out of the Fund where the exchange is made
less than six months after issuance of such shares. See "How to Redeem
Shares." Otherwise, shares will be exchanged at the next determined net asset
value; however, a sales load may be charged with respect to exchanges into
funds sold with a sales load. If you are exchanging into a fund that charges
a sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares you are exchanging
were: (a) purchased with a sales load, (b) acquired by a previous exchange
from shares purchased with a sales load, or (c) acquired through reinvestment
of dividends or distributions paid with respect to the foregoing categories
of shares. To qualify, at the time of the exchange you must notify the
Transfer Agent or your Service Agent must notify the Distributor. Any such
qualification is subject to confirmation of your holdings through a check of
appropriate records. See "Shareholder Services" in the Statement of
Additional Information. No fees currently are charged shareholders directly
in connection with exchanges, although the Fund reserves the right, upon not
less than 60 days' written notice, to charge shareholders a nominal
administrative fee in accordance with rules promulgated by the Securities
and Exchange Commission. The Fund reserves the right to reject any exchange
request in whole or in part. See "Appendix_Additional Information About
Purchases, Exchanges and Redemptions." The availability of Fund Exchanges
may be modified or terminated at any time upon notice to shareholders.
See "Dividends, Distributions and Taxes."
Dreyfus Auto-Exchange Privilege
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
the Fund, in shares of certain other funds in the Dreyfus Family of Funds of
which you are a shareholder. The amount you designate, which can be expressed
either in terms of a specific dollar or share amount ($100 minimum), will be
exchanged automatically on the first and/or fifteenth day of the month
according to the schedule you have selected. Shares will be exchanged at the
then-current net asset value; however, a sales load may be charged with
respect to exchanges into funds sold with a sales load. See "Shareholder
Services" in the Statement of Additional Information. The right to exercise
this Privilege may be modified or canceled by the Fund or the Transfer Agent.
You may modify or cancel your exercise of this Privilege at any time by
mailing written notification to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671. The Fund may charge a service fee for
the use of this Privilege. No such fee currently is contemplated. For more
information concerning this Privilege and the funds in the Dreyfus Family of
Funds eligible to participate in this Privilege, or to obtain a Dreyfus
Auto-Exchange Authorization Form, please call toll free 1-800-645-6561. See
"Dividends, Distributions and Taxes."
Dreyfus-AUTOMATIC Asset BuilderRegistration Mark
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring funds
from the bank account designated by you. Only an account maintained at a
domestic financial institution which is an Automated Clearing House member
may be so designated. To establish a Dreyfus-AUTOMATIC Asset Builder account,
you must file an authorization form with the Transfer Agent. You may obtain
the necessary authorization form by calling 1-800-645-6561. You may cancel
your participation in this Privilege or change the amount of purchase at any
time by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
Dreyfus Government Direct Deposit Privilege
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain
[Page 12]
veterans', military or other payments from the Federal government
automatically deposited into your Fund account. You may deposit as much of
such payments as you elect. To enroll in Dreyfus Government Direct Deposit,
you must file with the Transfer Agent a completed Direct Deposit Sign-Up Form
for each type of payment that you desire to include in this Privilege. The
appropriate form may be obtained by calling 1-800-645-6561. Death or legal
incapacity will terminate your participation in this Privilege. You may elect
at any time to terminate your participation by notifying in writing the
appropriate Federal agency. The Fund may terminate your participation upon 30
days' notice to you.
Dreyfus Payroll Savings Plan
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have part or all of your
paycheck transferred to your existing Dreyfus account electronically through
the Automated Clearing House system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form
with your employer's payroll department. Your employer must complete the
reverse side of the form and return it to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may change the amount of
purchase or cancel the authorization only by written notification to your
employer. It is the sole responsibility of your employer, not the
Distributor, The Dreyfus Corporation, the Fund, the Transfer Agent or any
other person, to arrange for transactions under the Dreyfus Payroll Savings
Plan. The Fund may modify or terminate this Privilege at any time or charge a
service fee. No such fee currently is contemplated.
Dreyfus Dividend Options
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of another fund in the Dreyfus Family of Funds of which you are a
shareholder. Shares of the other fund will be purchased at the then-current
net asset value; however, a sales load may be charged with respect to
investments in shares of a fund sold with a sales load. If you are investing
in a fund that charges a sales load, you may qualify for share prices which
do not include the sales load or which reflect a reduced sales load. If you
are investing in a fund that charges a contingent deferred sales charge, the
shares purchased will be subject on redemption to the contingent deferred
sales charge, if any, applicable to the purchased shares. See "Shareholder
Services" in the Statement of Additional Information. Dreyfus Dividend ACH
permits you to transfer electronically dividends or dividends and capital
gain distributions, if any, from the Fund to a designated bank account. Only
an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. Banks may charge a fee
for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To select a new
fund after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three business
days following receipt. These privileges are available only for existing
accounts and may not be used to open new accounts. Minimum subsequent
investments do not apply for Dreyfus Dividend Sweep. The Fund may modify or
terminate these privileges at any time or charge a service fee. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans are not eligible for Dreyfus Dividend Sweep.
Automatic Withdrawal Plan
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $10,000 minimum account. An Automatic Withdrawal Plan may
be established by filing an Automatic Withdrawal Plan application with the
Transfer Agent or by oral request from any of the authorized signatories on
the account by call
[Page 13]
ing 1-800-645-6561. The Automatic Withdrawal Plan may be ended at any time by
you, the Fund or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
Retirement Plans
The Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs (including regular IRAs, spousal IRAs for a
non-working spouse, Roth IRAs, SEP-IRAs, rollover IRAs and Education IRAs),
401(k) Salary Reduction Plans and 403(b)(7) Plans. Plan support services also
are available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs (except SEP-IRAs), please call 1-800-645-6561; for SEP-IRAs, 401(k)
Salary Reduction Plans and 403(b)(7) Plans, please call 1-800-322-7880.
How to Redeem Shares
General
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form by the Transfer Agent or other entity
authorized to receive orders on behalf of the Fund, the Fund will redeem the
shares at the next determined net asset value. See "Appendix_Additional
Information About Purchases, Exchanges and Redemptions."
The Fund will deduct a redemption fee of 1% of the net asset value of
Fund shares redeemed or exchanged in less than six months following the
issuance of such shares. The fee will be retained by the Fund and used
primarily to offset the transaction costs that short-term trading imposes on
the Fund and its shareholders. For purposes of calculating the six-month
holding period, the Fund will employ the "first-in, first-out" method, which
assumes that the shares you are redeeming or exchanging are the ones you have
held the longest. No redemption fee will be charged on the redemption or
exchange of shares (1) through the Fund's Automatic Withdrawal Plan or
Dreyfus Auto-Exchange Privilege, (2) through accounts that are reflected on
the records of the Transfer Agent as omnibus accounts approved by Dreyfus
Service Corporation, (3) through accounts established by Service Agents
approved by Dreyfus Service Corporation that utilize the National Securities
Clearing Corporation's networking system, or (4) acquired through the
reinvestment of dividends or capital gains distributions. The redemption fee
may be waived, modified or discontinued at any time or from time to time.
Service Agents may charge their clients a fee for effecting redemptions of
Fund shares. Any certificates representing Fund shares being redeemed must be
submitted with the redemption request. The value of the shares redeemed may
be more or less than their original cost, depending upon the Fund's
then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDERRegistration
Mark AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER
AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK
CLEARANCE OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-
AUTOMATIC ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR
MORE. IN ADDITION, THE FUND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR
TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF
EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE
CHECK, THE DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET
BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES
WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU
OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE
REDEMP
[Page 14]
TION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON
SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE
ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed
until the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if your account's net asset value is
$5,000 or less and remains so during the notice period.
Procedures
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or through the Telephone Redemption Privilege
which is granted automatically unless you specifically refuse it by checking
the applicable "No" box on the Account Application. The Telephone Redemption
Privilege may be established for an existing account by a separate signed
Shareholder Services Form or by oral request from any of the authorized
signatories on the account by calling 1-800-645-6561. You also may redeem
shares through the Wire Redemption Privilege or the Dreyfus TELETRANSFER
Privilege, if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. Other redemption procedures may be in effect
for clients of certain Service Agents. The Fund makes available to certain
large institutions the ability to issue redemption instructions through
compatible computer facilities. The Fund reserves the right to refuse any
request made by wire or telephone, including requests made shortly after a
change of address, and may limit the amount involved or the number of such
requests. The Fund may modify or terminate any redemption Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans, and shares for which certificates have been issued, are not
eligible for the Wire Redemption, Telephone Redemption or Dreyfus TELETRANSFER
Privilege.
The Telephone Redemption Privilege or Telephone Exchange Privilege
authorizes the Transfer Agent to act on telephone instructions (including
over The Dreyfus TouchRegistration Mark automated telephone system) from any
person representing himself or herself to be you, and reasonably believed by
the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Fund or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
Regular Redemption_Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New
[Page 15]
York Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion Program.
If you have any questions with respect to signature-guarantees, please call
one of the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
Wire Redemption Privilege_You may request by wire, telephone or letter that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. Holders of jointly registered Fund or bank accounts may
have redemption proceeds of not more than $250,000 wired within any 30-day
period. You may telephone redemption requests by calling 1-800-645-6561 or,
if you are calling from overseas, call 516-794-5452. The Statement of Addition
al Information sets forth instructions for transmitting redemption requests
by wire.
Telephone Redemption Privilege_You may request by telephone that redemption
proceeds (maximum $150,000 per day) be paid by check and mailed to your
address. You may telephone redemption instructions by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452. The Telephone
Redemption Privilege is granted automatically unless you refuse it.
Dreyfus TELETRANSFER Privilege_You may request by telephone that redemption
proceeds (minimum $1,000 per day) be transferred between your Fund account
and your bank account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their bank
account not more than $250,000 within any 30-day period.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
Shareholder Services Plan
The Fund has adopted a Shareholder Services Plan, pursuant to which
it pays the Distributor for the provision of certain services to Fund
shareholders a fee at the annual rate of .25 of 1% of the value of the Fund's
average daily net assets. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. The Distributor may make
payments to Service Agents in respect of these services. The Distributor
determines the amounts to be paid to Service Agents.
Dividends, Distributions and Taxes
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund is treated as a separate corporation for purposes of qualification and
taxation as a regulated investment company. The Fund ordinarily declares and
pays dividends from its net investment income quarterly and distributes net
realized securities gains, if any, once a year, but it may make distributions
on a more frequent basis to comply with the distribution requirements of the
Code, in all events in a manner consistent with the provisions of the 1940
Act. The Fund will not make distributions from net realized securities gains
unless capital loss carryovers, if any, have been utilized or have expired.
You may choose whether to receive dividends and distributions in cash or to
reinvest in additional shares at net asset value. If you elect to receive
dividends and distributions in cash, and your dividend or distribution check
is returned to the Fund as undeliverable or remains uncashed for six months,
the Fund reserves the right to reinvest such dividend or distribution and all
future dividends and distributions payable to you in additional Fund shares
at net asset value. No interest will accrue on amounts represented by
uncashed distribution or redemption checks. All expenses are accrued daily
and deducted before declaration of dividends to investors.
[Page 16]
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to U.S. shareholders
as ordinary income for Federal income tax purposes whether received in cash
or reinvested in additional shares. No dividend paid by the Fund will qualify
for the dividends-received deduction allowable to certain
U.S. corporations. Distributions from net realized long-term securities gains
of the Fund will be taxable to U.S. shareholders as long-term capital gains
for Federal income tax purposes, regardless of how long shareholders have
held their Fund shares and whether such distributions are received in cash or
reinvested in Fund shares. The Code provides that an individual generally
will be taxed on his or her net capital gain at a maximum rate of 28% with
respect to capital gain from securities held for more than one year but not
more than 18 months and at a maximum rate of 20% with respect to capital gain
from securities held for more than 18 months. Dividends and distributions may
be subject to state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Fund to a foreign investor as well as the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gain or
loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup
with holding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number, IRS individual taxpayer
identification number, or employer identification number of the record owner
of the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account, and
may be claimed as a credit on the record owner's Federal income tax return.
Management of the Company believes that that the Fund has qualified
as a "regulated investment company" under the Code for its fiscal year ended
October 31, 1997. The Fund intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of any liability for Federal income tax to
the extent its earnings are distributed in accordance with applicable
provisions of the Code. The Fund is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
[Page 17]
Performance Information
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed to accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Income is adjusted to
reflect gains and losses from principal repayments received by the Fund with
respect to mortgage-related securities and other asset-backed securities.
Other capital gains and losses and gains and losses from exchange rate
fluctuations generally are excluded from the calculation. Calculations of the
Fund's current yield may reflect absorbed expenses pursuant to any
undertaking that may be in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a percentage rate
which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter periods depending upon the
length of time the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from broad-based
securities indexes and industry publications.
General Information
The Company was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement"), and commenced operations on
October 1, 1986. Before January 1, 1996, the Company's name was Dreyfus
Strategic Income. The Company is authorized to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. Each share has one
vote.
Under Massachusetts law, shareholders, under certain circumstances,
could be held personally liable for the obligations of the Fund. However, the
Trust Agreement disclaims shareholder liability for acts or obligations of
the Company and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Company
or a Trustee. The Trust Agreement provides for indemnification from the
Fund's property for all losses and expenses of any shareholder held
personally
[Page 18]
liable for the obligations of the Fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Company intends to conduct its operations in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for liabilities of
the Fund. As described under "Management of the Company" in the Statement of
Additional Information, the Company ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Fund are being
offered. Other portfolios are sold pursuant to other offering documents.
To date, the Board has authorized the creation of five series of
shares. All consideration received by the Company for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Company) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of the
other series. The Company has the ability to create, from time to time, new
series without shareholder approval.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call 1-718-895-1206; outside the U.S., call
516-794-5452.
[Page 19]
Appendix
Investment Techniques
Leverage_Leveraging exaggerates the effect on net asset value of any increase
or decrease in the market value of the Fund's portfolio. Money borrowed for
leveraging is limited to 331\3% of the value of the Fund's total assets.
These borrowings would be subject to interest costs which may or may not be
recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased.
See also "Forward Commitments" below.
The Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund
of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal plus accrued
interest. Except for these transactions, the Fund's borrowings generally will
be unsecured.
Short-Selling_In these transactions, the Fund sells a security it does not
own in anticipation of a decline in the market value of the security. To
complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently at the market price at the time of replacement.
The price at such time may be more or less than the price at which the
security was sold by the Fund, which would result in a loss or gain,
respectively. The Fund also may make short sales "against the box," in which
the Fund enters into a short sale of a security it owns. Securities will not
be sold short if, after effect is given to any such short sale, the total
market value of all securities sold short would exceed 25% of the value of
the Fund's net assets.
Use of Derivatives_The Fund may invest in, or enter into, the types of
Derivatives enumerated under "Description of the Fund _ Investment
Considerations and Risks _ Use of Derivatives." These instruments and certain
related risks are described more specifically under "Investment Objective and
Management Policies_Management Policies_Derivatives" in the Statement of
Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Fund were unable
to liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although the Fund will not be a commodity pool, certain Derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such Derivatives. The
Fund may invest in futures contracts and options with respect thereto for
hedging purposes without limit. However, the Fund may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
[Page 20]
The Fund may purchase call and put options and write (i.e., sell)
covered call and put options. When required by the Securities and Exchange
Commission, the Fund will set aside permissible liquid assets in a segregated
account to cover its obligations relating to its transactions in Derivatives.
To maintain this required cover, the Fund may have to sell portfolio
securities at disadvantageous prices or times since it may not be possible to
liquidate a Derivative position at a reasonable price.
Forward Commitments_The Fund may purchase or sell securities on a forward
commitment, when-issued or delayed delivery basis, which means delivery and
payment take place a number of days after the date of the commitment to
purchase or sell the securities at a predetermined price and/or yield.
Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the Fund
assumes the rights and risks of ownership of the security, including the risk
of price and yield fluctuations, and takes such fluctuations into account
when determining its net asset value. Because the Fund is not required to pay
for these securities until the delivery date, these risks are in addition to
the risks associated with the Fund's other investments. If the Fund is fully
or almost fully invested when forward commitment purchases are outstanding,
such purchases may result in a form of leverage. The Fund intends to engage
in forward commitments to increase its portfolio's financial exposure to the
types of securities in which it invests. Leveraging the portfolio in this
manner will increase the Fund's exposure to changes in interest rates and
will increase the volatility of its returns. The Fund will set aside in a
segregated account permissible liquid assets at least equal at all times to
the amount of the Fund's purchase commitments. At no time will the Fund have
more than 331\3% of its assets committed to purchase securities on a forward
commitment basis.
Forward Roll Transactions_To enhance current income, the Fund may enter into
forward roll transactions with respect to mortgage-related securities. In a
forward roll transaction, the Fund sells a mortgage-related security to a
financial institution, such as a bank or broker-dealer, and simultaneously
agrees to purchase a similar security from the institution at a later date at
an agreed upon price. The securities that are purchased will bear the same
interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different pre-payment histories than those
sold. During the period between the sale and purchase, the Fund will not be
entitled to receive interest and principal payments on the securities sold.
Proceeds of the sale typically will be invested in short-term instruments,
particularly repurchase agreements, and the income from these investments,
together with any additional fee income received on the sale will be expected
to generate income for the Fund exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market value of the
securities sold by the Fund may decline below the purchase price of those
securities. The Fund will set aside in a segregated account of the Fund
permissible liquid assets at least equal to the amount of the repurchase
price (including accrued interest).
Lending Portfolio Securities_The Fund may lend securities from its portfolio
to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Fund an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 331\3%
of the value of the Fund's total assets, and the Fund will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of
credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Fund at any time upon specified notice. The Fund might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund.
Certain Portfolio Securities
Mortgage-Related Securities_Mortgage-related securities are secured, directly
or indirectly, by pools of mortgage loans, including mortgage loans made by
savings and loan institutions, mortgage bankers,
[Page 21]
commercial banks and others, assembled as securities for sale to investors by
various governmental, government-related and private organizations. The
mortgage-related securities in which the Fund may invest include the
following:
Residential Mortgage-Related Securities. The Fund may invest in
mortgage-related securities representing participation interests in pools of
one- to four-family residential mortgage loans issued or guaranteed by
governmental agencies or instrumentalities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or issued
by private entities. Similar to commercial mortgage-related securities,
residential mortgage-related securities have been issued using a variety of
structures, including multi-class structures featuring senior and
subordinated classes.
Mortgage-related securities issued by GNMA include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed
as to the timely payment of principal and interest by GNMA and such guarantee
is backed by the full faith and credit of the United States. GNMA
certificates also are supported by the authority of GNMA to borrow funds from
the U.S. Treasury to make payments under its guarantee. Mortgage-related
securities issued by FNMA include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations
of FNMA and are not backed by or entitled to the full faith and credit of the
United States. Fannie Maes are guaranteed as to timely payment of principal
and interest by FNMA. Mortgage-related securities issued by FHLMC include
FHLMC Mortgage Participation Certificates (also known as "Freddie Macs" or
"PCs"). Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee
timely payment of principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
Commercial Mortgage-Related Securities. The Fund may invest in
commercial mortgage-related securities, which generally are multi-class debt
or pass-through certificates secured by mortgage loans on commercial
properties. These mortgage-related securities generally are structured to
provide protection to the senior classes investors against potential losses
on the underlying mortgage loans. This protection is generally provided by
having the holders of subordinated classes of securities ("Subordinated
Securities") take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protection, which may benefit all of the
classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross-collateralization and over-
collateralization.
Subordinated Securities. The Fund may invest in Subordinated
Securities issued or sponsored by commercial banks, savings and loan
institutions, mortgage bankers, private mortgage insurance companies and
other non-governmental issuers. Subordinated Securities have no governmental
guarantee, and are subordinated in some manner as to the payment of principal
and/or interest to the holders of more senior mortgage-related securities
arising out of the same pool of mortgages. The holders of Subordinated
Securities typically are compensated with a higher stated yield than are the
holders of more senior mortgage-related securities. On the other hand,
Subordinated Securities typically subject the holder to greater risk than
senior mortgage-related securities and tend to be rated in a lower rating
category, and frequently a substantially lower rating category, than the
senior mortgage-related securities issued in respect of the same pool of
mortgage. Subordinated Securities generally are likely to be more sensitive
to changes in prepayment and interest rates and the market for such
securities may be less liquid than is the case for traditional fixed-income
securities and senior mortgage-related securities.
[Page 22]
Collateralized Mortgage Obligations and Multi-Class Pass-Through
Securities. Collateralized mortgage obligations or "CMOs" are multiclass
bonds backed by pools of mortgage pass-through certificates or mortgage
loans. CMOs may be collateralized by (a) pass-through certificates issued or
guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured
by the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs, (c) unsecuritized conventional mortgages, (d) other
mortgage-related securities or (e) any combination thereof. CMOs may be
issued by agencies or instrumentalities of the U.S. government, or by private
originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose
subsidiaries of the foregoing. From time to time, a substantial portion of
the Fund's portfolio may be invested in CMOs. The issuer of CMOs or multi-
class pass-through securities may elect to be treated as a REMIC. The
Fund will not invest in residual interests in REMICs.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be
retired substantially earlier than the stated maturities or final
distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many ways.
One or more tranches of a CMO may have coupon rates which reset periodically
at a specified increment over an index, such as the London Interbank Offered
Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs
typically are issued with lifetime caps on the coupon rate thereon. The Fund
also may invest in inverse floating rate CMOs. Inverse floating rate CMOs
constitute a tranche of a CMO with a coupon rate that moves in the reverse
direction to an applicable index such as the LIBOR. Accordingly, the coupon
rate thereon will increase as interest rates decrease. Inverse floating rate
CMOs are typically more volatile than fixed or floating rate tranches of
CMOs.
Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. The effect of the coupon varying
inversely to a multiple of an applicable index creates a leverage factor.
Inverse floaters based on multiples of a stated index are designed to be
highly sensitive to changes in interest rates and can subject the holders
thereof to extreme reductions of yield and loss of principal. The markets for
inverse floating rate CMOs with highly leveraged characteristics at times may
be very thin. The Fund's ability to dispose of its positions in such
securities will depend on the degree of liquidity in the markets for such
securities. It is impossible to predict the amount of trading interest that
may exist in such securities, and therefore the future degree of liquidity.
Stripped Mortgage-Backed Securities. The Fund also may invest in
stripped mortgage-backed securities which are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities, each with a specified percentage of the underlying
security's principal or interest payments. Mortgage securities may be
partially stripped so that each investor class received some interest and
some principal. When securities are completely stripped, however, all of the
interest is distributed to holders of one type of security, known as an
interest-only security, or IO, and all of the principal is distributed to
holders of another type of security known as a principal-only security, or
PO. Strips can be created in a pass-through structure or as tranches of a
CMO. The yields to maturity on IOs and POs are very sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund may not fully recoup its initial
investment in IOs. Conversely, if the underlying mortgage assets experience
less than anticipated prepayments of principal, the yield on POs could be
materially and adversely affected.
Real Estate Investment Trusts. A REIT is a corporation, or a business
trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Code. The Code permits a qualifying REIT to
deduct dividends paid, thereby effectively eliminating corporate level
Federal income tax and making the REIT a pass-through vehicle for Federal
income tax purposes. To meet the definitional
[Page 23]
requirements of the Code, a REIT must, among other things, invest
substantially all of its assets in interests in real estate (including
mortgages and other REITs) or cash and government securities, derive most of
its income from rents from real property or interest on loans secured by
mortgages on real property, and distribute to shareholders annually a
substantial portion of its otherwise taxable income.
REITs are characterized as equity REITs, mortgage REITs and hybrid
REITs. Equity REITs, which may include operating or finance companies, own
real estate directly and the value of, and income earned by, the REITs
depends upon the income of the underlying properties and the rental income
they earn. Equity REITs also can realize capital gains (or losses) by selling
properties that have appreciated (or depreciated) in value. Mortgage REITs
can make construction, development or long-term mortgage loans and are
sensitive to the credit quality of the borrower. Mortgage REITs derive their
income from interest payments on such loans. Hybrid REITs combine the
characteristics of both equity and mortgage REITs, generally by holding both
ownership interests and mortgage interests in real estate. The value of
securities issued by REITs are affected by changes in the value of property
in which the REIT invests, tax and regulatory requirements, and by
perceptions of management skill. They also are subject to heavy cash flow
dependency, defaults by borrowers or tenants, self-liquidation and the
possibility of failing to qualify for tax-free status under the Code or to
maintain exemption from the 1940 Act.
Private Entity Securities. These mortgage-related securities are
issued by commercial banks, savings and loan institutions, mortgage bankers,
private mortgage insurance companies and other non-governmental issuers.
Timely payment of principal and interest on mortgage-related securities
backed by pools created by non-governmental issuers often is supported
partially by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance.
Asset-Backed Securities_Asset-backed securities are a form of Derivative. The
securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. These securities include debt
securities and securities with debt-like characteristics. The collateral for
these securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Fund may
invest in these and other types of asset-backed securities that may be
developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may provide the
Fund with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
Corporate Debt Securities_Corporate debt securities include corporate bonds,
debentures, notes and other similar instruments, including convertible
securities. Debt securities may be acquired with warrants attached. Corporate
income-producing securities also may include forms of preferred or preference
stock. The rate of interest on a corporate debt security may be fixed,
floating or variable, and may vary inversely with respect to a reference
rate. The rate of return or return of principal on some debt obligations may
be linked or indexed to the level of exchange rates between the U.S. dollar
and a foreign currency or currencies.
Convertible Securities_Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
[Page 24]
Money Market Instruments_The Fund may invest in the following types of money
market instruments.
U.S. Government Securities. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
Repurchase Agreements. In a repurchase agreement, the Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
Bank Obligations. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Description of the Fund_Investment Considerations and
Risks_Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's,
A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus
Corporation to be of comparable quality to those rated obligations which may
be purchased by the Fund.
Zero Coupon Securities_The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and financial
institutions which constitute
[Page 25]
a proportionate ownership of the issuer's pool of underlying U.S.
Treasury securities. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities.
Investment Companies_The Fund may invest in securities issued by other
investment companies. Under the 1940 Act, the Fund's investment in such
securities, subject to certain exceptions, currently is limited to (i) 3% of
the total voting stock of any one investment company, (ii) 5% of the Fund's
total assets with respect to any one investment company and (iii) 10% of the
Fund's total assets in the aggregate. Investments in the securities of other
investment companies may involve duplication of advisory fees and certain
other expenses.
Illiquid Securities_The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Fund is subject to a risk that should
the Fund desire to sell them when a ready buyer is not available at a price
the Fund deems representative of their value, the value of the Fund's net
assets could be adversely affected.
Ratings_The rating assigned to a given issue and class of mortgage-related
securities is a product of many factors, including the structure of the
security, the level of subordination, the quality and adequacy of the
collateral, and the past performance of the originators and servicing
companies. The rating of any commercial mortgage-related security is
determined to a substantial degree by the debt service coverage ratio (i.e.,
the ratio of the current net operating income from the commercial properties,
in the aggregate, to the current debt service obligations on the properties)
and the loan-to-value ratio of the pooled properties. The amount of the
securities issued in any one rating category is determined by the rating
agencies after a credit rating process which includes analysis of the issuer,
servicer and property manager, as well as verification of the loan-to-value
and debt service coverage ratios. Loan-to-value ratios may be particularly
important in the case of commercial mortgages because most commercial
mortgage loans provide that the lender's sole remedy in the event of a
default is against the mortgaged property, and the lender is not permitted to
pursue remedies with respect to other assets of the borrower. Accordingly,
loan-to-value ratios, in certain circumstances, may determine the amount
realized by the holder of the commercial mortgage-related security in the
event of a default.
Securities rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate.
Securities rated BB by S&P, Fitch or Duff are regarded as having
predominantly speculative characteristics and, while such obligations have
less near-term vulnerability to default than other speculative grade debt,
they face major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. Securities rated C by Moody's
are regarded as having extremely poor prospects of ever attaining any real
investment standing. Securities rated D by S&P, Fitch and Duff are in default
and the payment of interest and repayment of principal is in arrears. Such
securities, though high yielding, are characterized by great risk. See
"Appendix" in the Statement of Additional Information for a general descriptio
n of securities ratings.
The ratings of Moody's, S&P, Fitch and Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value
[Page 26]
risk of such obligations. Although these ratings may be an initial criterion
for selection of portfolio investments, The Dreyfus Corporation also will
evaluate these securities and the ability of the issuers of such securities
to pay interest and principal. The Fund's ability to achieve its investment
objectives may be more dependent on The Dreyfus Corporation's credit analysis
than might be the case for a fund that invested in higher rated securities.
Additional Information About Purchases, Exchanges and Redemptions
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculation on short-term
market movements. A pattern of frequent purchases and exchanges can be
disruptive to efficient portfolio management and, consequently, can be
detrimental to the Fund's performance and its shareholders. Accordingly, if
the Fund's management determines that an investor is engaged in excessive
trading, the Fund, with or without prior notice, may temporarily or
permanently terminate the availability of Fund exchanges, or reject in whole
or part any purchase or exchange request, with respect to such investor's
account. Such investors also may be barred from purchasing other funds in the
Dreyfus Family of Funds. Generally, an investor who makes more than four
exchanges out of the Fund during any calendar year or who makes exchanges
that appear to coincide with an active market-timing strategy may be deemed
to be engaged in excessive trading. Accounts under common ownership or control
will be considered as one account for purposes of determining a pattern of
excessive trading. In addition, the Fund may refuse or restrict purchase or
exchange requests by any person or group if, in the judgment of the Fund's
management, the Fund would be unable to invest the money effectively in
accordance with its investment objective and policies or could otherwise be
adversely affected or if the Fund receives or anticipates receiving
simultaneous orders that may significantly affect the Fund (e.g., amounts
equal to 1% or more of the Fund's total assets). If an exchange request is
refused, the Fund will take no other action with respect to the shares until
it receives further instructions from the investor. The Fund may delay
forwarding redemption proceeds for up to seven days if the investor redeeming
shares is engaged in excessive trading or if the amount of the redemption
request otherwise would be disruptive to efficient portfolio management or
would adversely affect the Fund. The Fund's policy on excessive trading
applies to investors who invest in the Fund directly or through financial
intermediaries, but does not apply to the Dreyfus Auto-Exchange Privilege, to
any automatic investment or withdrawal privilege described herein, or to
participants in employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange
requests based on their separate components _ redemption orders with a
simultaneous request to purchase the other fund's shares. In such a case, the
redemption request would be processed at the Fund's next determined net asset
value but the purchase order would be effective only at the net asset value
next determined after the fund being purchased receives the proceeds of the
redemption, which may result in the purchase being delayed.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the
Fund's official sales literature in connection with the offer of the Fund's
shares, and, if given or made, such other information or representations must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offer in any State in which, or to any person to whom,
such offering may not lawfully be made.
[Page 27]
Real Estate
Mortgage
Fund
Prospectus
Copy Rights 1998 Dreyfus Service Corporation
045p0398
Registration Mark
[Page 28]
- ---------------------------------------------------------------------------
PROSPECTUS MARCH 1, 1998
DREYFUS SHORT TERM HIGH YIELD FUND
- ---------------------------------------------------------------------------
DREYFUS SHORT TERM HIGH YIELD FUND (THE "FUND") IS A SEPARATE
DIVERSIFIED PORTFOLIO OF DREYFUS INCOME FUNDS, AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY (THE "COMPANY"), KNOWN AS A MUTUAL FUND. THE FUND'S
INVESTMENT OBJECTIVE IS TO PROVIDE HIGH CURRENT INCOME.
THE FUND INVESTS PRINCIPALLY IN A PORTFOLIO OF FIXED-INCOME
SECURITIES RATED BELOW INVESTMENT GRADE THAT, UNDER NORMAL MARKET CONDITIONS,
HAS AN EFFECTIVE DURATION AND EFFECTIVE AVERAGE PORTFOLIO MATURITY OF THREE
YEARS OR LESS. INVESTMENTS IN LOWER RATED FIXED-INCOME SECURITIES ARE SUBJECT
TO A GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST. INVESTORS
SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND.
YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING DREYFUS
TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 1, 1998, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
- ---------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 4
CONDENSED FINANCIAL INFORMATION................... 5
DESCRIPTION OF THE FUND........................... 6
MANAGEMENT OF THE FUND............................ 8
HOW TO BUY SHARES................................. 10
SHAREHOLDER SERVICES.............................. 12
HOW TO REDEEM SHARES.............................. 15
SHAREHOLDER SERVICES PLAN......................... 17
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 17
PERFORMANCE INFORMATION........................... 19
GENERAL INFORMATION............................... 20
APPENDIX.......................................... 22
[Page 2]
[This Page Intentionally Left Blank]
[Page 3]
<TABLE>
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees.............................................................. .65%
Other Expenses............................................................... .68%
Total Fund Operating Expenses ............................................... 1.33%
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $14 $42 $73 $160
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE
EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY
AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by the Fund, the payment of which will reduce
investors' annual return. The information in the foregoing table does not
reflect any fee waivers or expense reimbursement arrangements that may be in
effect. Certain Service Agents (as defined below) may charge their clients
direct fees for effecting transactions in Fund shares; such fees are not
reflected in the foregoing table. See "Management of the Fund," "How to Buy
Shares," "How to Redeem Shares" and "Shareholder Services Plan."
[Page 4]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. Further financial data, related
notes and report of independent auditors accompany the Statement of
Additional Information, available upon request.
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 year indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
YEAR ENDED OCTOBER 31,
______________________________
PER SHARE DATA: 1996(1) 1997
________ _______
<S> <C> <C>
Net asset value, beginning of year....................................... $12.50 $12.69
________ _______
Investment Operations:
Investment income-net.................................................... .26 1.29
Net realized and unrealized gain
on investments........................................................... .19 .34
________ _______
Total from Investment Operations......................................... .45 1.63
________ _______
Distributions:
Dividends from investment income-net..................................... (.26) (1.29)
Dividends from net realized gain on investments.......................... __ (.05)
________ _______
TOTAL DISTRIBUTIONS...................................................... (.26) (1.34)
________ _______
Net asset value, end of year............................................. $12.69 $12.98
======== ========
TOTAL INVESTMENT RETURN.................................................... 17.02%(2) 13.38%
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets........................ .92%(2) 1.09%
Ratio of interest expense to average net assets.......................... -- .22%
Ratio of net investment income
to average net assets.................................................... 9.76%(2) 10.02%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation 1.62%(2) .02%
Portfolio Turnover Rate.................................................. 77.79%(3) 102.59%
Net Assets, end of year (000's omitted).................................. $18,779 $146,727
(1) From August 16, 1996 (commencement of
operations) to October 31, 1996.
(2) Annualized.
(3) Not Annualized
</TABLE>
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without charge by writing to the
address or calling the number set forth on the cover page of this Prospectus.
Debt Outstanding
<TABLE>
YEAR ENDED OCTOBER 31, 1997(1)
_________________________________
PER SHARE DATA:
<S> <C> <C>
Amount of debt outstanding at
end of year (in thousands).............................................. $6,710
Average amount of debt outstanding
throughout year (in thousands)(2)....................................... $3,045
Average number of shares outstanding
throughout year (in thousands)(3)....................................... 6,223
Average amount of debt per
share throughout year................................................... $.49
(1) From August 16, 1996 (commencement of
operations) to October 31, 1996, the Fund had no outstanding debt.
(2) Based upon daily outstanding borrowings.
(3) Based upon month-end balances.
</TABLE>
[Page 5]
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide high current income. It
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of the
Fund's outstanding voting shares. There can be no assurance that the Fund's
investment objective will be achieved.
MANAGEMENT POLICIES
Under normal market conditions, the Fund will invest at least 65% of
the value of its net assets in bonds, debentures, notes and other debt
instruments (collectively, "Fixed-Income Securities") rated below investment
grade, or, if unrated, determined by The Dreyfus Corporation to be of
comparable quality. Fixed-Income Securities also include mortgage-related
securities, asset-backed securities, zero coupon securities, municipal
obligations, preferred stock, convertible debt obligations and convertible
preferred stock. The issuers of Fixed-Income Securities may include domestic
and foreign corporations, partnerships, trusts or similar entities, and
governmental entities or their political subdivisions, agencies or
instrumentalities. The Fund may invest in companies in, or governments of,
developing countries. See "Investment Considerations and Risks _ Foreign
Securities" below.
Under normal market conditions, the Fund will invest in a portfolio
of securities that has an effective duration of three years or less. As a
measure of a fixed-income security's cash flow, duration is an alternative to
the concept of "term to maturity" in assessing the price volatility
associated with changes in interest rates. Generally, the longer the
duration, the more volatility an investor should expect. The market price of
a bond with a duration of four years would be expected to increase or decline
twice as much as the market price of a bond with a two-year duration.
Duration is a way of measuring a security's maturity in terms of the average
time required to receive the present value of all interest and principal
payments as opposed to its term to maturity. The maturity of a security
measures only the time until final payment is due; it does not take account
of the pattern of a security's cash flows over time, which would include how
cash flow is affected by prepayments and by changes in interest rates.
Incorporating a security's yield, coupon interest payments, final maturity
and option features into one measure, duration is computed by determining the
weighted average maturity of a bond's cash flows, where the present values of
the cash flows serve as weights. In computing the duration of the Fund, The
Dreyfus Corporation will estimate the duration of obligations that are
subject to features such as prepayment or redemption by the issuer, put
options retained by the investor or other imbedded options, taking into
account the influence of interest rates on prepayments and coupon flows. This
method of computing duration is known as option-adjusted duration. See
"Appendix _ Certain Portfolio Securities _ Mortgage-Related Securities."
Securities rated below investment grade are those rated lower than
Baa by Moody's Investors Service, Inc. ("Moody's") and BBB by Standard &
Poor's Ratings Group ("S&P"), Fitch IBCA,Inc. ("Fitch") or Duff & Phelps
Credit Rating Co. ("Duff"). These securities carry a high degree of risk and
are considered speculative by the credit rating agencies. See "Investment
Considerations and Risks _ High Yield-Lower Rated Securities" and "Appendix _
Certain Portfolio Securities _ High Yield-Lower Rated Securities" below for a
discussion of certain risks, and "Appendix" in the Statement of Additional
Information. The Fund may hold investment grade rated Fixed-Income Securities
(or unrated securities of comparable quality) when the yield differential
between below investment grade and investment grade securities narrows and
the risk of loss may be reduced with only a relatively small
[Page 6]
reduction in yield. The Fund also may invest in investment grade rated
Fixed-Income Securities when The Dreyfus Corporation determines that a
defensive investment position is appropriate in light of market or economic
conditions.
The Fund may invest in money market instruments consisting of U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as set forth under "Appendix
_Certain Portfolio Securities _ Money Market Instruments." Under normal
market conditions, the Fund does not expect to have a substantial portion of
its assets invested in money market instruments. However, when The Dreyfus
Corporation determines that adverse market conditions exist, the Fund may
adopt a temporary defensive posture and invest all of its assets in money
market instruments.
The Fund's annual portfolio turnover rate for the current fiscal year
is not expected to exceed 200%. A turnover rate of 100% is equivalent to the
Fund buying and selling all of the securities in its portfolio once in the
course of a year. Higher portfolio turnover rates usually generate additional
brokerage commissions and expenses and the short-term gains realized from
these transactions are taxable to shareholders as ordinary income. The Fund
may engage in various investment techniques, such as transactions in foreign
currency, options, futures and swaps, lending portfolio securities and
short-selling. For a discussion of the investment techniques and their
related risks, see "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies _ Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ The Fund's net asset value per share should be expected to
fluctuate. The Fund's investment principally in below investment grade
Fixed-Income Securities may cause the Fund's share price to be highly
volatile at times. Investors should consider the Fund as a supplement to an
overall investment program and should invest only if they are willing to
undertake the risks involved. See "Investment Objectives and Management
Policies" in the Statement of Additional Information for a further discussion
of certain risks.
HIGH YIELD-LOWER RATED SECURITIES _ The Fund generally will invest in
Fixed-Income Securities rated below investment grade such as those rated Ba
by Moody's and BB by S&P, Fitch and Duff or as low as the lowest rating
assigned by Moody's, S&P, Fitch or Duff. They may be subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated Fixed-Income Securities. The retail
secondary market for these securities also may be less liquid than that of
higher rated securities; adverse conditions could make it difficult at times
for the Fund to sell certain securities or could result in lower prices than
those used in calculating the Fund's net asset value.
Bond prices are inversely related to interest rate changes; however,
bond price volatility also is inversely related to coupon. Accordingly, below
investment grade Fixed-Income Securities may be relatively less sensitive to
interest rate changes than higher quality Fixed-Income Securities of
comparable maturity, because of their higher coupon. This higher coupon is
what the investor receives in return for bearing greater credit risk. The
higher credit risk associated with below investment grade Fixed-Income
Securities potentially can have a greater effect on the value of such
securities than may be the case with higher quality issues of comparable
maturity, and will be a substantial factor in the Fund's relative share price
volatility. See "Appendix _ Certain Portfolio Securities _ High Yield-Lower
Rated Securities" below and "Appendix" in the Statement of Additional
Information.
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities in which the Fund
may invest are complex derivative instruments, subject to both credit and
prepayment risk, and may be more volatile and
[Page 7]
less liquid than more traditional debt securities. Some mortgage-related
securities have structures that make their reactions to interest rate changes
and other factors difficult to predict, making their value highly volatile.
See "Appendix-Certain Portfolio Securities_Mortgage-Related Securities."
FOREIGN SECURITIES _ Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Fund will be subject to additional risks which
include possible adverse political and economic developments, seizure or
nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect or restrict the payment of principal and
interest on the foreign securities to investors located outside the country
of the issuer, whether from currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
USE OF DERIVATIVES _ The Fund may invest in, or enter into, derivatives
("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,
index or interest rate. The Derivatives the Fund may use include options and
futures, mortgage-related securities, asset-backed securities and swaps.
While Derivatives can be used effectively in furtherance of the Fund's
investment objective, under certain market conditions, they can increase the
volatility of the Fund's net asset value, decrease the liquidity of the
Fund's portfolio and make more difficult the accurate pricing of the Fund's
portfolio. See "Appendix _ Investment Techniques_Use of Derivatives" below
and "Investment Objectives and Management Policies _ Management Policies _
Derivatives" in the Statement of Additional Information.
SIMULTANEOUS INVESTMENTS _ Investment decisions for the Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities as the Fund, available
investments or opportunities for sales will be allocated equitably to each
investment company. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price
paid or received by the Fund.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER _ The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of January 31, 1998, The Dreyfus Corporation
managed or administered approximately $96 billion in assets for approximately
1.7 million investor accounts nationwide.
[Page 8]
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management
Agreement with the Company, subject to the authority of the Company's Board
in accordance with Massachusetts law. The Fund's primary portfolio manager is
Roger King. He has held that position since the Fund's inception, and has
been employed by The Dreyfus Corporation since February 1996. Prior thereto,
Mr. King was a Vice President of High Yield Research and, most recently,
Director of High Yield Research at Citibank Securities, Inc. The Fund's other
portfolio managers are identified in the Statement of Additional Information.
The Dreyfus Corporation also provides research services for the Fund and for
other funds advised by The Dreyfus Corporation through a professional staff
of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in
assets, including approximately $60 billion in mutual fund assets.
Under the Management Agreement, the Fund has agreed to pay The
Dreyfus Corporation a monthly fee at the annual rate of .65 of 1% of the
value of the Fund's average daily net assets. For the fiscal year ended
October 31, 1997, the Fund paid The Dreyfus Corporation a monthly management
fee at the effective annual rate of .63 of 1% of the value of the Fund's
average daily net assets pursuant to an undertaking in effect. From time to
time, The Dreyfus Corporation may waive receipt of its fees and/or voluntarily
assume certain expenses of the Fund, which would have the effect of lowering
the expense ratio of the Fund and increasing yield to investors. The Fund
will not pay The Dreyfus Corporation at a later time for any amounts it may
waive, nor will the Fund reimburse The Dreyfus Corporation for any amounts it
may assume.
In allocating brokerage transactions, TheDreyfus Corporation seeks to
obtain the best execution of orders at the most favorable net price. Subject
to this determination, TheDreyfus Corporation may consider, among other
things, the receipt of research services and/or the sale of shares of the
Fund or other funds managed, advised or administered by The Dreyfus
Corporation as factors in the selection of broker-dealers to execute
portfolio transactions for the Fund. See "Portfolio Transactions" in the State
ment of Additional Information.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
[Page 9]
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., located at One
Mellon Bank Center, Pittsburgh, Pennsylvania 15258, serves as the Fund's
Custodian.
HOW TO BUY SHARES
Fund shares are sold without a sales charge. You may be charged a fee
if you effect transactions in Fund shares through a securities dealer, bank
or other financial institution (collectively, "Service Agents"). Share
certificates are issued only upon your written request. No certificates are
issued for fractional shares. The Fund reserves the right to reject any
purchase order. See "Appendix_Additional Information About Purchases,
Exchanges and Redemptions."
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which maintains an omnibus account in the Fund and
has made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. However, the minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including regular
IRAs, spousal IRAs for a non-working spouse, Roth IRAs, SEP-IRAs and rollover
IRAs) and 403(b)(7) Plans with only one participant and $500 for
Dreyfus-sponsored Education IRAs, with no minimum for subsequent purchases.
The initial investment must be accompanied by the Account Application. For
full-time or part-time employees of The Dreyfus Corporation or any of its
affiliates or subsidiaries, directors of The Dreyfus Corporation, Board
members of a fund advised by The Dreyfus Corporation, including members of
the Company's Board, or the spouse or minor child of any of the foregoing,
the minimum initial investment is $1,000. For full-time or part-time
employees of The Dreyfus Corporation or any of its affiliates or subsidiaries
who elect to have a portion of their pay directly deposited into their Fund
accounts, the minimum initial investment is $50. The Fund reserves the right
to offer Fund shares without regard to minimum purchase requirements to
employees participating in certain qualified or non-qualified employee
benefit plans or other programs where contributions or account information
can be transmitted in a manner and form acceptable to the Fund. The Fund
reserves the right to vary further the initial and subsequent investment
minimum requirements at any time. Fund shares also are offered without regard
to the minimum initial investment requirements through Dreyfus-AUTOMATIC
Asset BuilderRegistration Mark, Dreyfus Government Direct Deposit Privilege
or Dreyfus Payroll Savings Plan pursuant to the Dreyfus Step Program
described under "Shareholder Services." These services enable you to make
regularly scheduled investments and may provide you with a convenient way to
invest for long-term financial goals. You should be aware, however, that
periodic investment plans do not guarantee a profit and will not protect an
investor against loss in a declining market.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian" and should specify that you are
investing in the Fund. Payments to open new accounts which are mailed should
be sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence, Rhode
Island 02940-9387, together with your Account Application. For subsequent
investments, your Fund account number should appear on the check and an
investment slip should be enclosed and sent to The Dreyfus Family of Funds,
P.O. Box 105, Newark, New Jersey 07101-0105. For Dreyfus retirement plan
accounts, both initial and subsequent investments should be sent to The
Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence, Rhode Island
02940-6427. Neither initial nor subsequent investments should be made by
third party check. Purchase orders may be delivered in person only to a
Dreyfus Financial Center. THESE ORDERS WILL BE FORWARDED
[Page 10]
TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location
of the nearest Dreyfus Financial Center, please call one of the telephone
numbers listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA# 8900312033/Dreyfus Short
Term High Yield Fund, for purchase of Fund shares in your name. The wire must
include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Account Application and promptly mail the Account Application to
the Fund, as no redemptions will be permitted until the Account Application is
received. You may obtain further information about remitting funds in this
manner from your bank. All payments should be made in U.S. dollars and, to
avoid fees and delays, should be drawn only on U.S. banks. A charge will be
imposed if any check used for investment in your account does not clear. The
Fund makes available to certain large institutions the ability to issue
purchase instructions through compatible computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other entity authorized to receive orders on behalf of the
Fund. Net asset value per share is determined as of the close of trading on
the floor of the New York Stock Exchange (currently 4:00 p.m., New York
time), on each day the New York Stock Exchange is open for business. For
purposes of determining net asset value, options and futures contracts will
be valued 15 minutes after the close of trading on the floor of the New York
Stock Exchange. Net asset value per share is computed by dividing the value
of the Fund's net assets (i.e., the value of its assets less liabilities) by
the total number of Fund shares outstanding. The Fund's investments are
valued generally at market value or, where market quotations are not readily
available, at fair value as determined by or under the direction of the
Company's Board. For further information regarding the methods employed in
valuing the Fund's investments, see "Determination of Net Asset Value" in the
Statement of Additional Information.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by the Distributor
to such plans or programs exceeds $1,000,000 ("Eligible Benefit Plans").
Shares of funds in the Dreyfus Family of Funds then held by Eligible Benefit
Plans will be aggregated to deter
[Page 11]
mine the fee payable. The Distributor reserves the right to cease paying
these fees at any time. The Distributor will pay such fees from its own
funds, other than amounts received from the Fund, including past profits or
any other source available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Account Application for further information concerning this requirement.
Failure to furnish a certified TIN to the Fund could subject you to a $50
penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between the bank account designated in one of these documents
and your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Fund may modify or terminate this Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES
FUND EXCHANGES
You may purchase, in exchange for shares of the Fund, shares of
certain other funds managed or administered by The Dreyfus Corporation, to
the extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
If you desire to use this service, you should consult your Service Agent or
call 1-800-645-6561 to determine if it is available and whether any
conditions are imposed on its use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling
1-800-645-6561. Except in the case of personal retirement plans, the shares
being exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have
a value of at least the minimum initial investment required for the fund into
which the exchange is being made. The ability to issue exchange instructions
by telephone is given to all Fund shareholders automatically, unless you
check the applicable "No" box on the Account Application, indicating that you
specifically refuse this Privilege. The Telephone Exchange Privilege may be
established for an existing account by written request signed by all
shareholders on the account, by a separate signed Shareholder Services Form,
available by calling 1-800-645-6561, or by oral request from any of the
authorized signatories on the account by calling 1-800-645-6561. If you have
established the Telephone Exchange Privilege, you may telephone exchange
instructions (including over The Dreyfus TouchRegistration Mark automated
telephone system) by calling 1-800-645-6561. If you are calling from
overseas, call 516-794-5452. See "How to Redeem Shares _ Procedures." Upon
an exchange into a new account, the following shareholder services and
privileges, as applicable and where available, will be automatically carried
over to the fund into which the exchange is made: Telephone Exchange
Privilege, Wire Redemption Privilege, Telephone Redemption Privilege, Dreyfus
TELETRANSFER Privilege and the dividend/capital gain distribution option
(except for Dreyfus Dividend Sweep) selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund
[Page 12]
that charges a sales load, you may qualify for share prices which do not
include the sales load or which reflect a reduced sales load, if the shares
you are exchanging were: (a) purchased with a sales load, (b) acquired by a
previous exchange from shares purchased with a sales load, or (c) acquired
through reinvestment of dividends or distributions paid with respect to the
foregoing categories of shares. To qualify, at the time of the exchange you
must notify the Transfer Agent or your Service Agent must notify the
Distributor. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal administrative fee in accordance with rules
promulgated by the Securities and Exchange Commission. The Fund reserves the
right to reject any exchange request in whole or in part. See
"Appendix_Additional Information About Purchases, Exchanges and Redemptions."
The availability of Fund Exchanges may be modified or terminated at any time
upon notice to shareholders. See "Dividends, Distributions and Taxes."
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
the Fund, in shares of certain other funds in the Dreyfus Family of Funds of
which you are a shareholder. The amount you designate, which can be expressed
either in terms of a specific dollar or share amount ($100 minimum), will be
exchanged automatically on the first and/or fifteenth day of the month
according to the schedule you have selected. Shares will be exchanged at the
then-current net asset value; however, a sales load may be charged with
respect to exchanges into funds sold with a sales load. See "Shareholder
Services" in the Statement of Additional Information. The right to exercise
this Privilege may be modified or canceled by the Fund or the Transfer Agent.
You may modify or cancel your exercise of this Privilege at any time by
mailing written notification to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671. The Fund may charge a service fee for
the use of this Privilege. No such fee currently is contemplated. For more
information concerning this Privilege and the funds in the Dreyfus Family of
Funds eligible to participate in this Privilege, or to obtain a Dreyfus
Auto-Exchange Authorization Form, please call toll free 1-800-645-6561. See
"Dividends, Distributions and Taxes."
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring funds
from the bank account designated by you. Only an account maintained at a
domestic financial institution which is an Automated Clearing House member
may be so designated. To establish a Dreyfus-AUTOMATIC Asset Builder account,
you must file an authorization form with the Transfer Agent. You may obtain
the necessary authorization form by calling 1-800-645-6561. You may cancel
your participation in this Privilege or change the amount of purchase at any
time by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into your
[Page 13]
Fund account. You may deposit as much of such payments as you elect. To
enroll in Dreyfus Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment that
you desire to include in this Privilege. The appropriate form may be obtained
by calling 1-800-645-6561. Death or legal incapacity will terminate your
participation in this Privilege. You may elect at any time to terminate your
participation by notifying in writing the appropriate Federal agency. The
Fund may terminate your participation upon 30 days' notice to you.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have part or all of your
paycheck transferred to your existing Dreyfus account electronically through
the Automated Clearing House system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form
with your employer's payroll department. Your employer must complete the
reverse side of the form and return it to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may change the amount of
purchase or cancel the authorization only by written notification to your
employer. It is the sole responsibility of your employer, not the
Distributor, The Dreyfus Corporation, the Fund, the Transfer Agent or any
other person, to arrange for transactions under the Dreyfus Payroll Savings
Plan. The Fund may modify or terminate this Privilege at any time or charge a
service fee. No such fee currently is contemplated.
DREYFUS STEP PROGRAM
Dreyfus Step Program enables you to purchase Fund shares without
regard to the Fund's minimum initial investment requirements through Dreyfus-A
UTOMATIC Asset BuilderRegistration Mark, Dreyfus Government Direct Deposit
Privilege or Dreyfus Payroll Savings Plan. To establish a Dreyfus Step
Program account, you must supply the necessary information on the Account
Application and file the required authorization form(s) with the Transfer
Agent. For more information concerning this Program, or to request the
necessary authorization form(s), please call toll free 1-800-782-6620. You
may terminate your participation in this Program at any time by discontinuing
your participation in Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the case may be,
as provided under the terms of such Privilege(s). The Fund may modify or
terminate this Program at any time. Investors who wish to purchase Fund
shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plan may do so only for IRAs, SEP-IRAs and IRA
"Rollover Accounts."
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by the Fund in
shares of another fund in the Dreyfus Family of Funds of which you are a
shareholder. Shares of the other fund will be purchased at the then-current
net asset value; however, a sales load may be charged with respect to
investments in shares of a fund sold with a sales load. If you are investing
in a fund that charges a sales load, you may qualify for share prices which
do not include the sales load or which reflect a reduced sales load. If you
are investing in a fund that charges a contingent deferred sales charge, the
shares purchased will be subject on redemption to the contingent deferred
sales charge, if any, applicable to the purchased shares. See "Shareholder
Services" in the Statement of Additional Information. Dreyfus Dividend ACH
permits you to transfer electronically dividends or dividends and capital
gain distributions, if any, from the Fund to a designated bank account. Only
an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. Banks may charge a fee
for this service.
[Page 14]
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free
1-800-645-6561. You may cancel these privileges by mailing written
notification to The Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode
Island 02940-9671. To select a new fund after cancellation, you must submit a
new Dividend Options Form. Enrollment in or cancellation of these privileges
is effective three business days following receipt. These privileges are
available only for existing accounts and may not be used to open new
accounts. Minimum subsequent investments do not apply for Dreyfus Dividend
Sweep. The Fund may modify or terminate these privileges at any time or
charge a service fee. No such fee currently is contemplated. Shares held
under Keogh Plans, IRAs or other retirement plans are not eligible for
Dreyfus Dividend Sweep.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $5,000 minimum account. An Automatic Withdrawal Plan may
be established by filing an Automatic Withdrawal Plan application with the
Transfer Agent or by oral request from any of the authorized signatories on
the account by calling 1-800-645-6561. The Automatic Withdrawal Plan may be
ended at any time by you, the Fund or the Transfer Agent. Shares for which
certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
RETIREMENT PLANS
The Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs (including regular IRAs, spousal IRAs for a
non-working spouse, Roth IRAs, SEP-IRAs, rollover IRAs and Education IRAs),
401(k) Salary Reduction Plans and 403(b)(7) Plans. Plan support services also
are available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs (except SEP-IRAs), please call 1-800-645-6561; for SEP-IRAs, 401(k)
Salary Reduction Plans, and 403(b)(7) Plans, please call 1-800-322-7880.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form by the Transfer Agent or other entity
authorized to receive orders on behalf of the Fund, the Fund will redeem the
shares at the next determined net asset value. See "Appendix_Additional
Information About Purchases, Exchanges and Redemptions."
The Fund imposes no charges when shares are redeemed. Service Agents
may charge their clients a fee for effecting redemptions of Fund shares. Any
certificates representing Fund shares being redeemed must be submitted with
the redemption request. The value of the shares redeemed may be more or less
than their original cost, depending upon the Fund's then-current net asset
value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDERRegistration
Mark AND SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER
AGENT, THE REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK
CLEARANCE OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-
AUTOMATIC ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR
MORE. IN ADDITION, THE FUND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR
TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF
[Page 15]
EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE
CHECK, THE DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET
BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES
WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU
OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE
REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS
ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO
EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be
redeemed until the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or through the Telephone Redemption Privilege
which is granted automatically unless you specifically refuse it by checking
the applicable "No" box on the Account Application. The Telephone Redemption
Privilege may be established for an existing account by a separate signed
Shareholder Services Form or by oral request from any of the authorized
signatories on the account by calling 1-800-645-6561. You also may redeem
shares through the Wire Redemption Privilege or the Dreyfus TELETRANSFER
Privilege, if you have checked the appropriate box and supplied the necessary
information on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. Other redemption procedures may be in effect
for clients of certain Service Agents. The Fund makes available to certain
large institutions the ability to issue redemption instructions through
compatible computer facilities. The Fund reserves the right to refuse any
request made by wire or telephone, including requests made shortly after a
change of address, and may limit the amount involved or the number of such
requests. The Fund may modify or terminate any redemption Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans, and shares for which certificates have been issued, are not
eligible for the Wire Redemption, Telephone Redemption or Dreyfus TELETRANSFER
Privilege.
The Telephone Redemption Privilege or Telephone Exchange Privilege
authorizes the Transfer Agent to act on telephone instructions (including
over The Dreyfus TouchRegistration Mark automated telephone system) from any
person representing himself or herself to be you, and reasonably believed by
the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Fund or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION _ Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to TheDreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus
[Page 16]
Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND AND WILL BE
PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the nearest Dreyfus
Financial Center, please call one of the telephone numbers listed under
"General Information." Redemption requests must be signed by each
shareholder, including each owner of a joint account, and each signature must
be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program. If you
have any questions with respect to signature-guarantees, please call one of
the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
WIRE REDEMPTION PRIVILEGE _ You may request by wire, telephone or letter
that redemption proceeds (minimum $1,000) be wired to your account at a bank
which is a member of the Federal Reserve System, or a correspondent bank if
your bank is not a member. Holders of jointly registered Fund or bank
accounts may have redemption proceeds of not more than $250,000 wired within
any 30-day period. You may telephone redemption requests by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire.
TELEPHONE REDEMPTION PRIVILEGE _ You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Telephone Redemption Privilege is granted automatically unless you refuse it.
DREYFUS TELETRANSFER PRIVILEGE _ You may request by telephone that
redemption proceeds (minimum $500 per day) be transferred between your Fund
account and your bank account. Only a bank account maintained in a domestic
financial institution which is an Automated Clearing House member may be
designated. Redemption proceeds will be on deposit in your account at an
Automated Clearing House member bank ordinarily two days after receipt of the
redemption request. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their bank
account not more than $250,000 within any 30-day period.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan, pursuant to which
it pays the Distributor for the provision of certain services to Fund
shareholders a fee at the annual rate of .25 of 1% of the value of the Fund's
average daily net assets. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. The Distributor may make
payments to Service Agents in respect of these services. The Distributor
determines the amounts to be paid to Service Agents.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. The
[Page 17]
Fund ordinarily declares dividends from its net investment income on each day
the New York Stock Exchange is open for business. Dividends usually are paid
on the last business day of each month. The Fund's earnings for Saturdays,
Sundays and holidays are declared as dividends on the next business day. If
you redeem all shares in your account at any time during the month, all
dividends to which you are entitled will be paid to you along with the
proceeds of the redemption. If you are an omnibus accountholder and indicate
in a partial redemption request that a portion of any accrued dividends to
which such account is entitled belongs to an underlying accountholder who has
redeemed all shares in his or her account, such portion of the accrued
dividends will be paid to you along with the proceeds of the redemption.
Distributions from net realized securities gains, if any, generally are
declared and paid once a year, but the Fund may make distributions more
regularly to comply with the distribution requirements of the Code, in all
events in a manner consistent with the provisions of the 1940 Act. The Fund
will not make distributions from net realized securities gains unless capital
loss carryovers, if any, have been utilized or have expired. You may choose
whether to receive dividends and distributions in cash or to reinvest in
additional shares at net asset value. If you elect to receive dividends and
distributions in cash, and your dividend or distribution check is returned to
the Fund as undeliverable or remains uncashed for six months, the Fund
reserves the right to reinvest such dividend or distribution and all future
dividends and distributions payable to you in additional Fund shares at net
asset value. No interest will accrue on amounts represented by uncashed
distribution or redemption checks. All expenses are accrued daily and
deducted before declaration of dividends to investors.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to U.S. shareholders
as ordinary income whether received in cash or reinvested in additional
shares. No dividend paid by the Fund will qualify for the dividends received
deduction allowable to certain U.S. corporations. Distributions from net
realized long-term securities gains of the Fund will be taxable to U.S.
shareholders as long-term capital gains for Federal income tax purposes,
regardless of how long shareholders have held their Fund shares and whether
such distributions are received in cash or reinvested in Fund shares. The
Code provides that an individual generally will be taxed on his or her net
capital gain at a maximum rate of 28% with respect to capital gain from
securities held for more than one year but not more than 18 months and at a
maximum rate of 20% with respect to capital gain from securities held for
more than 18 months. Dividends and distributions may be subject to state and
local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Fund to a foreign investor as well as the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gain or
loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
[Page 18]
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the
shares given in exchange by the shareholder and, therefore, an exchanging
shareholder may realize a taxable gain or loss.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup wi
thholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number, IRS individual taxpayer
identification number, or employer identification number of the record owner
of the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account, and
may be claimed as a credit on the record owner's Federal income tax return.
Management of the Company believes that the Fund has qualified for
the fiscal year ended October 31, 1997 as a "regulated investment company"
under the Code. The Fund intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of any liability for Federal income tax to
the extent its earnings are distributed in accordance with applicable
provisions of the Code. The Fund is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of current
yield may reflect absorbed expenses pursuant to any undertaking that may be
in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a percentage rate
which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter periods depending upon the
length of time the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combin
[Page 19]
ing the income and principal changes for a specified period and dividing by
the net asset value per share at the beginning of the period. Advertisements
may include the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Moody's Bond Survey Bond Index, Bond Buyer's
20-Bond Index, Morningstar, Inc. and other industry publications.
GENERAL INFORMATION
The Company was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated July 24, 1985, and
commenced operations on October 1, 1986. Before January 2, 1996, the
Company's name was Dreyfus Strategic Income. The Company is authorized to
issue an unlimited number of shares of beneficial interest, par value $.001
per share. Each share has one vote.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a
Massachusetts business trust. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Company and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Company or a Trustee. The Trust
Agreement provides for indemnification from the Fund's property for all
losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations
, a possibility which management believes is remote. Upon payment of any
liability incurred by the Fund, the shareholder paying such liability will be
entitled to reimbursement from the general assets of the Fund. The Company
intends to conduct its operations in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Fund.
As discussed under "Management of the Company" in the Statement of Additional
Information, the Fund ordinarily will not hold shareholder meetings; however,
shareholders under certain circumstances may have the right to call a meeting
of shareholders for the purpose of voting to remove Board members.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Fund are being
offered. Other portfolios are sold pursuant to other offering documents.
To date, the Board has authorized the creation of five series of
shares. All consideration received by the Company for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Company) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of the
other series. The Company has the ability to create, from time to time, new
series without shareholder approval.
[Page 20]
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call
1-718-895-1206; outside the U.S., call 516-794-5452.
[Page 21]
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS _ Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Fund has agreed to buy
or sell; to hedge the U.S. dollar value of securities the Fund already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Fund's success in these transactions will depend principally on
The Dreyfus Corporation's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
SHORT-SELLING _ In these transactions, the Fund sells a security it does not
own in anticipation of a decline in the market value of the security. To
complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently at the market price at the time of replacement.
The price at such time may be more or less than the price at which the
security was sold by the Fund, which would result in a loss or gain,
respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not sell short
the securities of any single issuer listed on a national securities exchange
to the extent of more than 5% of the value of the Fund's net assets. The Fund
may not make a short sale which results in the Fund having sold short in the
aggregate more than 5% of the outstanding securities of any class of an
issuer.
The Fund also may make short sales "against the box," in which the
Fund enters into a short sale of a security it owns. At no time will more
than 15% of the value of the Fund's net assets be in deposits on short sales
against the box.
LENDING PORTFOLIO SECURITIES _ The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest or other distributions
payable on the loaned securities which affords the Fund an opportunity to
earn interest on the amount of the loan and on the loaned securities'
collateral. Loans of portfolio securities may not exceed 331/3% of the value
of the Fund's total assets, and the Fund will receive collateral consisting
of cash, U.S. Government securities or irrevocable letters of credit which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Such loans are terminable by
the Fund at any time upon specified notice. The Fund might experience risk of
loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund.
[Page 22]
LEVERAGE _ Leveraging exaggerates the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money
borrowed for leveraging will be limited to 331/3% of the value of the Fund's
total assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the return received on the securities
purchased.
The Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund
of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal plus accrued
interest. Except for these transactions, the Fund's borrowings generally will
be unsecured.
USE OF DERIVATIVES _ The Fund may invest in, or enter into, the types of
Derivatives enumerated under "Description of the Fund _ Investment
Considerations and Risks _ Use of Derivatives." These instruments and
certain related risks are described more specifically under "Investment
Objectives and Management Policies _ Derivatives" in the Statement of
Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Fund were unable
to liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although the Fund will not be a commodity pool, certain Derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such Derivatives. The
Fund may invest in futures contracts and options with respect thereto for
hedging purposes without limit. However, the Fund may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Fund may write
(i.e, sell) covered call and put option contracts to the extent of 20% of the
value of its net assets at the time such option contracts are written. When
required by the Securities and Exchange Commission, the Fund will set aside
permissible liquid assets in a segregated account to cover its obligations
relating to its transactions in Derivatives. To maintain this required cover,
[Page 23]
the Fund may have to sell portfolio securities at disadvantageous prices or
times since it may not be possible to liquidate a Derivative position at a
reasonable price.
FORWARD COMMITMENTS _ The Fund may purchase or sell securities on a forward
commitment, when-issued or delayed delivery basis, which means delivery and
payment take place a number of days after the date of the commitment to
purchase or sell the securities at a predetermined price and/or yield.
Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the Fund
assumes the rights and risks of ownership of the security, including the risk
of price and yield fluctuations, and takes such fluctuations into account
when determining its net asset value. Because the Fund is not required to pay
for these securities until the delivery date, these risks are in addition to
the risks associated with the Fund's other investments. If the Fund is fully
or almost fully invested when forward commitment purchases are outstanding,
such purchases may result in a form of leverage. The Fund intends to engage
in forward commitments to increase its portfolio's financial exposure to the
types of securities in which it invests. Leveraging the portfolio in this
manner will increase the Fund's exposure to changes in interest rates and
will increase the volatility of its returns. The Fund will set aside in a
segregated account permissible liquid assets at least equal at all times to
the amount of the Fund's purchase commitments. At no time will the Fund have
more than 331\3% of its assets committed to purchase securities on a forward
commitment basis.
CERTAIN PORTFOLIO SECURITIES
HIGH YIELD-LOWER RATED SECURITIES _ Securities rated Ba by Moody's are
judged to have speculative elements; their future cannot be considered as
well assured and often the protection of interest and principal payments may
be very moderate. Securities rated BB by S&P, Fitch or Duff are regarded as
having predominantly speculative characteristics and, while such obligations
have less near-term vulnerability to default than other speculative grade
debt, they face major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. Securities rated C by Moody's
are regarded as having extremely poor prospects of ever attaining any real
investment standing. Securities rated D by S&P, Fitch and Duff are in default
and the payment of interest and/or repayment of principal is in arrears. Such
securities, though high yielding, are characterized by great risk. See
"Appendix" in the Statement of Additional Information for a general descriptio
n of securities ratings.
These securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of
such securities. In addition, it is likely that any such economic downturn
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
The ratings of Moody's, S&P, Fitch and Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety or interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, The Dreyfus
Corporation also will evaluate these securities and the ability of the issuers
of such securities to pay interest and principal. The Fund's ability to
achieve its investment objective may be more dependent on The Dreyfus
Corporation's credit analysis than might be the case for a fund that invested
in higher rated securities.
The average distribution of investments of the Fund in corporate
bonds (excluding preferred stock, convertible preferred stock and convertible
bonds) by ratings for the fiscal year ended October 31, 1997, calculated
monthly on a dollar-weighted basis, was as follows:
<TABLE>
[Page 24]
MOODY'S OR S&P, FITCH OR DUFF PERCENTAGE
_______ _____________ _____________
<S> <C> <C>
Aaa AAA .8%
Baa BBB .8%
Ba BB 8.3%
B B 66.8%
Caa CCC 9.6%
NR NR 13.3%*
_______
99.6%**
======= \
</TABLE>
The actual distribution of the Fund's corporate bond investments by
ratings on any given date will vary, and the distribution of the Fund's
investments by ratings as set forth above should not be considered as
representative of the Fund's future portfolio composition.
* These unrated securities 13.3% have been determined by The Dreyfus
Corporation to be of comparable quality to securities rated: B.(8.9%), CCC
(3.0%), convertible bonds_BB (.1%) and convertible bonds_B (1.3%).
** The Fund also owns preferred stock_BB (1.4%), preferred stock_B (.5%)
and convertible bonds_B (2.6%). Approximately (4.1%) of the Fund's assets
were invested in cash or cash equivalents.
CONVERTIBLE SECURITIES _ Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
PARTICIPATION INTERESTS. The Fund may invest in corporate obligations,
denominated in U.S. dollars or foreign currencies, that are originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting
of commercial banks, thrift institutions, insurance companies, finance
companies or other financial institutions one or more of which administers
the security on behalf of the syndicate (the "Agent Bank"). Co-Lenders may
sell such securities to third parties called "Participants." The Fund may
invest in such securities either by participating as a Co-Lender at
origination or by acquiring an interest in the security from a Co-Lender or a
Participant (collectively, "participation interests"). Co-Lenders and
Participants interposed between the Fund and the corporate borrower (the
"Borrower"), together with Agent Banks, are referred to herein as
"Intermediate Participants." The Fund also may purchase a participation
interest in a portion of the rights of an Intermediate Participant. The Fund
will not act as an Agent Bank, guarantor, sole negotiator or sole structuror
with respect to securities that are the subject of a participation interest.
A participation interest gives the Fund an undivided interest in the security
in the proportion that the Fund's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating
or variable rates of interest. For certain participation interests, the Fund
will have the right to demand payment, on not more than seven days' notice,
for all or any part of the Fund's participation interest in the security,
plus accrued interest. As to these instruments, the Fund intends to exercise
its right to demand payment only upon a default under the terms of the
security, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio. The Fund will not invest
more than 15% of the value of its net assets in participation interests
maturing in more than seven days that do not have this demand feature, and in
other securities that are illiquid.
[Page 25]
MORTGAGE-RELATED SECURITIES _ Mortgage-related securities are a form of
Derivative collateralized by pools of commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, real estate investment trusts ("REITs"), including
debt and preferred stock issued by REITs, as well as other real
estate-related securities. The mortgage-related securities in which the Fund
may invest include those with fixed, floating or variable interest rates,
those with interest rates that change based on multiples of changes in a
specified index of interest rates and those with interest rates that change
inversely to changes in interest rates, as well as those that do not bear
interest.
Mortgage-related securities are subject to credit risks associated
with the performance of the underlying mortgage properties. Adverse changes
in economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on certain types of
commercial properties than on those secured by loans on residential
properties. In addition, these securities are subject to prepayment risk,
although commercial mortgages typically have shorter maturities than residenti
al mortgages and prepayment protection features. In certain instances, the
credit risk associated with mortgage-related securities can be reduced by
third party guarantees or other forms of credit support. Improved credit risk
does not reduce prepayment risk which is unrelated to the rating assigned to
the mortgage-related security. Prepayment risk can lead to fluctuations in
value of the mortgage-related security which may be pronounced. If a
mortgage-related security is purchased at a premium, all or part of the
premium may be lost if there is a decline in the market value of the
security, whether resulting from changes in interest rates or prepayments on
the underlying mortgage collateral. Certain mortgage-related securities that
may be purchased by the Fund, such as inverse floating rate collateralized
mortgage obligations, have coupons that move inversely to a multiple of a
specific index which may result in a form of leverage. As with other
interest-bearing securities, the prices of certain mortgage-related
securities are inversely affected by changes in interest rates. However,
although the value of a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Fund. Moreover, with respect to
certain stripped mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Fund may fail to fully recoup its initial investment even if the securities
are rated in the highest rating category by a nationally recognized
statistical rating organization. During periods of rapidly rising interest
rates, prepayments of mortgage-related securities may occur at slower than
expected rates. Slower prepayments effectively may lengthen a
mortgage-related security's expected maturity which generally would cause the
value of such security to fluctuate more widely in response to changes in
interest rates. Were the prepayments on the Fund's mortgage-related
securities to decrease broadly, the Fund's effective duration, and thus
sensitivity to interest rate fluctuations, would increase.
ASSET-BACKED SECURITIES _ Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Fund may
invest in these and other types of asset-backed securities that may be
developed in the future.
[Page 26]
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these
securities may provide the Fund with a less effective security interest in
the related collateral than do mortgage-backed securities. Therefore, there
is the possibility that recoveries on the underlying collateral may not, in
some cases, be available to support payments on these securities.
MUNICIPAL OBLIGATIONS _ Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities. Municipal obligations bear fixed,
floating or variable rates of interest. Certain municipal obligations are
subject to redemption at a date earlier than their stated maturity pursuant
to call options, which may be separated from the related municipal
obligations and purchased and sold separately. The Fund also may acquire call
options on specific municipal obligations. The Fund generally would purchase
these call options to protect the Fund from the issuer of the related
municipal obligation redeeming, or other holder of the call option from
calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are taxable
obligations, offering yields comparable to, and in some cases greater than,
the yields available on other permissible Fund investments. Dividends
received by shareholders on Fund shares which are attributable to interest
income received by the Fund from municipal obligations generally will be
subject to Federal income tax. The Fund may invest in municipal obligations,
the ratings of which correspond with the ratings of other permissible Fund
investments. The Fund currently intends to invest no more than 25% of its
assets in municipal obligations. However, this percentage may be varied from
time to time without shareholder approval.
ZERO COUPON SECURITIES _ The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool
of underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and is sold at a discount to its face
value at maturity. The market prices of zero coupon securities generally are
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES _ The
Fund may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by The Dreyfus Corporation to be of
comparable quality to the other obligations in which the Fund may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
MONEY MARKET INSTRUMENTS _ The Fund may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instru
[Page 27]
mentalities are supported by the full faith and credit of the U.S. Treasury;
others by the right of the issuer to borrow from the Treasury; others by
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
BANK OBLIGATIONS. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Description of the Fund _ Investment Considerations and Risks
_ Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's,
A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus Corporatio
n to be of comparable quality to those rated obligations which may be
purchased by the Fund.
ILLIQUID SECURITIES _ The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, certain mortgage-backed
securities, and certain privately negotiated, non-exchange traded options and
securities used to cover such options. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready
[Page 28]
buyer is not available at a price the Fund deems representative of their
value, the value of the Fund's net assets could be adversely affected.
Additional Information About Purchases, Exchanges and Redemptions
The Fund is intended to be a long-term investment vehicle and is not
designed to provide investors with a means of speculation on short-term
market movements. A pattern of frequent purchases and exchanges can be
disruptive to efficient portfolio management and, consequently, can be
detrimental to the Fund's performance and its shareholders. Accordingly, if
the Fund's management determines that an investor is engaged in excessive
trading, the Fund, with or without prior notice, may temporarily or
permanently terminate the availability of Fund exchanges, or reject in whole
or part any purchase or exchange request, with respect to such investor's
account. Such investors also may be barred from purchasing other funds in the
Dreyfus Family of Funds. Generally, an investor who makes more than four
exchanges out of the Fund during any calendar year or who makes exchanges that
appear to coincide with an active market-timing strategy may be deemed to be
engaged in excessive trading. Accounts under common ownership or control will
be considered as one account for purposes of determining a pattern of
excessive trading. In addition, the Fund may refuse or restrict purchase or
exchange requests by any person or group if, in the judgment of the Fund's
management, the Fund would be unable to invest the money effectively in
accordance with its investment objective and policies or could otherwise be
adversely affected or if the Fund receives or anticipates receiving
simultaneous orders that may significantly affect the Fund (e.g., amounts
equal to 1% or more of the Fund's total assets).
If an exchange request is refused, the Fund will
take no other action with respect to the shares until it receives further
instructions from the investor. The Fund may delay forwarding redemption
proceeds for up to seven days if the investor redeeming shares is engaged in
excessive trading or if the amount of the redemption request otherwise would
be disruptive to efficient portfolio management or would adversely affect the
Fund. The Fund's policy on excessive trading applies to investors who invest
in the Fund directly or through financial intermediaries, but does not apply
to the Dreyfus Auto-Exchange Privilege, to any automatic investment or
withdrawal privilege described herein, or to participants in
employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange
requests based on their separate components _ redemption orders with a
simultaneous request to purchase the other fund's shares. In such a case, the
redemption request would be processed at the Fund's next determined net asset
value but the purchase order would be effective only at the net asset value
next determined after the fund being purchased receives the proceeds of the
redemption, which may result in the purchase being delayed.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
[Page 29]
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[Page 30]
[This Page Intentionally Left Blank]
[Page 31]
Short Term
High Yield
Fund
Prospectus
Registration Mark
Copy Rights 1998 Dreyfus Service Corporation
044p0398
[Page 32]
- ------------------------------------------------------------------------------
PROSPECTUS MARCH 1, 1998
DREYFUS STRATEGIC INCOME FUND
- ------------------------------------------------------------------------------
DREYFUS STRATEGIC INCOME FUND (THE "FUND") IS A SEPARATE DIVERSIFIED
PORTFOLIO OF DREYFUS INCOME FUNDS, AN OPEN-END, MANAGEMENT INVESTMENT COMPANY
(THE "COMPANY"), KNOWN AS A MUTUAL FUND. THE FUND'S INVESTMENT OBJECTIVE IS
TO MAXIMIZE CURRENT INCOME BY INVESTING PRINCIPALLY IN DEBT SECURITIES OF
DOMESTIC AND FOREIGN ISSUERS.
YOU CAN PURCHASE OR REDEEM SHARES BY TELEPHONE USING DREYFUS
TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 1, 1998, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUND. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO
TIME.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Annual Fund Operating Expenses................. 3
Condensed Financial Information................ 4
Description of the Fund........................ 5
Management of the Fund......................... 8
How to Buy Shares.............................. 9
Shareholder Services........................... 11
How to Redeem Shares........................... 14
Shareholder Services Plan...................... 16
Dividends, Distributions and Taxes............. 16
Performance Information........................ 18
General Information............................ 19
Appendix....................................... 20
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
[This Page Intentionally Left Blank]
[Page 2]
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<S> <C> <C>
Management Fees............................................................ .60%
Other Expenses ............................................................ .49%
Total Fund Operating Expenses.............................................. 1.09%
Example: 1 YEAR 3 YEAR 5 YEARS 10 YEARS
------- ------- -------- --------
You would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period: $11 $35 $60 $133
</TABLE>
- -------------------------------------------------------------------------------
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
- -------------------------------------------------------------------------------
The purpose of the foregoing table is to assist you in
understanding the costs and expenses borne by the Fund, the payment of which
will reduce investors' annual return. Certain Service Agents (as defined
below) may charge their clients direct fees for effecting transactions in
Fund shares; such fees are not reflected in the foregoing table. See
"Management of the Fund," "How to Buy Shares," "How to Redeem Shares" and
"Shareholder Services Plan."
[Page 3]
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors. Further financial data, related
notes and report of independent auditors accompany the Statement of
Additional Information, available upon request.
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 year indicated. This
information has been derived from the Fund's financial statements.
<TABLE>
YEAR ENDED OCTOBER 31,
_______________________________________________________________________________________
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year. $12.57 $12.94 $13.37 $12.35 $13.44 $14.02 $15.36 $12.95 $14.22 $14.24
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Investment income-net......... 1.24 1.21 1.18 1.16 1.07 1.01 .95 .93 .98 1.05
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions......... .74 .44 (1.02) 1.09 .58 1.41 (2.04) 1.27 .02 .59
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS.. 1.98 1.65 .16 2.25 1.65 2.42 (1.09) 2.20 1.00 1.64
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net.. (1.24) (1.22) (1.18) (1.16) (1.07) (1.01) (.95) (.93) (.98) (1.02)
Dividends from net realized
gain on investments........... (.37) __ __ __ __ (.07) (.37) __ __ __
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS........... (1.61) (1.22) (1.18) (1.16) (1.07) (1.08) (1.32) (.93) (.98) (1.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year.. $12.94 $13.37 $12.35 $13.44 $14.02 $15.36 $12.95 $14.22 $14.24 $14.86
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN ........ 16.71%* 13.44%* 1.32%* 18.94%* 12.64%* 17.93%* (7.44%) *17.57%* 7.27% 11.94%
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to
average net assets............ .49% .50% .50% .72% .85% .84% .94% 1.04% 1.04% 1.03%
Ratio of interest expense and dividends
on securities sold short
to average net assets......... .17% .34% .32% .15% __ __ __ __ .02% .06%
Ratio of net investment income to
average net assets............ 9.72% 9.34% 9.24% 8.93% 7.58% 6.83% 6.84% 6.87% 6.89% 7.25%
Decrease reflected in above expense
ratios due to undertakings by The
Dreyfus Corporation (limited to
the expense limitation provision
of the management agreement)... 1.01% 1.00% 1.00% .78% .40% .24% .11% __ __ __
Portfolio Turnover Rate....... 154.73% 93.41% 16.40% 16.08% 72.82% 118.38% 161.35% 176.59% 214.55% 347.68%
Net Assets, end of year
(000's omitted)............... $39,058 $41,679 $41,927 $57,336 $149,801 $375,459 $322,487 $320,345 $294,911 $275,518
- ------------------
* Exclusive of sales load.
</TABLE>
Further information about the Fund's performance is contained in the
Fund's annual report, which may be obtained without
charge by writing to the address or calling the number set forth on the cover
page of this Prospectus.
[Page 4]
<TABLE>
DEBT OUTSTANDING
YEAR ENDED OCTOBER 31,
______________________________________________-_______________________________________
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount of debt outstanding at
end of year (in thousands)... _ $ 650 _ _ _ _ _ _ _ $6,902
Average amount of debt outstanding
throughout year (in thousands)(1). $ 739 $1,321 $1,408 $1,011 _ _ _ - $1,202 $2,678
Average number of shares outstanding
throughout year (in thousands)(2).. 2,737 3,093 3,260 3,661 _ _ _ _ 21,471 19,208
Average amount of debt per
share throughout year...... $ .27 $ .43 $ .43 $ .28 _ _ _ _ $ .06 $ .14
- -----------------
(1)Based upon daily outstanding borrowings.
(2)Based upon month-end balances.
</TABLE>
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is to maximize current income by
investing principally in debt securities of domestic and foreign issuers. It
cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) of the
Fund's outstanding voting shares. There can be no assurance that the Fund's
investment objective will be achieved.
MANAGEMENT POLICIES
At least 65% of the Fund's total assets ordinarily will be invested
in debt securities, such as bonds, debentures, notes, mortgage-related
securities, asset-backed securities, convertible debt obligations and
convertible preferred stocks, of domestic and foreign issuers. See
"Appendix_Certain Portfolio Securities." The issuers of these obligations
include governments, their political subdivisions, agencies or
municipalities, and corporations.
It is a fundamental policy of the Fund that at least 95% of the debt
securities purchased by the Fund will have a rating of at least Caa by
Moody's Investor Services, Inc. ("Moody's") or CCC by Standard & Poor's
Ratings Group ("S&P") or will be of comparable quality as determined by The
Dreyfus Corporation, and that no more than 5% of the debt securities will
have a rating as low as the lowest rating assigned by Moody's or S&P.
Debt securities rated Baa by Moody's and BBB by S&P are considered
investment grade obligations which lack outstanding investment
characteristics and may have speculative characteristics as well. Debt
securities rated Caa by Moody's are of poor standing and may be in default or
there may be present elements of danger with respect to principal or
interest. S&P typically assigns a CCC rating to debt which has a current
identifiable vulnerability to default and is dependent upon favorable
business, financial and economic conditions to meet timely payments of
interest and repayment of principal. The Fund intends to invest less than 35%
of its net assets in debt securities rated Ba or lower by Moody's and BB or
lower by S&P. See "Investment Considerations and Risks_Lower Rated
Securities" below for a discussion of certain risks. The Fund may hold
securities with ratings higher than those set forth above when the yield
differential between lower rated and higher rated fixed-income securities
narrows and the risk of loss may be reduced substantially with only a
relatively small reduction in yield and also when market or economic
conditions dictate a more defensive strategy. The Fund will be particularly
alert to favorable arbitrage opportunities (such as those resulting from
favorable interest rate differentials) arising from the relative yields of
the various types of securities in which the Fund may invest and market
conditions generally.
The Fund's investment in mortgage-related securities will include
those with fixed, floating or variable interest rates, those with interest
rates that change based on multiples of changes in a specified index of
interest rates and those with interest rates that change inversely to changes
in interest rates, as well as those that do not bear interest.
[Page 5]
The Fund may invest up to 30% of its total assets in debt securities
of foreign companies and foreign governments. Among the foreign securities in
which the Fund may invest are the foreign bank obligations, as well as
Eurodollar debt obligations, which are U.S. dollar-denominated debt
obligations issued by foreign issuers, often guaranteed by subsidiaries of
domestic companies. The Fund also may invest in the debt securities of
companies in, or governments of, developing countries. See "Investment
Considerations and Risks _ Foreign Securities."
In connection with its purchases of convertible securities, the Fund
from time to time may hold common stock received upon the conversion of the
security. The Fund does not intend to retain the common stock in its
portfolio and will sell it as promptly as it can and in a manner which it
believes will reduce the risk to the Fund of loss in connection with the
sale.
While seeking other desirable investments, the Fund may invest in
money market instruments consisting of U.S. Government securities,
certificates of deposit, time deposits, bankers' acceptances, short-term
investment grade corporate bonds and other short-term debt instruments, and
repurchase agreements, as set forth under "Appendix _ Certain Portfolio
Securities _ Money Market Instruments." Under normal market conditions, the
Fund does not expect to have a substantial portion of its assets invested in
money market instruments. However, when The Dreyfus Corporation determines
that adverse market conditions exist, the Fund may adopt a temporary
defensive posture and invest all of its assets in money market instruments.
The Fund's annual portfolio turnover rate for the current fiscal year
may exceed 200%. A turnover rate of 100% is equivalent to the Fund buying and
selling all of the securities in its portfolio once in the course of a year.
Higher portfolio turnover rates usually generate additional brokerage
commissions and expenses and the short-term gains realized from these
transactions are taxable to shareholders as ordinary income. In an effort to
increase returns, the Fund may engage in various investment techniques, such
as transactions in foreign currency, options and futures, leveraging, lending
portfolio securities and short-selling. For a description of the investment
techniques and their related risks, see "Investment Considerations and Risks"
and "Appendix_Investment Techniques" below and "Investment Objectives and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL _ The Fund's net asset value per share should be expected to
fluctuate. Investors should consider the Fund as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objectives and Management Policies" in
the Statement of Additional Information for a further discussion of certain
risks.
FIXED-INCOME SECURITIES _ Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuer. Certain securities purchased by
the Fund, such as those rated Baa or lower by Moody's and BBB or lower by
S&P, may be subject to such risk with respect to the issuing entity and to
greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. Once the rating of a portfolio security has been
changed, the Fund will consider all circumstances deemed relevant in
determining whether to continue to hold the security. See "Lower Rated
Securities" below and "Appendix_Certain Portfolio Securities_Ratings," and
"Appendix" in the Statement of Additional Information.
Mortgage-Related Securities _ Mortgage-related securities are complex
derivative instruments, subject to both credit and prepayment risk, and may
be more volatile and less liquid than more traditional debt securities.
Mortgage-related securities are subject to credit risks associated with the
performance of the underlying mortgage properties. Adverse changes in
economic conditions and
[Page 6]
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on certain types of commercial properties than on
those secured by loans on residential properties. In addition, these
securities are subject to prepayment risk, although commercial mortgages
typically have shorter maturities than residential mortgages and prepayment
protection features. Some mortgage-related securities have structures that
make their reactions to interest rate changes and other factors difficult to
predict, making their value highly volatile. See "Appendix-Certain Portfolio
Securities_Mortgage-Related Securities."
Lower Rated Securities _ The Fund may invest in higher yielding (and,
therefore, higher risk) debt securities to the extent described above. These
are securities such as those rated Ba by Moody's or BB by S&P, or as low as
the lowest rating assigned by Moody's or S&P. They may be subject to certain
risks with respect to the issuing entity and to greater market fluctuations
than certain lower yielding, higher rated fixed income securities. The retail
secondary market for these securities may be less liquid than that of higher
rated securities; adverse conditions could make it difficult at times for the
Fund to sell certain securities or could result in lower prices than those
used in calculating the Fund's net asset value. The value of these
securities, as is the case with the value of higher rated fixed-income
securities, will be inversely affected by changes in interest rates, except
that the higher coupon generally associated with lower-rated bonds can make
such bonds potentially less interest rate sensitive. The higher credit risk
associated with lower-rated bonds can have a greater impact on the price of
such bonds than interest rate charges. See "Appendix_Certain Portfolio
Securities_Ratings" below.
FOREIGN SECURITIES _ Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Fund will be subject to additional risks which
include possible adverse political and economic developments, seizure or
nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect or restrict the payment of principal and
interest on the foreign securities to investors located outside the country
of the issuer, whether from currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse affects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
USE OF DERIVATIVES _ The Fund may invest in, or enter into, derivatives
("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,
index or interest rate. The Derivatives the Fund may use include options and
futures and mortgage-related securities. While Derivatives can be used
effectively in furtherance of the Fund's investment objectives, under certain
market conditions, they can increase the volatility of the Fund's net asset
value, decrease the liquidity of the Fund's investments and make more
difficult the accurate pricing of the Fund's portfolio. See
"Appendix_Investment Techniques_Use of Derivatives" below and "Investment
Objectives and Management Policies_Management Policies_Derivatives" in the
Statement of Additional Information.
[Page 7]
SIMULTANEOUS INVESTMENTS _ Investment decisions for the Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities as the Fund, available
investments or opportunities for sales will be allocated equitably to each
investment company. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price
paid or received by the Fund.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER _ The Dreyfus Corporation, located at 200 Park Avenue,
New York, New York 10166, was formed in 1947 and serves as the Fund's
investment adviser. The Dreyfus Corporation is a wholly-owned subsidiary of
Mellon Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of January 31, 1998, The Dreyfus Corporation
managed or administered approximately $96 billion in assets for approximately
1.7 million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the authority of the Company's Board in accordance with
Massachusetts law. The Fund's primary portfolio manager is Kevin McClintock.
He has held that position since December 1995 and has been employed by The
Dreyfus Corporation since November 1995. From 1993 through October 1995, Mr.
McClintock was Managing Director, Fixed Income Investments, for Aeltus
Investment Management Inc., a subsidiary of the Aetna Corporation. Prior
thereto, he was employed in various capacities by the Aetna Corporation and
its subsidiaries, including head of Separate Account Portfolio management for
Aetna Investment Management. The Dreyfus Corporation also provides research
services for the Fund and for other funds advised by The Dreyfus Corporation
through a professional staff of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCOCredit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$305 billion in assets as of December 31, 1997, including approximately $104
billion in proprietary mutual fund assets. As of December 31, 1997, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $1.532 trillion in
assets, including approximately $60 billion in mutual fund assets.
For the fiscal year ended October 31, 1997, the Fund paid The Dreyfus
Corporation a monthly management fee at the annual rate of .60 of 1% of the
value of the Fund's average daily net assets. From time to time, The Dreyfus
Corporation may waive receipt of its fees and/or voluntarily assume certain
expenses of the Fund, which would have the effect of lowering the Fund's
expense ratio and increasing yield to investors. The Fund will not pay The
Dreyfus Corporation at a later time for any amounts it may waive, nor will
the Fund reimburse The Dreyfus Corporation for any amounts it may assume. The
Dreyfus Corporation or its affiliates may pay certain entities, including
banks, an account fee and also a fee in connection with the servicing of Fund
shareholders.
In allocating brokerage transactions, The Dreyfus Corporation seeks to
obtain the best execution of orders at the most favorable net price. Subject
to this determination, TheDreyfus Corporation may consider, among other
things, the receipt of research services and/or the sale of shares of the
Fund or other funds managed, advised or administered by The Dreyfus
Corporation as factors in the selection of
[Page 8]
broker-dealers to execute portfolio transactions for the Fund. See "Portfolio
Transactions" in the Statement of Additional Information.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part of all of such payments to pay Service Agents
in respect of these services.
DISTRIBUTOR _ The Fund's distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN _ Dreyfus Transfer,
Inc., a wholly-owned subsidiary of TheDreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Fund's Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). Mellon Bank, N.A., One Mellon Bank
Center, Pittsburgh, Pennsylvania 15258, is the Fund's Custodian.
HOW TO BUY SHARES
Fund shares are sold without a sales charge. You may be charged a fee
if you effect transactions in Fund shares through a securities dealer, bank
or other financial institution (collectively, "Service Agents"). Share
certificates are issued only upon your written request. No certificates are
issued for fractional shares. The Fund reserves the right to reject any
purchase order. See "Appendix _ Additional Information About Purchases,
Exchanges and Redemptions."
The minimum initial purchase is $2,500, or $1,000 if you are a client
of a Service Agent which maintains an omnibus account in the Fund and has
made an aggregate minimum initial purchase for its customers of $2,500.
Subsequent investments must be at least $100. However, the minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including regular
IRAs, spousal IRAs for a non-working spouse, Roth IRAs, SEP-IRAs and rollover
IRAs) and 403(b)(7) Plans with only one participant and $500 for
Dreyfus-sponsored Education IRAs, with no minimum for subsequent purchases.
The initial investment must be accompanied by the Account Application. For
full-time or part-time employees of The Dreyfus Corporation or any of its
affiliates or subsidiaries, directors of The Dreyfus Corporation, Board
members of a fund advised by The Dreyfus Corporation, including members of
the Company's Board, or the spouse or minor child of any of the foregoing,
the minimum initial investment is $1,000. For full-time or part-time
employees of The Dreyfus Corporation or any of its affiliates or subsidiaries
who elect to have a portion of their pay directly deposited into their Fund
accounts, the minimum initial investment is $50. The Fund reserves the right
to offer Fund shares without regard to minimum purchase requirements to
employees participating in certain qualified and non-qualified employee
benefit plans or other programs where contributions or account information
can be transmitted in a manner and form acceptable to the Fund. The Fund
reserves the right to vary further the initial and subsequent investment
minimum requirements at any time. Fund shares also are offered without regard
to the minimum initial investment requirements through Dreyfus-AUTOMATIC
Asset BuilderRegistration Mark, Dreyfus Government Direct Deposit Privilege
or Dreyfus Payroll Savings Plan pursuant to the Dreyfus Step Program
described under "Shareholder Services." These services enable you to make
regularly scheduled investments and may provide you with a convenient way to
invest for long-term financial goals. You should be aware, however, that
periodic investment plans do not guarantee a profit and will not protect an
investor against loss in a declining market.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian." Payments to open new accounts which
are mailed should be sent to The Dreyfus Family of Funds, P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account Application.
For subsequent investments, your Fund account number should appear on the
check and an investment slip should be enclosed and sent
[Page 9]
to The Dreyfus Family of Funds, P.O. Box 105, Newark, New Jersey 07101-0105.
For Dreyfus retirement plan accounts, both initial and subsequent investments
should be sent to The Dreyfus Trust Company, Custodian, P.O. Box 6427,
Providence, Rhode Island 02940-6427. Neither initial nor subsequent
investments should be made by third party check. Purchase orders may be
delivered in person only to a Dreyfus Financial Center. THESE ORDERS WILL BE
FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For
the location of the nearest Dreyfus Financial Center, please call one of the
telephone numbers listed under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA #8900119330/Dreyfus
Strategic Income Fund, for purchase of Fund shares in your name. The wire
must include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Account Application and promptly mail the Account Application
to the Fund, as no redemptions will be permitted until the Account Application
is received. You may obtain further information about remitting funds in this
manner from your bank. All payments should be made in U.S. dollars and, to
avoid fees and delays, should be drawn only on U.S. banks. A charge will be
imposed if any check used for investment in your account does not clear. The
Fund makes available to certain large institutions the ability to issue
purchase instructions through compatible computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
your Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other entity authorized to receive orders on behalf of the
Fund. Net asset value per share is determined as of the close of trading on
the floor of the New York Stock Exchange (currently 4:00 p.m., New York
time), on each day the New York Stock Exchange is open for business. For
purposes of determining net asset value per share, options contracts will be
valued 15 minutes after the close of trading on the floor of the New York
Stock Exchange. Net asset value per share is computed by dividing the value
of the Fund's net assets (i.e., the value of its assets less liabilities) by
the total number of shares outstanding. The Fund's investments are valued
based on market value or, where market quotations are not readily available,
based on fair value as determined in good faith by the Company's Board. For
further information regarding the methods employed in valuing Fund
investments, see "Determination of Net Asset Value" in the Statement of
Additional Information.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or nonqualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made
[Page 10]
available by the Distributor to such plans or programs exceeds $1,000,000
("Eligible Benefit Plans"). Shares of funds in the Dreyfus Family of Funds
then held by an Eligible Benefit Plan will be aggregated to determine the fee
payable. The Distributor reserves the right to cease paying these fees at any
time. The Distributor will pay such fees from its own funds, other than
amounts received from the Fund, including past profits or any other source
available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Account Application for further information concerning this requirement.
Failure to furnish a certified TIN to the Fund could subject you to a $50
penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between the bank account designated in one of these documents
and your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
The Fund may modify or terminate this Privilege at any time or charge a
service fee upon notice to shareholders. No such fee currently is
contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES
FUND EXCHANGES _ You may purchase, in exchange for shares of the Fund, shares
of certain other funds managed or administered by The Dreyfus Corporation, to
the extent such shares are offered for sale in your state of residence. These
funds have different investment objectives which may be of interest to you.
If you desire to use this service, you should consult your Service Agent or
call 1-800-645-6561 to determine if it is available and whether any other
conditions are imposed on its use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling
1-800-645-6561. Except in the case of personal retirement plans, the shares
being exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have
a value of at least the minimum initial investment required for the fund into
which the exchange is being made. The ability to issue exchange instructions
by telephone is given to all Fund shareholders automatically, unless you
check the applicable "No"box on the Account Application, indicating that you
specifically refuse this Privilege. The Telephone Exchange Privilege may be
established for an existing account by written request signed by all
shareholders on the account, by a separate signed Shareholder Services Form,
available by calling 1-800-645-6561, or by oral request from any of the
authorized signatories on the account by calling 1-800-645-6561. If you have
established the Telephone Exchange Privilege, you may telephone exchange
instructions (including over The Dreyfus TouchRegistration Mark automated
telephone system) by calling 1-800-645-6561. If you are calling from
overseas, call 516-794-5452. See "How to Redeem Shares_Procedures." Upon an
exchange into a new account, the following shareholder services and
privileges, as applicable and where available, will be automatically carried
over to the fund into which the exchange is made: Telephone Exchange
Privilege, Wire Redemption Privilege, Dreyfus TELETRANSFER Privilege and the
dividend/capital gain distribution option (except for Dreyfus Dividend Sweep)
selected by the investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced
[Page 11]
sales load, if the shares you are exchanging were: (a) purchased with a sales
load, (b) acquired by a previous exchange from shares purchased with a sales
load, or (c) acquired through reinvestments of dividends or distributions
paid with respect to the foregoing categories of shares. To qualify, at the
time of your exchange you must notify the Transfer Agent or your Service
Agent must notify the Distributor. Any such qualification is subject to
confirmation of your holdings through a check of appropriate records. See
"Shareholder Services" in the Statement of Additional Information. No fees
currently are charged shareholders directly in connection with exchanges,
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal administrative fee in accordance
with rules promulgated by the Securities and Exchange Commission. The Fund
reserves the right to reject any exchange request in whole or in part. See
"Appendix _ Additional Information About Purchases, Exchanges and
Redemptions." The availability of Fund Exchanges may be modified or
terminated at any time upon notice to shareholders. See "Dividends,
Distributions and Taxes."
DREYFUS AUTO-EXCHANGE PRIVILEGE _ Dreyfus Auto-Exchange Privilege enables
you to invest regularly (on a semi-monthly, monthly, quarterly or annual
basis), in exchange for shares of the Fund, in shares of other funds in the
Dreyfus Family of Funds of which you are a shareholder. The amount you
designate, which can be expressed either in terms of a specific dollar or
share amount ($100 minimum), will be exchanged automatically on the first
and/or fifteenth of the month according to the schedule you have selected.
Shares will be exchanged at the then-current net asset value; however, a
sales load may be charged with respect to exchanges into funds sold with a
sales load. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
cancelled by the Fund or the Transfer Agent. You may modify or cancel your
exercise of this Privilege at any time by mailing written notification to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
The Fund may charge a service fee for the use of this Privilege. No such fee
currently is contemplated. For more information concerning this Privilege and
the funds in the Dreyfus Family of Funds eligible to participate in this
Privilege, or to obtain a Dreyfus Auto-Exchange Authorization Form, please
call toll free 1-800-645-6561. See "Dividends, Distributions and Taxes."
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark _ Dreyfus-AUTOMATIC Asset
Builder permits you to purchase Fund shares (minimum of $100 and maximum of
$150,000 per transaction) at regular intervals selected by you. Fund shares
are purchased by transferring funds from the bank account designated by you.
Only an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. To establish a
Dreyfus-AUTOMATIC Asset Builder account, you must file an authorization form
with the Transfer Agent. You may obtain the necessary authorization form by
calling 1-800-645-6561. You may cancel your participation in this Privilege
or change the amount of purchase at any time by mailing written notification
to The Dreyfus Family of Funds, P.O. Box 6527, Providence, Rhode Island
02940-6527, or, if for Dreyfus Retirement Plan accounts, to The Dreyfus Trust
Company, Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427, and
the notification will be effective three business days following receipt. The
Fund may modify or terminate this Privilege at any time or charge a service
fee. No such fee currently is contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE _ Dreyfus Government Direct
Deposit Privilege enables you to purchase shares (minimum of $100 and maximum
of $50,000 per transaction) by having Federal salary, Social Security, or
certain veterans', military or other payments from the Federal government
automatically deposited into your Fund account. You may deposit as much of
your payments as you elect. To enroll in Dreyfus Government Direct Deposit,
you must file with the Transfer Agent a completed Direct Deposit Sign-Up Form
for each type of payment that you desire to include in this Privilege. The
appropriate form may be obtained by calling 1-800-645-6561. Death or legal
incapacity will terminate your participation in this Privilege. You may elect
at any time to terminate your participation by notifying in writing the
appropriate Federal agency. Further, the Fund may terminate your
participation upon 30 days' notice to you.
[Page 12]
DREYFUS PAYROLL SAVINGS PLAN _ Dreyfus Payroll Savings Plan permits you to
purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the Automated Clearing House system at each
pay period. To establish a Dreyfus Payroll Savings Plan account, you must
file an authorization form with your employer's payroll department. Your
employer must complete the reverse side of the form and return it to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
You may obtain the necessary authorization form by calling 1-800-645-6561.
You may change the amount of purchase or cancel the authorization only by
written notification to your employer. It is the sole responsibility of your
employer, not the Distributor, The Dreyfus Corporation, the Fund, the
Transfer Agent or any other person, to arrange for transactions under the
Dreyfus Payroll Savings Plan. The Fund may modify or terminate this Privilege
at any time or charge a service fee. No such fee currently is contemplated.
Dreyfus Step Program _ Dreyfus Step Program enables you to purchase Fund
shares without regard to the Fund's minimum initial investment requirements
through Dreyfus-AUTOMATIC Asset BuilderRegistration Mark, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan. To establish a
Dreyfus Step Program account, you must supply the necessary information on
the Account Application and file the required authorization form(s) with the
Transfer Agent. For more information concerning this Program, or to request
the necessary authorization form(s), please call toll free 1-800-782-6620.
You may terminate your participation in this Program at any time by
discontinuing your participation in Dreyfus-AUTOMATIC Asset Builder, Dreyfus
Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the
case may be, as provided under the terms of such Privilege(s). The Fund may
modify or terminate this Program at any time. Investors who wish to purchase
Fund shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plan may do so only for IRAs, SEP-IRAs and IRA
"Rollover Accounts."
DREYFUS DIVIDEND OPTIONS _ Dreyfus Dividend Sweep enables you to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you are
investing in a fund that charges a sales load, you may qualify for share
prices which do not include the sales load or which reflect a reduced sales
load. If you are investing in a fund that charges a contingent deferred sales
charge, the shares purchased will be subject on redemption to the contingent
deferred sales charge, if any, applicable to the purchased shares. See
"Shareholder Services" in the Statement of Additional Information. Dreyfus
Dividend ACH permits you to transfer electronically dividends or dividends
and capital gain distributions, if any, from the Fund to a designated bank
account. Only an account maintained at a domestic financial institution which
is an Automated Clearing House member may be so designated. Banks may charge
a fee for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To select a new
fund after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three business
days following receipt. These privileges are available only for existing
accounts and may not be used to open new accounts. Minimum subsequent
investments do not apply for Dreyfus Dividend Sweep. The Fund may modify or
terminate these privileges at any time or charge a service fee. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans are not eligible for Dreyfus Dividend Sweep.
[Page 13]
AUTOMATIC WITHDRAWAL PLAN _ The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. An Automatic
Withdrawal Plan may be established by filing an Automatic Withdrawal Plan
application with the Transfer Agent or by oral request from any of the
authorized signatories on the account by calling 1-800-645-6561. The
Automatic Withdrawal Plan may be ended at any time by you, the Fund or the
Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
RETIREMENT PLANS _ The Fund offers a variety of pension and profit-sharing
plans, including Keogh Plans, IRAs (including regular IRAs, spousal IRAs for
a non-working spouse, Roth IRAs, SEP-IRAs, rollover IRAs and Education IRAs),
401(k) Salary Reduction Plans and 403(b)(7) Plans. Plan support services also
are available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs (except SEP-IRAs), please call 1-800-645-6561; for SEP-IRAs, 401(k)
Salary Reduction Plans, and 403(b)(7) Plans, please call 1-800-322-7880.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent, as described below.
When a request is received in proper form by the Transfer Agent or other
entity authorized to receive orders on behalf of the Fund, the Fund will
redeem the shares at the next determined net asset value. See "Appendix _
Additional Information About Purchases, Exchanges and Redemptions."
The Fund imposes no charges when shares are redeemed. Service Agents
may charge their clients a fee for effecting redemptions of Fund shares. Any
certificates representing Fund shares being redeemed must be submitted with
the redemption request. The value of the shares redeemed may be more or less
than their original cost, depending on the Fund's then-current net asset
value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR TELEPHONE
OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE FOR A PERIOD OF EIGHT
BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE
DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET BUILDER ORDER
AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY
IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A
SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST.
PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL
ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS
OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed until the Transfer
Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 30 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or through the Telephone Redemption Privilege
which is granted automatically unless you specifically
[Page 14]
refuse it by checking the applicable "No" box on the Account Application. The
Telephone Redemption Privilege may be established for an existing account by
a separate signed Shareholder Services Form or by oral request from any of
the authorized signatories on the account by calling 1-800-645-6561. You also
may redeem shares through the Wire Redemption Privilege or the Dreyfus
TELETRANSFER Privilege, if you have checked the appropriate box and supplied
the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent. Other redemption
procedures may be in effect for clients of certain Service Agents. The Fund
makes available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities. The Fund reserves the
right to refuse any request made by wire or telephone, including requests made
shortly after a change of address, and may limit the amount involved or the
number of such requests. The Fund may modify or terminate any redemption
Privilege at any time or charge a service fee upon notice to shareholders. No
such fee currently is contemplated. Shares held under Keogh Plans, IRAs or
other retirement plans, and shares for which certificates have been issued,
are not eligible for the Wire Redemption, Telephone Redemption or Dreyfus
TELETRANSFER Privilege.
In addition, the Distributor or its designee will accept orders from
dealers with which the Distributor has sales agreements for the repurchase of
shares held by shareholders. Repurchase orders received by the dealer prior
to the close of trading on the New York Stock Exchange on a business day and
transmitted to the Distributor or its designee prior to the close of its
business day (normally 5:15 p.m., New York time) are effected at the price
determined as of the close of trading on the floor of the New York Stock
Exchange on that day. Otherwise, the shares will be redeemed at the next
determined net asset value. It is the responsibility of the dealer to
transmit orders on a timely basis. The dealer may charge the shareholder a
fee for executing the order. This repurchase arrangement is discretionary and
may be withdrawn at any time.
The Telephone Redemption Privilege or Telephone Exchange Privilege
authorizes the Transfer Agent to act on telephone instructions (including
over The Dreyfus TouchRegistration Mark automated telephone system) from any
person representing himself or herself to be you, and reasonably believed by
the Transfer Agent to be genuine. The Fund will require the Transfer Agent to
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine and, if it does not
follow such procedures, the Fund or the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions. Neither the Fund nor
the Transfer Agent will be liable for following telephone instructions
reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION _ Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
6527, Providence, Rhode Island 02940-6527, or, if for Dreyfus Retirement Plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings
[Page 15]
associations, as well as from participants in the New York Stock Exchange
Medallion Signature Program, the Securities Transfer Agents Medallion Program
("STAMP"), and the Stock Exchanges Medallion Program. If you have any
questions with respect to signature-guarantees, please call one of the
telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
WIRE REDEMPTION PRIVILEGE _ You may request by wire, telephone or letter
that redemption proceeds (minimum $1,000) be wired to your account at a bank
which is a member of the Federal Reserve System, or a correspondent bank if
your bank is not a member. Holders of jointly registered Fund or bank
accounts may have redemption proceeds of not more than $250,000 wired within
any 30-day period. You may telephone redemption requests by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire.
TELEPHONE REDEMPTION PRIVILEGE _ You may request by telephone that
redemption proceeds (maximum $150,000 per day) be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Telephone Redemption Privilege is granted automatically unless you refuse it.
DREYFUS TELETRANSFER PRIVILEGE _ You may request by telephone that redemption
proceeds (minimum $500 per day) be transferred between your Fund account and
your bank account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their bank
account not more than $250,000 within any 30-day period.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan, pursuant to which
the Fund pays the Distributor for the provision of certain services to
shareholders a fee at the annual rate of .25 of 1% of the value of the Fund's
average daily net assets. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. The Distributor may make
payments to Service Agents in respect of these services. The Distributor
determines the amounts to be paid to Service Agents.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund is treated as a separate entity for purposes of qualification and
taxation as a regulated investment company. The Fund ordinarily declares
dividends from its net investment income on each day that the New York Stock
Exchange is open for business. The Fund's earnings for Saturdays, Sundays and
holidays are declared as dividends on the preceding business day. Dividends
usually are paid on the last business day of each month and automatically
reinvested in additional Fund shares at net asset value, unless you elect
payment in cash. If you redeem all shares in your account at any time during
the month, all dividends to which you are entitled will be paid to you along
with the proceeds of the redemption. If you are an omnibus accountholder and
indicate in a partial redemption request that a portion of any accrued
dividends to which such account is entitled belongs to an underlying
accountholder who has redeemed all shares in his or her account, such portion
of the accrued dividends will be paid to you along with the
[Page 16]
proceeds of the redemption. Distributions of net realized securities gains,
if any, generally are declared and paid once a year, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the 1940
Act. The Fund will not make distributions from net realized securities gains
unless capital loss carryovers, if any, have been utilized or have expired.
You may choose whether to receive distributions in cash or to reinvest such
amounts in additional shares at net asset value without a sales load. If you
elect to receive dividends and distributions in cash, and your dividend or
distribution check is returned to the Fund as undeliverable or remains
uncashed for six months, the Fund reserves the right to reinvest such
dividend or distribution and all future dividends and distributions payable
to you in additional Fund shares at net asset value. No interest will accrue
on amounts represented by uncashed distribution or redemption checks. All
expenses are accrued daily and deducted before declaration of dividends.
Fund shares begin earning income dividends on the day immediately
available funds ("Federal Funds" (monies of member banks within the Federal
Reserve System which are held on deposit at a Federal Reserve Bank)) are
received by the Transfer Agent in written or telegraphic form. If a purchase
order is not accompanied by remittance in Federal Funds, there may be a delay
between the time the purchase order becomes effective and the time the shares
purchased start earning dividends. If your payment is not made in Federal
Funds, it must be converted into Federal Funds. This usually occurs within
one business day of receipt of a bank wire and within two business days of
receipt of a check drawn on a member bank of the Federal Reserve System.
Checks drawn on banks which are not members of the Federal Reserve System may
take considerably longer to convert into Federal Funds.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to U.S. shareholders
as ordinary income whether received in cash or reinvested in additional Fund
shares. Distributions from net realized long-term capital gains of the Fund
to U.S. shareholders generally are taxable as long-term capital gains for
Federal income tax purposes, regardless of how long shareholders have held
their Fund shares and whether such distributions are received in cash or
reinvested in additional Fund shares. The Code provides that an individual
generally will be taxed on his or her net capital gain at a maximum rate of
28% with respect to capital gain from securities held for more than one year
but not more than 18 months and at a maximum rate of 20% with respect to
capital gain from securities held for more than 18 months. Dividends and
distributions may be subject to state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by
the Fund to a foreign investor, as well as the proceeds of any redemptions
from a foreign investor's account, regardless of the extent to which gain or
loss may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of your dividends and distributions is
mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
[Page 17]
Federal regulations generally require the Fund to withhold
("backup withholding") and remit to the U.S. Treasury 31% of
dividends, distributions from net realized securities gains of the Fund and
the proceeds of any redemption, regardless of the extent to which gain or
loss may be realized, paid to a shareholder if such shareholder fails to
certify either that the TIN furnished in connection with opening an account
is correct, or that such shareholder has not received notice from the IRS of
being subject to backup withholding as a result of a failure to properly
report taxable dividend or interest income on a Federal income tax return.
Furthermore, the IRS may notify the Fund to institute backup withholding if
the IRS determines that a shareholder's TIN is incorrect or if a shareholder
has failed to properly report dividend and interest income on your Federal
income tax return.
A TIN is either the Social Security number, IRS individual taxpayer
identification number, or employer identification number of the record owner
of the account. Any tax withheld as a result of backup withholding does not
constitute an additional tax imposed on the record owner of the account, and
may be claimed as a credit on the record owner's Federal income tax return.
Management of the Company believes that the Fund has qualified for
the fiscal year ended October 31, 1997 as a "regulated investment company"
under the Code. The Fund intends to continue to so qualify if such
qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of any liability for Federal income taxes to
the extent its earnings are distributed in accordance with applicable
provisions of the Code. The Fund is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state and local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return, and/or total
return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of the Fund's
current yield may reflect absorbed expenses pursuant to expense limitations
in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information
[Page 18]
such as that described above, may not provide a basis for comparison
with other investments or other investment companies using a different method
of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Moody's Bond Survey Bond Index, Lehman Brothers
Municipal Bond Index, Morningstar, Inc., Value Line Mutual Fund Survey and
other industry publications.
GENERAL INFORMATION
The Company was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust (the "Trust Agreement") dated July 24, 1985, and
commenced operations on October 1, 1986. Before January 1, 1996, the
Company's name was Dreyfus Strategic Income. The Company is authorized to
issue an unlimited number of shares of beneficial interest, par value $.001
per share. Each share has one vote.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a
Massachusetts business trust. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Company and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Company or a Trustee. The Trust
Agreement provides for indemnification from the Fund's property for all
losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations, a possibility which management believes is remote. Upon payment
of any liability incurred by the Fund, the shareholder paying such liability
will be entitled to reimbursement from the general assets of the Fund. The
Company intends to conduct its operations in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for liabilities of
the Fund. As discussed under "Management of the Company" in the Statement of
Additional Information, the Fund ordinarily will not hold shareholder
meetings; however, shareholders under certain circumstances may have the
right to call a meeting of shareholders for the purpose of voting to remove
Board members.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of the Fund are being
offered. Other portfolios are sold pursuant to other offering documents.
To date, the Board has authorized the creation of five series of
shares. All consideration received by the Company for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Company) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of the
other series. The Company has the ability to create, from time to time, new
series without shareholder approval.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call 1-718-895-1206; outside the U.S., call
516-794-5452.
[Page 19]
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS _ Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Fund has agreed to buy
or sell; to hedge the U.S. dollar value of securities the Fund already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. The Fund's success in these transactions will depend principally on
The Dreyfus Corporation's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
LEVERAGE _ Leveraging exaggerates the effect on net asset value of any
increase or decrease in the market value of the Fund's portfolio. Money
borrowed for leveraging will be limited to 331/3% of the value of the Fund's
total assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the return received on the securities
purchased.
The Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund
of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal plus accrued
interest. Except for these transactions, the Fund's borrowings generally will
be unsecured.
SHORT-SELLING _ In these transactions, the Fund sells a security it does not
own in anticipation of a decline in the market value of the security. To
complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is obligated to replace the security borrowed by
purchasing it subsequently at the market price at the time of replacement.
The price at such time may be more or less than the price at which the
security was sold by the Fund, which would result in a loss or gain,
respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not sell short
the securities of any single issuer listed on a national securities exchange
to the extent of more than 5% of the value of the Fund's net assets. The Fund
may not make a short sale which results in the Fund having sold short in the
aggregate more than 5% of the outstanding securities of any class of an
issuer.
The Fund also may make short sales "against the box," in which the
Fund enters into a short sale of a security it owns. At no time will more
than 15% of the value of the Fund's net assets be in deposits on short sales
against the box.
LENDING PORTFOLIO SECURITIES _ The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund
[Page 20]
continues to be entitled to payments in amounts equal to the interest,
dividends or other distributions payable on the loaned securities which
affords the Fund an opportunity to earn interest on the amount of the loan
and on the loaned securities' collateral. Loans of portfolio securities may
not exceed 331/3% of the value of the Fund's total assets, and the Fund will
receive collateral consisting of cash, U.S. Government securities or
irrevocable letters of credit which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. Such loans are terminable by the Fund at any time upon specified
notice. TheFund might experience risk of loss if the institution with which
it has engaged in a portfolio loan transaction breaches its agreement with
the Fund.
USE OF DERIVATIVES _ The Fund may invest in, or enter into, the types of
Derivatives enumerated under "Description of the Fund _ Investment
Considerations and Risks _ Use of Derivatives." These instruments and
certain related risks are described more specifically under "Investment
Objective and Management Policies_Management Policies_Derivatives" in the
Statement of Additional Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
In addition, Derivatives may entail investment exposures that are
greater than their cost would suggest, meaning that a small investment in
Derivatives could have a large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. The Fund also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Fund were unable
to liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although the Fund will not be a commodity pool, certain Derivatives
subject the Fund to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such Derivatives. The
Fund may invest in futures contracts and options with respect thereto for
hedging purposes without limit. However, the Fund may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options. The Fund may write
(i.e., sell) covered call and put option contracts to the extent of 20% of
the value of its net assets at the time such option contracts are written.
When required by the Securities and Exchange Commission, the Fund will set
aside permissible liquid assets in a segregated account to cover its
obligations relating to its purchase of Derivatives. To maintain this
required cover, the Fund may have to sell portfolio securities at
disadvantageous prices or times since it may not be possible to liquidate a
Derivative position at a reasonable price.
FORWARD COMMITMENTS _ The Fund may purchase or sell securities on a forward
commitment, when-issued or delayed delivery basis, which means delivery and
payment take place a number of days after the date of the commitment to
purchase or sell the securities at a predetermined price and/or yield.
Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the Fund
assumes the rights and risks of ownership of the security,
[Page 21]
including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the
Fund is not required to pay for these securities until the delivery date,
these risks are in addition to the risks associated with the Fund's other
investments. If the Fund is fully or almost fully invested when forward
commitment purchases are outstanding, such purchases may result in a form of
leverage. The Fund intends to engage in forward commitments to increase its
portfolio's financial exposure to the types of securities in which it
invests. Leveraging the portfolio in this manner will increase the Fund's
exposure to changes in interest rates and will increase the volatility of its
returns. The Fund will set aside in a segregated account permissible liquid
assets at least equal at all times to the amount of the Fund's purchase
commitments. At no time will the Fund have more than 331\3% of its assets
committed to purchase securities on a forward commitment basis.
FORWARD ROLL TRANSACTIONS _ In order to enhance current income, the Fund may
enter into forward roll transactions with respect to mortgage-related
securities. In a forward roll transaction, the Fund sells a mortgage-related
security to a financial institution, such as a bank or broker-dealer, and
simultaneously agrees to repurchase a similar security from the institution
at a later date at an agreed-upon price. The mortgage-related securities that
are repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories than those sold. During the period between the sale and
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term instruments, particularly repurchase agreements, and the income
from these investments, together with any additional fee income received on
the sale will generate income for the Fund exceeding the yield on the
securities sold. Forward roll transactions involve the risk that the market
value of the securities sold by the Fund may decline below the repurchase
price of those securities. The Fund will set aside in a segregated account
permissible liquid assets at least equal to the amount of the repurchase
price (including accrued interest).
CERTAIN PORTFOLIO SECURITIES
Convertible Securities _ Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
Mortgage-Related Securities _ Mortgage-related securities are a form of
Derivative collateralized by pools of commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations. These
securities may include complex instruments such as collateralized mortgage
obligations, stripped mortgage-backed securities, mortgage pass-through
securities, interests in real estate mortgage investment conduits ("REMICs"),
adjustable rate mortgages, real estate investment trusts ("REITs"), including
debt and preferred stock issued by REITs, as well as other real
estate-related securities.
In certain instances, the credit risk associated with
mortgage-related securities can be reduced by third party guarantees or other
forms of credit support. Improved credit risk does not reduce prepayment risk
which is unrelated to the rating assigned to the mortgage-related security.
Prepayment risk can lead to fluctuations in value of the mortgage-related
security which may be pronounced. If a mortgage-related security is purchased
at a premium, all or part of the premium may be lost if there is a decline in
the market value of the security, whether resulting from changes in interest
rates or prepayments on the underlying mortgage collateral. Certain
mortgage-related securities that may be purchased by the Fund, such as
inverse floating rate collateralized mortgage obligations, have coupons that
move inversely to a multiple of a specific index which may result in a form
of leverage. As with
[Page 22]
other interest-bearing securities, the prices of certain mortgage-related
securities are inversely affected by changes in interest rates. However,
although the value of a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Fund. Moreover, with respect to
certain stripped mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Fund may fail to fully recoup its initial investment even if the securities
are rated in the highest rating category by a nationally recognized
statistical rating organization. During periods of rapidly rising interest
rates, prepayments of mortgage-related securities may occur at slower than
expected rates. Slower prepayments effectively may lengthen a
mortgage-related security's expected maturity which generally would cause the
value of such security to fluctuate more widely in response to changes in
interest rates. Were the prepayments on the Fund's mortgage-related
securities to decrease broadly, the Fund's effective duration, and thus
sensitivity to interest rate fluctuations, would increase.
RESIDENTIAL MORTGAGE-RELATED SECURITIES. The Fund may invest in
mortgage-related securities representing participation interests in pools of
one- to four-family residential mortgage loans issued or guaranteed by
governmental agencies or instrumentalities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or issued
by private entities. Similar to commercial mortgage-related securities,
residential mortgage-related securities have been issued using a variety of
structures, including multi-class structures featuring senior and
subordinated classes.
COMMERCIAL MORTGAGE-RELATED SECURITIES. The Fund may invest in
commercial mortgage-related securities, which generally are multi-class debt
or pass-through certificates secured by mortgage loans on commercial
properties. These mortgage-related securities generally are structured to
provide protection to the senior classes investors against potential losses
on the underlying mortgage loans. This protection is generally provided by
having the holders of subordinated classes of securities ("Subordinated
Securities") take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protection, which may benefit all of the
classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross-collateralization and
over-collateralization.
SUBORDINATED SECURITIES. The Fund may invest in Subordinated
Securities issued or sponsored by commercial banks, savings and loan
institutions, mortgage bankers, private mortgage insurance companies and
other non-governmental issuers. Subordinated Securities have no governmental
guarantee, and are subordinated in some manner as to the payment of principal
and/or interest to the holders of more senior mortgage-related securities
arising out of the same pool of mortgages. The holders of Subordinated
Securities typically are compensated with a higher stated yield than are the
holders of more senior mortgage-related securities. On the other hand,
Subordinated Securities typically subject the holder to greater risk than
senior mortgage-related securities and tend to be rated in a lower rating
category, and frequently a substantially lower rating category, than the
senior mortgage-related securities issued in respect of the same pool of
mortgage. Subordinated Securities generally are likely to be more sensitive
to changes in prepayment and interest rates and the market for such
securities may be less liquid than is the case for traditional fixed-income
securities and senior mortgage-related securities.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are multiclass
bonds backed by pools of mortgage pass-through certificates or mortgage
loans. CMOs may be collateralized by (a) pass-through certificates issued or
guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured
by the Federal Housing
[Page 23]
Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, (d) other mortgage-related securities
or (e) any combination thereof.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may cause it to be
retired substantially earlier than the stated maturities or final
distribution dates. The principal and interest on the underlying mortgages
may be allocated among the several classes of a series of a CMO in many ways.
One or more tranches of a CMO may have coupon rates which reset periodically
at a specified increment over an index, such as the London Interbank Offered
Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs
typically are issued with lifetime caps on the coupon rate thereon. The Fund
also may invest in inverse floating rate CMOs. Inverse floating rate CMOs
constitute a tranche of a CMO with a coupon rate that moves in the reverse
direction to an applicable index such as the LIBOR. Accordingly, the coupon
rate thereon will increase as interest rates decrease. Inverse floating rate
CMOs are typically more volatile than fixed or floating rate tranches of
CMOs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Fund also may invest in
stripped mortgage-backed securities which are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities, each with a specified percentage of the underlying
security's principal or interest payments. Mortgage securities may be
partially stripped so that each investor class received some interest and
some principal. When securities are completely stripped, however, all of the
interest is distributed to holders of one type of security, known as an
interest-only security, or IO, and all of the principal is distributed to
holders of another type of security known as a principal-only security, or
PO. Strips can be created in a pass-through structure or as tranches of a
CMO. The yields to maturity on IOs and POs are very sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund may not fully recoup its initial
investment in IOs. Conversely, if the underlying mortgage assets experience
less than anticipated prepayments of principal, the yield on POs could be
materially and adversely affected.
REAL ESTATE INVESTMENT TRUSTS. A REIT is a corporation, or a business
trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Code. The Code permits a qualifying REIT to
deduct dividends paid, thereby effectively eliminating corporate level
Federal income tax and making the REIT a pass-through vehicle for Federal
income tax purposes. To meet the definitional requirements of the Code, a
REIT must, among other things, invest substantially all of its assets in
interests in real estate (including mortgages and other REITs) or cash and
government securities, derive most of its income from rents from real
property or interest on loans secured by mortgages on real property, and
distribute to shareholders annually a substantial portion of its otherwise
taxable income. REITs are subject to heavy cash flow dependency, defaults by
borrowers or tenants, self-liquidation and the possibility of failing to
qualify for tax-free status under the Code or to maintain exemption from the
1940 Act.
PRIVATE ENTITY SECURITIES. These mortgage-related securities are
issued by commercial banks, savings and loan institutions, mortgage bankers,
private mortgage insurance companies and other non-governmental issuers.
Timely payment of principal and interest on mortgage-related securities
backed by pools created by non-governmental issuers often is supported
partially by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance.
ASSET-BACKED SECURITIES _ Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. These securities include debt
securities and securities with debt-like characteristics. The collateral for
these securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases,
[Page 24]
airplane leases, mobile home loans, recreational vehicle loans and hospital
account receivables. The Fund may invest in these and other types of
asset-backed securities that may be developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may provide the
Fund with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
MONEY MARKET INSTRUMENTS _ The Fund may invest in the following types of
money market
instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
BANK OBLIGATIONS. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Description of the Fund_Investment Considerations and
Risks_Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's,
or A-1 by S&P, (b) issued by companies having an outstanding unsecured debt
issue currently rated at least A3 by Moody's or A- by S&P, or (c) if unrated,
determined by The Dreyfus Corporation to be of comparable quality to those
rated obligations which may be purchased by the Fund.
[Page 25]
ILLIQUID SECURITIES _ TheFund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Fund is subject to a risk that should
the Fund desire to sell them when a ready buyer is not available at a price
the Fund deems representative of their value, the value of the Fund's net
assets could be adversely affected.
Ratings _ Securities rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate.
Securities rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability
to default than other speculative grade debt, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. Securities rated Caa by Moody's are of poor standing
and may be in default or there may be present elements of danger with respect
to principal or interest. S&P typically assigns a CCC rating to debt which
has a current identifiable vulnerability to default and is dependent upon
favorable business, financial and economic conditions to meet timely payments
of interest and repayment of principal. Such securities, though high
yielding, are characterized by great risk. See "Appendix" in the Statement of
Additional Information for a general description of securities ratings.
The ratings of Moody's and S&P represent their opinions as to the
quality of the obligations which they undertake to rate. Ratings are relative
and subjective and, although ratings may be useful in evaluating the safety
of interest and principal payments, they do not evaluate the market value
risk of such obligations. Although these ratings may be an initial criterion
for selection of portfolio investments, The Dreyfus Corporation also will
evaluate these securities and the ability of the issuers of such securities
to pay interest and principal. The Fund's ability to achieve its investment
objective may be more dependent on The Dreyfus Corporation's credit analysis
than might be the case for a fund that invested in higher rated securities.
<TABLE>
The average distribution of investments of the Fund in corporate
bonds (excluding preferred stock, convertible preferred stock and convertible
bonds) by ratings for the year ended October 31, 1997, calculated monthly on
a dollar-weighted basis, was as follows:
MOODY'S OR S&P PERCENTAGE
_______ ______ __________-
<S> <C> <C>
Aaa AAA 34.6%
Aa AA 1.4%
A A 11.4%
Baa BBB 23.4%
Ba BB 13.2%
B B 11.5%
Caa CCC 2.4%
NR NR 5.7%*
---____-
103.6%**
========
</TABLE>
The actual distribution of the Fund's corporate bond investments by
ratings on any given date will vary, and the distribution of the Fund's
investments by ratings as set forth above should not be considered as
representative of the Fund's future portfolio composition.
* These unrated securities (5.7%) have been determined by The Dreyfus
Corporation to be of comparable quality to securities rated: A (.2%), BBB
(2.0%), BB (.8%), CCC (.5%), convertible bonds_BB (1.2%) and convertible
bonds_B (1.0%).
** The Fund also owns preferred stock convertible bonds_A (.1%), convertible
bonds_BBB (.4%), preferred stock_(.6%), preferred stock_CCC (1.7%)
convertible bonds_A (.1%), convertible bonds_BBB (.4%), and convertible
bonds_B (1.1%). Approximately (8.4%) of the Fund's assets were invested in
cash or cash equivalents.
[Page 26]
ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS
The Fund is intended to be a long-term investment vehicle and is not designed
to provide investors with a means of speculation on short-term market
movements. A pattern of frequent purchases and exchanges can be disruptive to
efficient portfolio management and, consequently, can be detrimental to the
Fund's performance and its shareholders. Accordingly, if the Fund's
management determines that an investor is engaged in excessive trading, the
Fund, with or without prior notice, may temporarily or permanently terminate
the availability of Fund exchanges, or reject in whole or part any purchase
or exchange request, with respect to such investor's account. Such investors
also may be barred from purchasing other funds in the Dreyfus Family of
Funds. Generally, an investor who makes more than four exchanges out of the
Fund during any calendar year or who makes exchanges that appear to coincide
with an active market-timing strategy may be deemed to be engaged in
excessive trading. Accounts under common ownership or control will be
considered as one account for purposes of determining a pattern of excessive
trading. In addition, the Fund may refuse or restrict purchase or exchange
requests by any person or group if, in the judgment of the Fund's management,
the Fund would be unable to invest the money effectively in accordance with
its investment objective and policies or could otherwise be adversely
affected or if the Fund receives or anticipates receiving simultaneous orders
that may significantly affect the Fund (e.g., amounts equal to 1% or more of
the Fund's total assets). If an exchange request is refused, the Fund will
take no other action with respect to the shares until it receives further
instructions from the investor. The Fund may delay forwarding redemption
proceeds for up to seven days if the investor redeeming shares is engaged in
excessive trading or if the amount of the redemption request otherwise would
be disruptive to efficient portfolio management or would adversely affect the
Fund. The Fund's policy on excessive trading applies to investors who invest
in the Fund directly or through financial intermediaries, but does not apply
to the Dreyfus Auto-Exchange Privilege, to any automatic investment or
withdrawal privilege described herein, or to participants in
employer-sponsored retirement plans.
During times of drastic economic or market conditions, the Fund may
suspend Fund Exchanges temporarily without notice and treat exchange requests
based on their separate components _ redemption orders with a simultaneous
request to purchase the other fund's shares. In such a case, the redemption
request would be processed at the Fund's next determined net asset value but
the purchase order would be effective only at the net asset value next
determined after the fund being purchased receives the proceeds of the
redemption, which may result in the purchase being delayed.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
[Page 27]
Strategic
Income
Fund
Prospectus
Registration Mark
Copy Rights1998 Dreyfus Service Corporation
031p0398
[Page 28]
DREYFUS INCOME FUNDS
DREYFUS EQUITY DIVIDEND FUND
DREYFUS HIGH YIELD SECURITIES FUND
DREYFUS REAL ESTATE MORTGAGE FUND
DREYFUS SHORT TERM HIGH YIELD FUND
DREYFUS STRATEGIC INCOME FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MARCH 1, 1998
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus Equity Dividend Fund, Dreyfus High Yield Securities Fund, Dreyfus
Real Estate Mortgage Fund, Dreyfus Short Term High Yield Fund and Dreyfus
Strategic Income Fund, each dated March 1, 1998, (each, a "Fund" and
collectively, the "Funds") of Dreyfus Income Funds (the "Company"), as each
may be revised from time to time. To obtain a copy of the relevant Fund's
Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. -- Call 516-794-5452
The Dreyfus Corporation (the "Manager") serves as each Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of each Fund's shares.
TABLE OF CONTENTS
Page
Investment Objectives and Management Policies ...........B-2
Management of the Company ...............................B-23
Management Agreement ....................................B-28
Purchase of Shares ......................................B-30
Shareholder Services Plan ...............................B-31
Redemption of Shares ....................................B-32
Shareholder Services ....................................B-34
Determination of Net Asset Value ........................B-37
Dividends, Distributions and Taxes ......................B-38
Portfolio Transactions ..................................B-41
Performance Information .................................B-42
Information About the Funds .............................B-44
Transfer and Dividend Disbursing Agent,
Custodian, Counsel and Independent Auditors ...........B-44
Financial Statements and Report of Independent Auditors..B-45
Appendix ................................................B-46
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the sections in each Fund's Prospectus entitled "Description of the
Fund" and "Appendix."
Portfolio Securities
American Depositary Receipts. (Dreyfus Equity Dividend Fund only) The
Fund may invest in American Depositary Receipts, through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by
the issuer of the underlying security and a depositary, whereas a depositary
may establish an unsponsored facility without participation by the issuer of
the deposited security. Holders of unsponsored depositary receipts
generally bear all the costs of such facilities and the depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts in
respect of the deposited securities.
Repurchase Agreements. (All Funds) The Fund's custodian or sub-
custodian will have custody of, and will hold in a segregated account,
securities acquired by a Fund under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities and Exchange
Commission to be loans by the Fund that enters into them. In an attempt to
reduce the risk of incurring a loss on a repurchase agreement, each Fund
will enter into repurchase agreements only with domestic banks with total
assets in excess of $1 billion, or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to
securities of the type in which the Fund may invest, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below the resale price.
Commercial Paper and Other Short-Term Corporate Obligations. (All
Funds) These instruments include variable amount master demand notes, which
are obligations that permit a Fund to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. Because these obligations are direct lending arrangements between
the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary
market for these obligations, although they are redeemable at face value,
plus accrued interest, at any time. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements,
the Fund's right to redeem is dependent on the ability of the borrower to
pay principal and interest on demand. Such obligations frequently are not
rated by credit rating agencies, and a Fund may invest in them only if at
the time of an investment the borrower meets the criteria set forth in the
Fund's Prospectus for other commercial paper issuers.
Convertible Securities. (All Funds) Convertible securities may be
converted at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have characteristics similar to both
fixed-income and equity securities. Convertible securities generally are
subordinated to other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. Because of
the subordination feature, however, convertible securities typically have
lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the
underlying common stock. A unique feature of convertible securities is that
as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the
value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less
risk than investments in common stock of the same issuer.
Convertible securities are investments that provide for a stable stream
of income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible
securities may default on their obligations. A convertible security, in
addition to providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the holder to
benefit from increases in the market price of the underlying common stock.
There can be no assurance of capital appreciation, however, because
securities prices fluctuate. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation.
Warrants. (Dreyfus High Yield Securities Fund, Dreyfus Short Term High
Yield Fund (collectively, "Dreyfus High Yield Funds"), and Dreyfus Strategic
Income Fund only). A warrant is an instrument issued by a corporation which
gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
The Fund may invest up to 5% of its net assets in warrants, except that this
limitation does not apply to warrants purchased by the Fund that are sold in
units with, or attached to, other securities.
Common Stock. (Dreyfus High Yield Funds, Dreyfus Real Estate Mortgage
Fund and Dreyfus Strategic Income Fund only). From time to time, the Fund
may hold common stock sold in units with, or attached to, debt securities
purchased by the Fund. The Fund also may hold common stock received upon
the conversion of convertible securities. Dreyfus Real Estate Mortgage Fund
also may invest in equity securities, such as common stocks and securities
convertible into common stocks, which are issued by companies that primarily
invest or deal in real estate.
Illiquid Securities. (All Funds) When purchasing securities that have
not been registered under the Securities Act of 1933, as amended, and are
not readily marketable, the Fund will endeavor, to the extent practicable,
to obtain the right to registration at the expense of the issuer.
Generally, there will be a lapse of time between the Fund's decision to sell
any such security and the registration of the security permitting sale.
During any such period, the price of the securities will be subject to
market fluctuations. However, where a substantial market of qualified
institutional buyers has developed for certain unregistered securities
purchased by the Fund pursuant to Rule 144A under the Securities Act of
1933, as amended, the Fund intends to treat such securities as liquid
securities in accordance with procedures approved by the Company's Board.
Because it is not possible to predict with assurance how the market for
specific restricted securities sold pursuant to Rule 144A will develop, the
Company's Board has directed the Manager to monitor carefully the Fund's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information.
To the extent that, for a period of time, qualified institutional buyers
cease purchasing restricted securities pursuant to Rule 144A, the Fund's
investing in such securities may have the effect of increasing the level of
illiquidity in its investment portfolio during such period.
Participation Interests. (Dreyfus High Yield Funds only) The Fund may
invest in short-term corporate obligations denominated in U.S. and foreign
currencies that are originated, negotiated and structured by a syndicate of
lenders ("Co-Lenders") consisting of commercial banks, thrift institutions,
insurance companies, financial companies or other financial institutions one
or more of which administers the security on behalf of the syndicate (the
"Agent Bank"). Co-Lenders may sell such securities to third parties called
"Participants." The Fund may invest in such securities either by
participating as a Co-Lender at origination or by acquiring an interest in
the security from a Co-Lender or a Participant (collectively, "participation
interests"). Co-Lenders and Participants interposed between the Fund and
the corporate borrower (the "Borrower"), together with Agent Banks, are
referred herein as "Intermediate Participants." The Fund also may purchase
a participation interest in a portion of the rights of an Intermediate
Participant, which would not establish any direct relationship between the
Fund and the Borrower. In such cases, the Fund would be required to rely on
the Intermediate Participant that sold the participation interest not only
for the enforcement of the Fund's rights against the Borrower but also for
the receipt and processing of payments due to the Fund under the security.
Because it may be necessary to assert through an Intermediate Participant
such rights as may exist against the Borrower, in the event the Borrower
fails to pay principal and interest when due, the Fund may be subject to
delays, expenses and risks that are greater than those that would be
involved if the Fund would enforce its rights directly against the Borrower.
Moreover, under the terms of a participation interest, the Fund may be
regarded as a creditor of the Intermediate Participant (rather than of the
Borrower), so that the Fund may also be subject to the risk that the
Intermediate Participant may become insolvent. Similar risks may arise with
respect to the Agent Bank if, for example, assets held by the Agent Bank for
the benefit of the Fund were determined by the appropriate regulatory
authority or court to be subject to the claims of the Agent Bank's
creditors. In such case, the Fund might incur certain costs and delays in
realizing payment in connection with the participation interest or suffer a
loss of principal and/or interest. Further, in the event of the bankruptcy
or insolvency of the Borrower, the obligation of the Borrower to repay the
loan may be subject to certain defenses that can be asserted by such
Borrower as a result of improper conduct by the Agent Bank or Intermediate
Participant.
Municipal Obligations. (Dreyfus High Yield Funds and Dreyfus Strategic
Income Fund only) Municipal obligations generally include debt obligations
issued to obtain funds for various public purposes as well as certain
industrial development bonds issued by or on behalf of public authorities.
Municipal obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenue derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from
the general taxing power. Industrial development bonds, in most cases, are
revenue bonds that generally do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the corporate entity
on whose behalf they are issued. Notes are short-term instruments which are
obligations of the issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other
revenues. Municipal obligations include municipal lease/purchase agreements
which are similar to installment purchase contracts for property or
equipment issued by municipalities.
Variable and Floating Rate Securities. (All Funds) Variable and
floating rate securities provide for a periodic adjustment in the interest
rate paid on the obligations. The terms of such obligations must provide
that interest rates are adjusted periodically based upon an interest rate
adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be
event based, such as based on a change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters").
The interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide the Fund with a
certain degree of protection against rises in interest rates, although the
Fund will participate in any declines in interest rates as well.
The Fund also may invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse
floater is indexed or inversely to a multiple of the applicable index. An
inverse floating rate security may exhibit greater price volatility than a
fixed rate obligation of similar credit quality.
Mortgage-Related Securities. (Dreyfus High Yield Funds, Dreyfus Real
Estate Mortgage Fund and Dreyfus Strategic Income Fund only) Mortgage-
related securities are a form of Derivative collateralized by pools of
commercial or residential mortgages. Pools of mortgage loans are assembled
as securities for sale to investors by various governmental, government-
related and private organizations. These securities may include complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities, mortgage pass-through securities, interests in
Real Estate Mortgage Investment Conduits ("REMICs") or other kinds of
mortgage-backed securities, including those with fixed, floating and
variable interest rates, those with interest rates that change based on
multiples of changes in a specified index of interest rates and those with
interest rates that change inversely to changes in interest rates.
Government-Agency Securities--Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage Pass-
Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee
is backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing
and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee.
Government-Related Securities--Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate
instrumentality of the United States created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank and do not
constitute a debt or obligation of the United States or of any Federal Home
Loan Bank. Freddie Macs entitle the holder to timely payment of interest,
which is guaranteed by FHLMC. FHLMC guarantees either ultimate collection
or timely payment of all principal payments on the underlying mortgage
loans. When FHLMC does not guarantee timely payment of principal, FHLMC may
remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
Private Entity Securities--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can
be no assurance that the private insurers or mortgage poolers can meet their
obligations under the policies, so that if the issuers default on their
obligations the holders of the security could sustain a loss. No insurance
or guarantee covers the Fund or the price of the Fund's shares. Mortgage-
related securities issued by non-governmental issuers generally offer a
higher rate of interest than government-agency and government-related
securities because there are no direct or indirect government guarantees of
payment.
Commercial Mortgage-Related Securities--Commercial mortgage-related
securities generally are multi-class debt or pass-through certificates
secured by mortgage loans on commercial properties. These mortgage-related
securities generally are structured to provide protection to the senior
classes investors against potential losses on the underlying mortgage loans.
This protection generally is provided by having the holders of subordinated
classes of securities ("Subordinated Securities") take the first loss if
there are defaults on the underlying commercial mortgage loans. Other
protection, which may benefit all of the classes or particular classes, may
include issuer guarantees, reserve funds, additional Subordinated
Securities, cross-collateralization and over-collateralization.
The Fund may invest in Subordinated Securities issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers.
Subordinated Securities have no governmental guarantee, and are subordinated
in some manner as to the payment of principal and/or interest to the holders
of more senior mortgage-related securities arising out of the same pool of
mortgages. The holders of Subordinated Securities typically are compensated
with a higher stated yield than are the holders of more senior mortgage-
related securities. On the other hand, Subordinated Securities typically
subject the holder to greater risk than senior mortgage-related securities
and tend to be rated in a lower rating category, and frequently a
substantially lower rating category, than the senior mortgage-related
securities issued in respect of the same pool of mortgage. Subordinated
Securities generally are likely to be more sensitive to changes in
prepayment and interest rates and the market for such securities may be less
liquid than is the case for traditional fixed-income securities and senior
mortgage-related securities.
The market for commercial mortgage-related securities developed more
recently and in terms of total outstanding principal amount of issues is
relatively small compared to the market for residential single-family
mortgage-related securities. In addition, commercial lending generally is
viewed as exposing the lender to a greater risk of loss than one- to four-
family residential lending. Commercial lending, for example, typically
involves larger loans to single borrowers or groups of related borrowers
than residential one- to four-family mortgage loans. In addition, the
repayment of loans secured by income producing properties typically is
dependent upon the successful operation of the related real estate project
and the cash flow generated therefrom. Consequently, adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact on mortgage-related securities secured by loans on commercial
properties than on those secured by loans on residential properties.
Collateralized Mortgage Obligations ("CMOs")--A CMO is a multiclass bond
backed by a pool of mortgage pass-through certificates or mortgage loans.
CMOs may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac
pass-through certificates, (b) unsecuritized mortgage loans insured by the
Federal Housing Administration or guaranteed by the Department of Veterans'
Affairs, (c) unsecuritized conventional mortgages, (d) other mortgage-
related securities, or (e) any combination thereof. Each class of CMOs,
often referred to as a "tranche," is issued at a specific coupon rate and
has a stated maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. The principal and
interest on the underlying mortgages may be allocated among the several
classes of a series of a CMO in many ways. One or more tranches of a CMO
may have coupon rates which reset periodically at a specified increment over
an index, such as the London Interbank Offered Rate ("LIBOR") (or sometimes
more than one index). These floating rate CMOs typically are issued with
lifetime caps on the coupon rate thereon. The Fund also may invest in
inverse floating rate CMOs. Inverse floating rate CMOs constitute a tranche
of a CMO with a coupon rate that moves in the reverse direction to an
applicable index such a LIBOR. Accordingly, the coupon rate thereon will
increase as interest rates decrease. Inverse floating rate CMOs are
typically more volatile than fixed or floating rate tranches of CMOs.
Many inverse floating rate CMOs have coupons that move inversely to a
multiple of the applicable indexes. The effect of the coupon varying
inversely to a multiple of an applicable index creates a leverage factor.
Inverse floaters based on multiples of a stated index are designed to be
highly sensitive to changes in interest rates and can subject the holders
thereof to extreme reductions of yield and loss of principal. The markets
for inverse floating rate CMOs with highly leveraged characteristics at
times may be very thin. The Fund's ability to dispose of its positions in
such securities will depend on the degree of liquidity in the markets for
such securities. It is impossible to predict the amount of trading interest
that may exist in such securities, and therefore the future degree of
liquidity.
Stripped Mortgage-Backed Securities--The Fund also may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities are created
by segregating the cash flows from underlying mortgage loans or mortgage
securities to create two or more new securities, each with a specified
percentage of the underlying security's principal or interest payments.
Mortgage securities may be partially stripped so that each investor class
receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type
of security, known as an interest-only security, or IO, and all of the
principal is distributed to holders of another type of security known as a
principal-only security, or PO. Strips can be created in a pass-through
structure or as tranches of a CMO. The yields to maturity on IOs and POs
are very sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the
Fund may not fully recoup its initial investment in IOs. Conversely, if the
underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially and adversely affected.
Real Estate Investment Trusts--A REIT is a corporation, or a business trust
that would otherwise be taxed as a corporation, which meets the definitional
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Code permits a qualifying REIT to deduct dividends paid, thereby
effectively eliminating corporate level Federal income tax and making the
REIT a pass-through vehicle for Federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things,
invest substantially all of its assets in interests in real estate
(including mortgages and other REITs) or cash and government securities,
derive most of its income from rents from real property or interest on loans
secured by mortgages on real property, and distribute to shareholders
annually a substantial portion of its otherwise taxable income.
REITs are characterized as equity REITs, mortgage REITs and hybrid
REITs. Equity REITs, which may include operating or finance companies, own
real estate directly and the value of, and income earned by, the REITs
depends upon the income of the underlying properties and the rental income
they earn. Equity REITs also can realize capital gains (or losses) by
selling properties that have appreciated (or depreciated) in value.
Mortgage REITs can make construction, development or long-term mortgage
loans and are sensitive to the credit quality of the borrower. Mortgage
REITs derive their income from interest payments on such loans. Hybrid
REITs combine the characteristics of both equity and mortgage REITs,
generally by holding both ownership interests and mortgage interests in real
estate. The value of securities issued by REITs are affected by tax and
regulatory requirements and by perceptions of management skill. They also
are subject to heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation and the possibility of failing to qualify for tax-free
status under the Code or to maintain exemption from the Investment Company
Act of 1940, as amended (the "1940 Act").
Adjustable-Rate Mortgage Loans ("ARMs")--ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest
rate for a specified period of time, generally for either the first three,
six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments.
Thereafter, the interest rates are subject to periodic adjustment based on
changes in an index. ARMs typically have minimum and maximum rates beyond
which the mortgage interest rate may not vary over the lifetime of the
loans. Certain ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single
adjustment period. Negatively amortizing ARMs may provide limitations on
changes in the required monthly payment. Limitations on monthly payments
can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
Other Mortgage-Related Securities--Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including CMO residuals. Other mortgage-related
securities may be equity or debt securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
Foreign Government Obligations; Securities of Supranational Entities.
(Dreyfus High Yield Funds, Dreyfus Real Estate Mortgage Fund and Dreyfus
Strategic Income Fund only) The Fund may invest in obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by the
Manager to be of comparable quality to the other obligations in which the
Fund may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
Zero Coupon Securities. (Dreyfus High Yield Funds, Dreyfus Real Estate
Mortgage Fund and Dreyfus Strategic Income Fund only) The Fund may invest
in zero coupon U.S. Treasury securities, which are Treasury Notes and Bonds
that have been stripped of their unmatured interest coupons, the coupons
themselves and receipts or certificates representing interests in such
stripped debt obligations and coupons. Zero coupon securities also are
issued by corporations and financial institutions which constitute a
proportionate ownership of the issuer's pool of underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during
its life and is sold at a discount to its face value at maturity. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero
coupon securities having similar maturities and credit qualities.
Management Policies
Duration. (Dreyfus High Yield Funds, Dreyfus Real Estate Mortgage Fund
and Dreyfus Strategic Income Fund only). As a measure of a fixed-income
security's cash flow, duration is an alternative to the concept of "term to
maturity" in assessing the price volatility associated with changes in
interest rates. Generally, the longer the duration, the more volatility an
investor should expect. For example, the market price of a bond with a
duration of three years would be expected to decline 3% if interest rates
rose 1%. Conversely, the market price of the same bond would be expected to
increase 3% if interest rates fell 1%. The market price of a bond with a
duration of six years would be expected to increase or decline twice as much
as the market price of a bond with a three-year duration. Duration is a way
of measuring a security's maturity in terms of the average time required to
receive the present value of all interest and principal payments as opposed
to its term to maturity. The maturity of a security measures only the time
until final payment is due; it does not take account of the pattern of a
security's cash flows over time, which would include how cash flow is
affected by prepayments and by changes in interest rates. Incorporating a
security's yield, coupon interest payments, final maturity and option
features into one measure, duration is computed by determining the weighted
average maturity of a bond's cash flows, where the present values of the
cash flows serve as weights. In computing the duration of the Fund, the
Manager will estimate the duration of obligations that are subject to
features such as prepayment or redemption by the issuer, put options
retained by the investor or other imbedded options, taking into account the
influence of interest rates on prepayments and coupon flows.
Portfolio Maturity. (Dreyfus Short Term High Yield Fund only) Under
normal market conditions, the average effective portfolio maturity of the
Fund is expected to be three years to less. For purposes of calculating
average effective portfolio maturity, a security that is subject to
redemption at the option of the issuer on a particular date (the "call
date") which is prior to the security's stated maturity may be deemed to
mature on the call date rather than on its stated maturity date. The call
date of a security will be used to calculate average effective portfolio
maturity when the Manager reasonably anticipates, based upon information
available to it, that the issuer will exercise its right to redeem the
security. The Manager may base its conclusion on such factors as the
interest rate paid on the security compared to prevailing market rates, the
amount of cash available to the issuer of the security, events affecting the
issuer of the security, and other factors that may compel or make it
advantageous for the issuer to redeem a security prior to its stated
maturity.
Leverage. (Dreyfus High Yield Funds, Dreyfus Real Estate Mortgage Fund
and Dreyfus Strategic Income Fund only) For borrowings for investment
purposes, the 1940 Act requires the Fund to maintain continuous asset
coverage (that is, total assets including borrowings, less liabilities
exclusive of borrowings) of 300% of the amount borrowed. If the required
coverage should decline as a result of market fluctuations or other reasons,
the Fund may be required to sell some of its portfolio securities within
three days to reduce the amount of its borrowings and restore the 300% asset
coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. The Fund also may be required
to maintain minimum average balances in connection with such borrowing or
pay a commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest
rate. To the extent the Fund enters into a reverse repurchase agreement,
the Fund will maintain in a segregated account permissible liquid assets at
least equal to the aggregate amount of its reverse repurchase obligations,
plus accrued interest, in certain cases, in accordance with releases
promulgated by the Securities and Exchange Commission. The Securities and
Exchange Commission views reverse repurchase transactions as collateralized
borrowings by the Fund.
Short-Selling. (All Funds) In these transactions, a Fund sells a
security it does not own in anticipation of a decline in the market value of
the security. To complete the transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund is obligated to replace
the security borrowed by purchasing it subsequently at the market price at
the time of replacement. The price at such time may be more or less than
the price at which the security was sold by the Fund, which would result in
a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed
25% of the value of a Fund's net assets. In the case of Dreyfus Equity
Dividend Fund, Dreyfus High Yield Funds and Dreyfus Strategic Income Fund,
the Fund may not make a short sale which results in the Fund having sold
short in the aggregate more than 5% of the outstanding securities of any
class of an issuer.
The Fund also may make short sales "against the box," in which the Fund
enters into a short sale of a security it owns.
Until the Fund closes its short position or replaces the borrowed
security, it will: (a) maintain a segregated account, containing
permissible liquid assets, at such a level that the amount deposited in the
account plus the amount deposited with the broker as collateral always
equals the current value of the security sold short; or (b) otherwise cover
its short position.
Lending Portfolio Securities. (Dreyfus High Yield Funds, Dreyfus Real
Estate Mortgage Fund and Dreyfus Strategic Income Fund only) The Fund may
lend securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
The Fund continues to be entitled to payments in amounts equal to the
interest, dividends or other distributions payable on the loaned securities,
which affords the Fund an opportunity to earn interest on the amount of the
loan and on the loaned securities' collateral. Loans of portfolio
securities may not exceed 33-1/3% of the value of the Fund's total assets,
and the Fund will receive collateral consisting of cash, U.S. Government
securities or irrevocable letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Such loans are terminable by the Fund at any time upon
specified notice. The Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund. In connection with its securities lending
transactions, the Fund may return to the borrower or a third party which is
unaffiliated with the Fund, and which is acting as a "placing broker," a
part of the interest earned from the investment of collateral received for
securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must
be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; (5) the Fund may pay only reasonable custodian fees in connection
with the loan; and (6) while voting rights on the loaned securities may pass
to the borrower, the Company's Board must terminate the loan and regain the
right to vote the securities if a material event adversely affecting the
investment occurs.
Derivatives. (All Funds) A Fund may invest in, or enter into,
Derivatives (as defined in the relevant Fund's Prospectus) for a variety of
reasons, including to hedge certain market risks, to provide a substitute
for purchasing or selling particular securities or to increase potential
income gain. Derivatives may provide a cheaper, quicker or more
specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and
the portfolio as a whole. Derivatives permit a Fund to increase or decrease
the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than their
cost would suggest, meaning that a small investment in Derivatives could
have a large potential impact on a Fund's performance.
If a Fund invests in Derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or
result in a loss. A Fund also could experience losses if its Derivatives
were poorly correlated with its other investments, or if the Fund were
unable to liquidate its position because of an illiquid secondary market.
The market for many Derivatives is, or suddenly can become, illiquid.
Changes in liquidity may result in significant, rapid and unpredictable
changes in the prices for Derivatives.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such Derivatives.
This guarantee usually is supported by a daily payment system (i.e.,
variation margin requirements) operated by the clearing agency in order to
reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated
with Derivatives purchased on an exchange. By contrast, no clearing agency
guarantees over-the-counter Derivatives. Therefore, each party to an over-
the-counter Derivative bears the risk that the counterparty will default.
Accordingly, the Manager will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it
would review the credit quality of a security to be purchased by the Fund.
Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only
investor with sufficient understanding of the Derivative to be interested in
bidding for it.
Futures Transactions--In General. (All Funds) A Fund may enter into
futures contracts in U.S. domestic markets, such as the Chicago Board of
Trade and the International Monetary Market of the Chicago Mercantile
Exchange, or, if permitted in its Prospectus, on exchanges located outside
the United States, such as the London International Financial Futures
Exchange and the Sydney Futures Exchange Limited. Foreign markets may offer
advantages such as trading opportunities or arbitrage possibilities not
available in the United States. Foreign markets, however, may have greater
risk potential than domestic markets. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and an
investor may look only to the broker for performance of the contract. In
addition, any profits that a Fund might realize in trading could be
eliminated by adverse changes in the exchange rate, or the Fund could incur
losses as a result of those changes. Transactions on foreign exchanges may
include both commodities which are traded on domestic exchanges and those
which are not. Unlike trading on domestic commodity exchanges, trading on
foreign commodity exchanges is not regulated by the Commodity Futures
Trading Commission.
Engaging in these transactions involves risk of loss to a Fund which
could adversely affect the value of the Fund's net assets. Although each
Fund intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by a Fund also is subject to the ability of
the Manager to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example,
if a Fund uses futures to hedge against the possibility of a decline in the
market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit
of the increased value of securities which it has hedged because it will
have offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. A Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, a Fund may be required to segregate permissible
liquid assets in connection with its commodities transactions in an amount
generally equal to the value of the underlying commodity. The segregation
of such assets will have the effect of limiting a Fund's ability otherwise
to invest those assets.
Specific Futures Transactions. A Fund may purchase and sell interest rate
futures contracts. An interest rate future obligates the Fund to purchase
or sell an amount of a specific debt security at a future date at a specific
price.
A Fund (other than Dreyfus Real Estate Mortgage Fund) may purchase and
sell currency futures. A foreign currency future obligates the Fund to
purchase or sell an amount of a specific currency at a future date at a
specific price.
Dreyfus Equity Dividend Fund may purchase and sell stock index futures
contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures
contract multiplied by the difference between the settlement price of the
contract on the contract's last trading day and the value of the index based
on the stock prices of the securities that comprise it at the opening of
trading in such securities on the next business day.
Interest Rate Swaps. (Dreyfus High Yield Funds and Dreyfus Real Estate
Mortgage Fund only) Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating rate payments for fixed-rate
payments). The exchange commitments can involve payments to be made in the
same currency or in different currencies. The use of interest rate swaps is
a highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio security
transactions. If the Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment
performance of the Fund would diminish compared with what it would have been
if these investment techniques were not used. Moreover, even if the Manager
is correct in its forecasts, there is a risk that the swap position may
correlate imperfectly with the price of the asset or liability being hedged.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Fund. These transactions do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the
risk of loss with respect to interest rate swaps is limited to the net
amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the Fund's risk
of loss consists of the net amount of interest payments that the Fund
contractually is entitled to receive.
Credit Derivatives. (Dreyfus High Yield Funds only) The Fund may engage in
credit derivative transactions. There are two broad categories of credit
derivatives: default price risk derivatives and market spread derivatives.
Default price risk derivatives are linked to the price of reference
securities or loans after a default by the issuer or borrower, respectively.
Market spread derivatives are based on the risk that changes in market
factors, such as credit spreads, can cause a decline in the value of a
security, loan or index. There are three basic transactional forms for
credit derivatives: swaps, options and structured instruments. The use of
credit derivatives is a highly specialized activity which involves
strategies and risks different from those associated with ordinary portfolio
security transactions. If the Manager is incorrect in its forecasts of
default risks, market spreads or other applicable factors, the investment
performance of the Fund would diminish compared with what it would have been
if these techniques were not used. Moreover, even if the Manager is correct
in its forecasts, there is a risk that a credit derivative position may
correlate imperfectly with the price of the asset or liability being hedged.
There is no limit on the amount of credit derivative transactions that may
be entered into by the Fund. The Fund's risk of loss in a credit derivative
transaction varies with the form of the transaction. For example, if the
Fund purchases a default option on a security, and if no default occurs with
respect to the security, the Fund's loss is limited to the premium it paid
for the default option. In contrast, if there is a default by the grantor
of a default option, the Fund's loss will include both the premium that it
paid for the option and the decline in value of the underlying security that
the default option hedged.
Options--In General. (All Funds) A Fund may purchase and write (i.e.,
sell) call or put options with respect to specific securities. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security or securities at the exercise price
at any time during the option period, or at a specific date. Conversely, a
put option gives the purchaser of the option the right to sell, and
obligates the writer to buy, the underlying security or securities at the
exercise price at any time during the option period, or at a specific date.
A covered call option written by a Fund is a call option with respect
to which a Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other securities. A put option written
by a Fund is covered when, among other things, cash or liquid securities
having a value equal to or greater than the exercise price of the option are
placed in a segregated account with the Fund's custodian to fulfill the
obligation undertaken. The principal reason for writing covered call and
put options is to realize, through the receipt of premiums, a greater return
than would be realized on the underlying securities alone. A Fund receives
a premium from writing covered call or put options which it retains whether
or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen events,
at times have rendered certain of the clearing facilities inadequate and
resulted in the institution of special procedures, such as trading
rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible
to effect closing transactions in particular options. If, as a covered call
option writer, the Fund is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. A Fund may purchase and sell call and put
options on foreign currency. These options convey the right to buy or sell
the underlying currency at a price which is expected to be lower or higher
than the spot price of the currency at the time the option is exercised or
expires.
Dreyfus Equity Dividend Fund may purchase and sell call and put options
in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or
traded in the over-the-counter market. An option on a stock index is
similar to an option in respect of specific securities, except that
settlement does not occur by delivery of the securities comprising the
index. Instead, the option holder receives an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price
of the option. Thus, the effectiveness of purchasing or writing stock index
options will depend upon price movements in the level of the index rather
than the price of a particular stock.
Dreyfus Equity Dividend Fund, Dreyfus High Yield Funds and Dreyfus Real
Estate Mortgage Fund also may purchase cash-settled options on swaps in
pursuit of their respective investment objective. Equity index swaps in
which Dreyfus Equity Dividend Fund may invest involve the exchange by the
Fund with another party of cash flows based upon the performance of an index
or a portion of an index of securities which usually includes dividends. A
cash-settled option on a swap gives the purchaser the right, but not the
obligation, in return for the premium paid, to receive an amount of cash
equal to the value of the underlying swap as of the exercise date. These
options typically are purchased in privately negotiated transactions from
financial institutions, including securities brokerage firms.
Successful use by a Fund of options will be subject to the ability of
the Manager to predict correctly movements in the prices of individual
stocks, the stock market generally, foreign currencies, or interest rates.
To the extent such predictions are incorrect, a Fund may incur losses.
Future Developments. (All Funds) A Fund may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other Derivatives which are not presently
contemplated for use by the Fund or which are not currently available but
which may be developed, to the extent such opportunities are both consistent
with the Fund's investment objective and legally permissible for the Fund.
Before entering into such transactions or making any such investment, the
Fund will provide appropriate disclosure in its Prospectus or Statement of
Additional Information.
Forward Commitments. (All Funds) A Fund may purchase securities on a
forward commitment or when-issued basis, which means that delivery and
payment take place a number of days after the date of the commitment to
purchase. The payment obligation and the interest rate receivable on a
forward commitment or when-issued security are fixed when the Fund enters
into the commitment, but a Fund does not make payment until it receives
delivery from the counterparty. A Fund will commit to purchase such
securities only with the intention of actually acquiring the securities, but
the Fund may sell these securities before the settlement date if it is
deemed advisable. The Fund will set aside in a segregated account of the
Fund permissible liquid assets at least equal at all times to the amount of
the commitments.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest
rates rise) based upon the public's perception of the creditworthiness of
the issuer and changes, real or anticipated, in the level of interest rates.
Securities purchased on a forward commitment or when-issued basis may expose
a Fund to risks because they may experience such fluctuations prior to their
actual delivery. Purchasing securities on a when-issued basis can involve
the additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction
itself. Purchasing securities on a forward commitment or when-issued basis
when a Fund is fully or almost fully invested may result in greater
potential fluctuation in the value of the Fund's net assets and its net
asset value per share.
Investment Considerations and Risks
Lower Rated Securities. (Dreyfus High Yield Funds, Dreyfus Real Estate
Mortgage Fund and Dreyfus Strategic Income Fund only) Each of these Funds
is permitted to invest in securities rated Ba or lower by Moody's Investors
Service, Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings Group
("S&P"), Fitch IBCA, Inc. ("Fitch") and Duff & Phelps Credit Rating Co.
("Duff" and with Moody's, S&P and Fitch, the "Rating Agencies"). Dreyfus
Strategic Income Fund is permitted to invest in securities rated as low as
Caa by Moody's or CCC by S&P. Dreyfus High Yield Funds and Dreyfus Real
Estate Mortgage Fund each are permitted to invest in securities as low as
the lowest rating assigned by the Rating Agencies. Such securities, though
higher yielding, are characterized by risk. See "Description of the Fund--
Investment Considerations and Risks" in the Fund's Prospectus for a
discussion of certain risks and the "Appendix" for a general description of
the Rating Agencies' ratings. Although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of these securities. The Fund will rely on the Manager's
judgment, analysis and experience in evaluating the creditworthiness of an
issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities. These securities generally are considered by the Rating
Agencies to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation
and generally will involve more credit risk than securities in the higher
rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with the higher rated
securities. For example, during an economic downturn or a sustained period
of rising interest rates, highly leveraged issuers of these securities may
not have sufficient revenues to meet their interest payment obligations.
The issuer's ability to service its debt obligations also may be affected
adversely by specific corporate developments, forecasts, or the
unavailability of additional financing. The risk of loss because of default
by the issuer is significantly greater for the holders of these securities
because such securities generally are unsecured and often are subordinated
to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher rated
securities. The lack of a liquid secondary market may have an adverse
impact on market price and yield and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio and
calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play
a greater role in valuation because less reliable, objective data may be
available.
These securities may be particularly susceptible to economic downturns.
It is likely that an economic recession could disrupt severely the market
for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
A Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. No Fund
has an arrangement with any person concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
Investment Restrictions
Dreyfus Equity Dividend Fund and Dreyfus High Yield Funds only. Each
of these Funds has adopted investment restrictions numbered 1 through 10 as
fundamental policies, which cannot be changed, as to a Fund, without
approval by the holders of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting shares. Investment restrictions numbered 11
through 16 are not fundamental policies and may be changed by vote of a
majority of the Company's Board members at any time. None of these Funds
may:
1. Invest more than 5% of its assets in the obligations of any
single issuer, except that up to 25% of the value of the Fund's total assets
may be invested, and securities issued or guaranteed by the U.S. Government,
or its agencies or instrumentalities may be purchased, without regard to any
such limitation.
2. Hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to 75%
of the Fund's total assets.
3. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
4. Invest in commodities, except that the Fund may purchase and sell
options, forward contracts, futures contracts, including those related to
indices, and options on futures contracts or indices.
5. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Fund may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate or real estate investment
trusts.
6. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Fund's total assets). For purposes of this Investment Restriction, the
entry into options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices shall not
constitute borrowing.
7. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Fund may
lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Company's Board.
8. Act as an underwriter of securities of other issuers, except to
the extent the Fund may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
9. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 4, 6, 13 and 14 may be deemed to give rise to a
senior security.
10. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, and options on futures contracts.
11. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessor) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
12. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
13. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts, and options on
futures contracts.
14. Purchase, sell or write puts, calls or combinations thereof,
except as described in the relevant Fund's Prospectus and Statement of
Additional Information.
15. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.
16. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
* * *
Dreyfus Strategic Income Fund only. The Fund has adopted investment
restrictions numbered 1 through 14 as fundamental policies, which cannot be
changed without approval by the holders of a majority (as defined in the
1940 Act) of the Fund's outstanding voting shares. Investment restriction
number 15 is not a fundamental policy and may be changed by vote of a
majority of the Company's Board members at any time. The Fund may not:
1. Purchase the securities of any issuer (other than a bank) if such
purchase would cause more than 5% of the value of its total assets to be
invested in securities of such issuer, or invest more than 15% of its assets
in the obligations of any one bank, except that up to 25% of the value of
the Fund's total assets may be invested, and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities may be
purchased, without regard to such limitations. Notwithstanding the
foregoing, based on rules of the Securities and Exchange Commission, the
Fund will not invest more than 5% of its assets in the obligations of any
one bank, except as otherwise provided in such rules.
2. Purchase the securities of any issuer if such purchase would cause
the Fund to hold more than 10% of the outstanding voting securities of such
issuer. This restriction applies only with respect to 75% of the Fund's
assets.
3. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Fund's investments in all such
companies to exceed 5% of the value of its total assets.
4. Purchase securities of closed-end investment companies except (a)
in the open market where no commission except the ordinary broker's
commission is paid, which purchases are limited to a maximum of (i) 3% of
the total voting stock of any one closed-end investment company, (ii) 5% of
its net assets with respect to any one closed-end investment company and
(iii) 10% of its net assets in the aggregate, or (b) those received as part
of a merger or consolidation. The Fund may not purchase the securities of
open-end investment companies other than itself.
5. Purchase or retain the securities of any issuer if the officers,
Trustees or Directors of the Fund or the Manager individually own
beneficially more than 1/2 of 1% of the securities of such issuer or
together own beneficially more than 5% of the securities of such issuer.
6. Purchase, hold or deal in real estate, or oil and gas interests,
but the Fund may purchase and sell securities that are secured by real
estate and may purchase and sell securities issued by companies that invest
or deal in real estate.
7. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to indices, and options on
futures contracts or indices.
8. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Fund's total assets). For purposes of this investment restriction, the
entry into options, futures contracts, including those relating to indices,
and options on futures contracts or indices shall not constitute borrowing.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with writing covered put and call
options and the purchase of securities on a when-issued or delayed-delivery
basis and collateral and initial or variation margin arrangements with
respect to options, futures contracts, including those relating to indices
and options on futures contracts or indices.
10. Make loans to others except through the purchase of debt
obligations or the entry into repurchase agreements. However, the Fund may
lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Fund's Board members.
11. Act as an underwriter of securities of other issuers except to the
extent the Fund may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
12. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
13. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Fund's Prospectus and this Statement of
Additional Information.
14. Invest more than 25% of its assets in investments in any
particular industry or industries (including banking), provided that, when
the Fund has adopted a temporary defensive posture, there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
15. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.
While not fundamental policies, Dreyfus Strategic Income Fund has
undertaken, so as to permit the sale of Fund shares in certain states, not
to invest in oil, gas and other mineral leases or in real estate limited
partnerships, and to treat securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange and for which a bona
fide market does not exist at the time of purchase or subsequent valuation
as not readily marketable.
* * *
Dreyfus Real Estate Mortgage Fund only. The Fund has adopted investment
restrictions numbered 1 through 8 as fundamental policies, which cannot be
changed without approval by the holders of a majority (as defined in the
1940 Act) of the Fund's outstanding voting shares. Investment restrictions
numbered 9 through 11 are not fundamental policies and may be changed by
vote of a majority of the Company's Board members at any time. The Fund may
not:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. For purposes of this
Investment Restriction, securities and instruments backed directly or
indirectly by real estate and real estate mortgages and securities of
companies engaged in the real estate business, including interests in real
estate investment trusts, are not considered an industry.
2. Invest in commodities, except that the Fund may purchase and sell
options, forward contracts, futures contracts, including those related to
indices, and options on futures contracts or indices.
3. Purchase, hold or deal in real estate, but the Fund may purchase
and sell securities that are secured by real estate or issued by companies
that invest or deal in real estate or real estate investment trusts or
acquire and sell real estate as a result of ownership of such securities or
instruments.
4. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Fund's total assets). For purposes of this Investment Restriction, the
entry into options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices shall not
constitute borrowing.
5. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Fund may
lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Company's Board.
6. Act as an underwriter of securities of other issuers, except to
the extent the Fund may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
7. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 2, 4, 8 and 9 may be deemed to give rise to a
senior security.
8. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indices, and options on
futures contracts or indices.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts, including those
related to indices, and options on futures contracts or indices.
10. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.
11. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
* * *
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of
such restriction.
The Company may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Company determine that a commitment is no longer in the best
interest of the Fund and its shareholders, the Company reserves the right to
revoke the commitment by terminating the sale of such Fund's shares in the
state involved.
MANAGEMENT OF THE COMPANY
Board members and officers of the Company, together with information as
to their principal business occupations during at least the last five years,
are shown below.
Board Members of the Company
JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman of
the Board of various funds in the Dreyfus Family of Funds. He is also
a director of Staffing Resources, Inc., a temporary placement agency,
The Muscular Dystrophy Association, HealthPlan Services Corporation, a
provider of marketing, administrative and risk management services to
health and other benefit programs, The Noel Group, Inc., a venture
capital company, Carlyle Industries, Inc. (formerly, Belding Heminway
Company, Inc.), a button packager and distributor, and Century Business
Services, Inc., (formerly, International Alliance Services, Inc.), a
provider of various outsourcing functions for small to medium size
businesses. For more than five years prior to January 1995, he was
President, a director and, until August 1994, Chief Operating Officer
of the Manager and Executive Vice President and a director of Dreyfus
Service Corporation, a wholly-owned subsidiary of the Manager and,
until August 24, 1994, the Company's distributor. From August 1994
until December 31, 1994, he was a director of Mellon Bank Corporation.
He is 54 years old and his address is 200 Park Avenue, New York, New
York 10166.
DAVID W. BURKE, Board Member. Chairman of the Broadcasting Board of
Governors, an independent board within the United States Information
Agency, since August 1995. From August 1994 to December 31, 1994, Mr.
Burke was a Consultant to the Manager, and from October 1990 to August
1994, he was Vice President and Chief Administrative Officer of the
Manager. From 1977 to 1990, Mr. Burke was involved in the management
of national television news, as Vice President and Executive Vice
President of ABC News, and subsequently as President of CBS News. He
is 61 years old and his address is Box 654, Eastham, Massachusetts
02642.
ROSALIND GERSTEN JACOBS, Board Member. Director of Merchandise and
Marketing for Corporate Property Investors, a real estate investment
company. From 1974 to 1976, she was owner and manager of a merchandise
and marketing consulting firm. Prior to 1974, she was a Vice President
of Macy's, New York. She is 72 years old and her address is c/o
Corporate Property Investors, 305 East 47th Street, New York, New York
10017.
DIANE DUNST, Board Member. Since January 1992, President of Diane Dunst
Promotion, Inc., a full service promotion agency. From January 1989 to
January 1992, Director of Promotion Services, Lear's Magazine. From
1985 to January 1989, she was Sales Promotion Manager of Elle Magazine.
Ms. Dunst is 58 years old and her address is 1172 Park Avenue,
New York, New York 10128.
JAY I. MELTZER, Board Member. Physician engaged in private practice
specializing in internal medicine. He is also a member of the Advisory
Board of the Section of Society and Medicine, College of Physicians and
Surgeons, Columbia University and a Clinical Professor of Medicine,
Department of Medicine, Columbia University College of Physicians and
Surgeons. He is 69 years old and his address is 903 Park Avenue, New
York, New York 10021.
DANIEL ROSE, Board Member. President and Chief Executive Officer of Rose
Associates, Inc., a New York based real estate development and
management firm. In July 1994, Mr. Rose received a Presidential
appointment to serve as a Director of the Baltic-American Enterprise
Fund, which will make equity investments and loans and provide
technical business assistance to new business concerns in the Baltic
states. He is also Chairman of the Housing Committee of the Real
Estate Board of New York, Inc., and a Board Member of Corporate
Property Investors, a real estate investment company. He is 68 years
old and his address is c/o Rose Associates, Inc., 200 Madison Avenue,
New York, New York 10016.
WARREN B. RUDMAN, Board Member. Since January 1993, Partner in the law firm
Paul, Weiss, Rifkind, Wharton & Garrison. He is also a director of
Collins & Aikman Corporation, Chubb Corporation and the Raytheon
Company, and a trustee of Boston College. He also has served, since
January 1994, as Vice Chairman of the President's Foreign Intelligence
Advisory Board and, since 1986, as a member of the Senior Advisory
Board of the Institute of Politics of the Kennedy School of Government
at Harvard University. From January 1981 to January 1993, Mr. Rudman
served as a United States Senator from the State of New Hampshire.
From January 1993 to December 1994, Mr. Rudman served as Chairman of
the Federal Reserve Bank of Boston. He is 67 years old and his address
is c/o Paul, Weiss, Rifkind, Wharton & Garrison, 1615 L Street, N.W.,
Suite 1300, Washington, D.C. 20036.
SANDER VANOCUR, Board Member. Since January 1992, Mr. Vanocur has been the
President of Old Owl Communications, a full-service communications
firm. From May 1995 to June 1996, he was a Professional in Residence
at the Freedom Forum in Arlington, VA, and, from January 1994 to May
1997, served as Visiting Professional Scholar at the Freedom Forum
First Amendment Center at Vanderbilt University. From November 1989 to
November 1995, he was a Director of the Damon Runyon-Walter Winchell
Cancer Research Fund. From June 1986 to December 1991, he was a Senior
Correspondent of ABC News and, from October 1977 to December 1991, he
was Anchor of the ABC News program "Business World," a weekly business
program on the ABC television network. Mr. Vanocur joined ABC News in
1977. He is 70 years old and his address is 2928 P Street, N.W.,
Washington, D.C. 20007.
Ordinarily, meetings of shareholders for the purpose of electing Board
members will not be held unless and until such time as less than a majority
of the Board members holding office have been elected by shareholders, at
which time the Board members then in office will call a shareholders'
meeting for the election of Board members. Under the 1940 Act, shareholders
of record of not less than two-thirds of the outstanding shares of the Fund
may remove a Board member through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. The Board will
call a meeting of shareholders for the purpose of voting upon the question
of removal of any Board member when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
For so long as the Company's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Board members who are not
"interested persons" of the Company, as defined in the 1940 Act, will be
selected and nominated by the Board members who are not "interested persons"
of the Company.
The Company typically pays its Board members an annual retainer and a
per meeting fee and reimburses them for their expenses. The Chairman of the
Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Company for the fiscal year
ended October 31, 1997, and by all other funds in the Dreyfus Family of
Funds for which such person is a Board member (the number of which is set
forth in parenthesis next to each Board member's total compensation) for the
year ended December 31, 1997, were as follows:
Total Compensation
From Company and
Aggregate Fund Complex
Name of Board Compensation Paid to Board
Member From Company* Member
Joseph S. DiMartino $6,250 $597,128 (94)
David W. Burke $5,000 $239,000 (51)
Rosalind Gersten Jacobs $5,000 $951,250 (20)
Diane Dunst $5,000 $ 37,750 (10)
Jay I. Meltzer $5,000 $ 37,750 (10)
Daniel Rose $4,500 $ 76,375 (21)
Warren B. Rudman $5,000 $ 89,500 (18)
Sander Vanocur $5,000 $ 87,125 (21)
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $191 (Dreyfus Equity Dividend Fund), $199
(Dreyfus High Yield Securities Fund), $0 (Dreyfus Real Estate Mortgage
Fund), $187 (Dreyfus Short Term High Yield Fund) and $1,098 (Dreyfus
Strategic Income Fund) for all Board members as a group.
Officers of the Company
MARIE E. CONNOLLY, President and Treasurer. President, Chief Executive
Officer, Chief Compliance Officer and a director of the Distributor and
Funds Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc., and an officer of other investment companies
advised or administered by the Manager. She is 40 years old.
JOSEPH F. TOWER, III, Vice President and Assistant Treasurer. Senior Vice
President, Treasurer, Chief Financial Officer and a director of the
Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where
he held various management positions in the Corporate Finance and
Treasury areas. He is 35 years old.
RICHARD W. INGRAM, Vice President and Assistant Treasurer. Executive Vice
President of the Distributor and Funds Distributor, Inc., and an
officer of other investment companies advised or administered by the
Manager. From March 1994 to November 1995, he was Vice President and
Division Manager for First Data Investor Services Group. From 1989 to
1994, he was Vice President, Assistant Treasurer and Tax Director -
Mutual Funds of The Boston Company, Inc. He is 42 years old.
MARY A. NELSON, Vice President and Assistant Treasurer. Vice President of
the Distributor and Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
September 1989 to July 1994, she was an Assistant Vice President and
Client Manager for The Boston Company, Inc. She is 33 years old.
DOUGLAS C. CONROY, Vice President and Assistant Secretary. Assistant Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
April 1993 to January 1995, he was a Senior Fund Accountant for
Investors Bank & Trust Company. From December 1991 to March 1993, he
was employed as a Fund Accountant at The Boston Company, Inc. He is 28
years old.
MICHAEL S. PETRUCELLI, Vice President and Assistant Treasurer. Senior Vice
President of Funds Distributor, Inc., and an officer of other
investment companies advised or administered by the Manager. From
December 1989 through November 1996, he was employed by GE Investments
where he held various financial, business development and compliance
positions. He also served as Treasurer of the GE Funds and as a
director of GE Investments Services. He is 36 years old.
The address of each officer of the Company is 200 Park Avenue, New
York, New York 10166.
The Company's Board members and officers, as a group, owned less than
1% of each Fund's voting securities outstanding on February 17, 1998.
As of February 17, 1998, the following shareholders were known by the
Company to own 5% or more of the outstanding voting securities of the
indicated Fund: Dreyfus Equity Dividend Fund: APT Holdings Corporation,
Wilmington DE (64.50%); Mark N. Jacobs, Short Hills NJ (6.14%). Dreyfus
High Yield Securities Fund: Charles Schwab & Co. Inc. Reinvest Account, San
Francisco CA (18.75%); Charles Schwab & Co. Inc. Cash Account, San Francisco
CA (8.50%); Richard Family Trust, Calabasas CA (7.27%). Dreyfus Short Term
High Yield Securities Fund: Charles Schwab & Co. Inc. Reinvest Account, San
Francisco CA (8.34%). Dreyfus Real Estate Mortgage Fund: MBCIC c/o Mellon
Bank, Wilmington DE (87.1%). A shareholder who beneficially owns, directly
or indirectly, more than 25% of a Fund's voting securities may be deemed a
"control person" (as defined in the 1940 Act) of the Fund.
MANAGEMENT AGREEMENT
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "Management of the
Fund."
Management Agreement. The Manager provides management services
pursuant to the Management Agreement (the "Agreement") dated August 24,
1994, as amended August 6, 1997, with the Company. As to each Fund, the
Agreement is subject to annual approval by (i) the Company's Board or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund, provided that in either event the continuance also
is approved by a majority of the Board members who are not "interested
persons" (as defined in the 1940 Act) of the Company or the Manager, by vote
cast in person at a meeting called for the purpose of voting on such
approval. The Agreement was approved by shareholders of Dreyfus Strategic
Income Fund on August 3, 1994, and was last approved by the Company's Board,
including a majority of the Board members who are not "interested persons"
of any party to the Agreement, at a meeting held on August 6, 1997 as to all
series of the company, except Dreyfus Real Estate Mortgage Fund. With
respect to Dreyfus Real Estate Mortgage Fund, the Agreement was approved by
the Fund's initial stockholder on August 6, 1997. As to each Fund, the
Agreement is terminable without penalty, on 60 days' notice, by the
Company's Board or by vote of the holders of a majority of such Fund's
shares, or, on not less than 90 days' notice, by the Manager. The Agreement
will terminate automatically, as to the relevant Fund, in the event of its
assignment (as defined in the 1940 Act).
The following persons are officers and/or directors of the Manager: W.
Keith Smith, Chairman of the Board; Christopher M. Condron, President, Chief
Executive Officer, Chief Operating Officer and a director; Stephen E.
Canter, Vice Chairman, Chief Investment Officer and a director; Lawrence S.
Kash, Vice Chairman--Distribution and a director; William T. Sandalls, Jr.,
Senior Vice President and Chief Financial Officer; Mark N. Jacobs, Vice
President, General Counsel and Secretary; Patrice M. Kozlowski, Vice
President--Corporate Communications; Mary Beth Leibig, Vice President--Human
Resources; Andrew S. Wasser, Vice President--Information Systems; William V.
Healey, Assistant Secretary; and Mandell L. Berman, Burton Borgelt, Frank V.
Cahouet and Richard F. Syron, directors.
The Manager manages each Fund's investments in accordance with the
stated policies of such Fund, subject to the approval of the Company's
Board. The Manager is responsible for investment decisions, and provides
the Funds with portfolio managers who are authorized by the Board to execute
purchases and sales of securities. The portfolio managers for Dreyfus
Equity Dividend Fund are Timothy Ghriskey and Douglas Ramos. The portfolio
managers for each of Dreyfus High Yield Fund, Dreyfus Strategic Income Fund
and Dreyfus Real Estate Mortgage Fund are Michael Hoeh, Kevin M. McClintock,
Roger King, C. Matthew Olson and Gerald E. Thunelius. The Manager also
maintains a research department with a professional staff of portfolio
managers and securities analysts who provide research services for each Fund
as well as for other funds advised by the Manager.
Mellon Bank, N.A., the Manager's parent, and its affiliates may have
deposit, loan and commercial banking or other relationships with the issuers
of securities purchased by a Fund. The Manager has informed the Company
that in making its investment decisions it does not obtain or use material
inside information that Mellon Bank, N.A. or its affiliates may possess with
respect to such issuers.
The Manager maintains office facilities on behalf of the Funds, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Funds. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
Expenses. All expenses incurred in the operation of the Company are
borne by the Company, except to the extent specifically assumed by the
Manager. The expenses borne by the Company include: organizational costs,
taxes, interest, loan commitment fees, interest and distributions paid on
securities sold short, brokerage fees and commissions, if any, fees of Board
members who are not officers, directors, employees or holders of 5% or more
of the outstanding voting securities of the Manager or any of its
affiliates, Securities and Exchange Commission fees, state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of maintaining
the Company's existence, costs of independent pricing services, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders, costs of shareholders' reports and
meetings, and any extraordinary expenses. Expenses attributable to a
particular Fund are charged against the assets of that Fund; other expenses
of the Company are allocated among the Funds on the basis determined by the
Board, including, but not limited to, proportionately in relation to the net
assets of each Fund.
As compensation for the Manager's services to the Company, the Company
has agreed to pay the Manager a monthly management fee at the annual rate of
.75 of 1% of the value of the average daily net assets of Dreyfus Equity
Dividend Fund, .65 of 1% of the value of the average daily net assets of
each of Dreyfus Real Estate Mortgage Fund and each Dreyfus High Yield Fund,
and .60 of 1% of the value of Dreyfus Strategic Income Fund's average daily
net assets. For the fiscal years and/or periods ended October 31, 1995,
1996 and 1997, as applicable, the management fees payable by each Fund and
the amounts waived by the Manager were as follows:
<TABLE>
Name of Management Fee Reduction in Fee Net Fee Paid
Fund Payable
1995 1996 1997 1995 1996 1997 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dreyfus - $15,722(1) $27,673 -- $15,722 $27,673 - $0 $ 0
Equity
Dividend
Fund
Dreyfus - $72,715(2) $425,180 - $72,715 $279,698 - $0 $145,482
High Yield
Securities
Fund
Dreyfus - - $5,784(3) - - $5,784 - - $0
Real
Estate
Mortgage
Fund
Dreyfus - $18,501(4) $527,739 - $18,501 $15,583 - $0 $511,886
Short Term
High Yield
Fund
Dreyfus $1,898,849 $1,829,326 $1,670,431 - - - $1,898,849 $1,829,326 $1,670,431
Strategic
Income
Fund
(1) For the period December 29, 1995 (commencement of operations) through
October 31, 1996.
(2) For the period March 25, 1996 (commencement of operations) through
October 31, 1996.
(3) For the period September 30, 1997 (commencement of operations) through
October 31, 1997.
(4) For the period August 16, 1996 (commencement of operations) through
October 31, 1996.
</TABLE>
As to Dreyfus Equity Dividend Fund, the Dreyfus High Yield Funds and
Dreyfus Strategic Income Fund, the Manager has agreed that if in any fiscal
year the aggregate expenses of the Fund, exclusive of taxes, brokerage,
interest on borrowings and (with the prior written consent of the necessary
state securities commissions) extraordinary expenses, but including the
management fee, exceed the expense limitation of any state having
jurisdiction over the Fund, the Fund may deduct from the payment to be made
to the Manager under the Agreement, or the Manager will bear, such excess
expense. Such deduction or payment, if any, will be estimated daily, and
reconciled and effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of a Fund's net assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "How to Buy Shares."
The Distributor. The Distributor serves as each Fund's distributor on
a best efforts basis pursuant to an agreement which is renewable annually.
The Distributor also acts as distributor for the other funds in the Dreyfus
Family of Funds and for certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 p.m., New York
time, on any business day that Dreyfus Transfer, Inc., each Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York Stock
Exchange are open for business will be credited to the shareholder's Fund
account on the next bank business day following such purchase order.
Purchase orders made after 4:00 p.m., New York time, on any business day the
Transfer Agent and the New York Stock Exchange are open for business, or
orders made on Saturday, Sunday or any Fund holiday (e.g., when the New
York Stock Exchange is not open for business), will be credited to the
shareholder's Fund account on the second bank business day following such
purchase order. To qualify to use the Dreyfus TeleTransfer Privilege, the
initial payment for purchase of shares must be drawn on, and redemption
proceeds paid to, the same bank and account as are designated on the Account
Application or Shareholder Services Form on file. If the proceeds of a
particular redemption are to be wired to an account at any other bank, the
request must be in writing and signature-guaranteed. See "Redemption of
Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year the account is closed or during the following calendar year,
provided the information on the old Account Application is still applicable.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "Shareholder Services
Plan."
The Company has adopted a Shareholder Services Plan, pursuant to which
the Company pays the Distributor for the provision of certain services to
each Fund's shareholders. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Company and providing reports and other information,
and services related to the maintenance of such shareholder accounts. Under
the Shareholder Services Plan, the Distributor may make payments to certain
securities dealers, financial institutions and other financial industry
professionals (collectively, "Service Agents") in respect of these services.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Board for its review. In addition, the Shareholder
Services Plan provides that material amendments must be approved by the
Company's Board, and by the Board members who are not "interested persons"
(as defined in the 1940 Act) of the Company and have no direct or indirect
financial interest in the operation of the Shareholder Services Plan or in
any agreements entered into in connection with the Shareholder Services
Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. As to each Fund, the Shareholder Services Plan
is subject to annual approval by such vote of the Board members cast in
person at a meeting called for the purpose of voting on the Shareholder
Services Plan. The Shareholder Services Plan was last so approved on
August 6, 1997. The Shareholder Services Plan is terminable with respect to
each Fund at any time by vote of a majority of the Board members who are not
"interested persons" and who have no direct or indirect financial interest
in the operation of the Shareholder Services Plan or in any agreements
entered into in connection with the Shareholder Services Plan.
For the fiscal year ended October 31, 1997, $696,013, $9,224, $163,531,
and $202,976 was charged the Company as to Dreyfus Strategic Income Fund,
Dreyfus Equity Dividend, Dreyfus High Yield Securities Fund and Dreyfus
Short Term High Yield Fund, respectively, pursuant to the Shareholder
Services Plan. As to Dreyfus Real Estate Mortgage Fund, for the period
September 30, 1997 (commencement of operations) to October 31, 1997, $2,225
was charged to the Company pursuant to the Shareholder Services Plan.
REDEMPTION OF SHARES
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "How to Redeem Shares."
Redemption Fee. (Dreyfus High Yield Securities Fund and Dreyfus Real
Estate Mortgage Fund only) Each of these Funds will deduct a redemption fee
equal to 1.00% of the net asset value of Fund shares redeemed (including
redemptions through use of the Fund Exchanges service) where the redemption
or exchange occurs less than six months following the issuance of such
shares. For purposes of computing the six-month period, any issuance of
Fund shares during a month will be deemed to occur on the first day of such
month. The redemption fee will be deducted from redemption proceeds and
retained by the respective Fund.
No redemption fee will be charged on the redemption or exchange of
shares (1) through the Fund's Automatic Withdrawal Plan or Dreyfus Auto-
Exchange Privilege, (2) through accounts that are reflected on the records
of the Transfer Agent as omnibus accounts approved by Dreyfus Service
Corporation, (3) through accounts established by Service Agents approved by
Dreyfus Service Corporation that utilize the National Securities Clearing
Corporation's networking system, or (4) acquired through the reinvestment of
dividends or capital gains distributions.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire, telephone or letter redemption
instructions from any person representing himself or herself to be the
investor and reasonably believed by the Transfer Agent to be genuine.
Ordinarily, the Company will initiate payment for shares redeemed pursuant
to this Privilege on the next business day after receipt by the Transfer
Agent of the redemption request in proper form. Redemption proceeds ($1,000
minimum) will be transferred by Federal Reserve wire only to the commercial
bank account specified by the investor on the Account Application or
Shareholder Services Form, or to a correspondent bank if the investor's bank
is not a member of the Federal Reserve System. Fees ordinarily are imposed
by such bank and borne by the investor. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at
1-800-654-7171, toll free. Investors should advise the operator that the
above transmittal code must be used and should also inform the operator of
the Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Share Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus TeleTransfer transaction through
the Automated Clearing House ("ACH") system unless more prompt transmittal
specifically is requested. Redemption proceeds will be on deposit in the
investor's account at an ACH member bank ordinarily two business days after
receipt of the redemption request. See "Purchase of Shares--Dreyfus
TeleTransfer Privilege."
Share Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program.
Guarantees must be signed by an authorized signatory of the guarantor and
"Signature-Guaranteed" must appear with the signature. The Transfer Agent
may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular
verification. For more information with respect to signature-guarantees,
please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Company has committed itself to pay in cash
all redemption requests by any shareholder of record of a Fund, limited in
amount during any 90-day period to the lesser of $250,000 or 1% of the value
of such Fund's net assets at the beginning of such period. Such commitment
is irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such
amount, the Board reserves the right to make payments in whole or in part in
securities or other assets in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In such event, the securities would be valued in the
same manner as the Fund's securities are valued. If the recipient sold such
securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the relevant Fund ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities and
Exchange Commission so that disposal of the Fund's investments or
determination of its net asset value is not reasonably practicable, or (c)
for such other periods as the Securities and Exchange Commission by order
may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "Shareholder Services."
Fund Exchanges. Dreyfus High Yield Securities Fund and Dreyfus Real
Estate Mortgage Fund each deduct a redemption fee equal to 1.00% of the net
asset value of Fund shares exchanged where the exchange occurs less than six
months following the issuance of such shares. Shares of other funds
purchased by exchange will be purchased on the basis of relative net asset
value per share as follows:
A. Exchanges for shares of funds that are offered without a
sales load will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales load, and
the applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a sales
load and additional shares acquired through reinvestment of
dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), provided that, if the sales load applicable
to the Offered Shares exceeds the maximum sales load that could
have been imposed in connection with the Purchased Shares (at the
time the Purchased Shares were acquired), without giving effect to
any reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their account
number.
To request an exchange, shareholders must give exchange instructions to
the Transfer Agent in writing or by telephone. The ability to issue
exchange instructions by telephone is given to all Fund shareholders
automatically, unless the investor checks the applicable "No" box on the
Account Application, indicating that the investor specifically refuses this
Privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephonic instructions from any
person representing himself or herself to be the investor, and reasonably
believed by the Transfer Agent to be genuine. Telephone exchanges may be
subject to limitations as to the amount involved or the number of telephone
exchanges permitted. See "Appendix--Additional Information About Purchases,
Exchanges and Redemptions" in the Prospectus for Dreyfus Real Estate
Mortgage Fund. Shares issued in certificate form are not eligible for
telephone exchange.
To establish a personal retirement plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of a Fund, shares of
another fund in the Dreyfus Family of Funds. This Privilege is available
only for existing accounts. Shares will be exchanged on the basis of
relative net asset value as described above under "Fund Exchanges."
Enrollment in or modification or cancellation of this Privilege is effective
three business days following notification by the investor. An investor
will be notified if the investor's account falls below the amount designated
to be exchanged under this Privilege. In this case, an investor's account
will fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts, exchanges may be made only
among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between accounts
having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Company reserves the right to
reject any exchange request in whole or in part. The Fund Exchanges service
or the Dreyfus Auto-Exchange Privilege may be modified or terminated at any
time upon notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the
yield on the shares. If withdrawal payments exceed reinvested dividends and
distributions, the investor's shares will be reduced and eventually may be
depleted. Automatic Withdrawal may be terminated at any time by the
investor, the Company or the Transfer Agent. Shares for which certificates
have been issued may not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest automatically their dividends or dividends and capital gain
distributions, if any, from a Fund in shares of another fund in the Dreyfus
Family of Funds of which the investor is a shareholder. Shares of other
funds purchased pursuant to this privilege will be purchased on the basis of
relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds that
are offered without a sales load.
B. Dividends and distributions paid by a fund which does not
charge a sales load may be invested in shares of other funds sold
with a sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a
sales load may be invested in shares of other funds sold with a
sales load (referred to herein as "Offered Shares"), provided
that, if the sales load applicable to the Offered Shares exceeds
the maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.
Corporate Pension/Profit-Sharing and Retirement Plans. The Company
makes available to corporations a variety of prototype pension and profit-
sharing plans including a 401(k) Salary Reduction Plan. In addition, the
Company makes available Keogh Plans, IRAs (including regular IRAs, spousal
IRAs for a non-working spouse, Roth IRAs, IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs"), Education IRAs, and IRA "Rollover
Accounts") and 403(b)(7) Plans. Plan support services also are available.
Investors who wish to purchase Fund shares in conjunction with a Keogh
Plan, a 403(b)(7) Plan or an IRA, including a SEP-IRA, may request from the
Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or IRAs
may charge a fee, payment of which could require the liquidation of shares.
All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans may
not be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is
$1,000, with no minimum on subsequent investments. The minimum initial
investment is $750 for Dreyfus-sponsored Keogh Plans, IRAs (including
regular IRAs, spousal IRAs for a non-working spouse, Roth IRAs, SEP-IRAs,
and rollover IRAs) and 403(b)(7) Plans with only one participant, and $500
for Dreyfus-sponsored Education IRAs, with no minimum on subsequent
purchases. Individuals who open an IRA also may open a non-working spousal
IRA with a minimum investment of $5,000.
Each investor should read the prototype retirement plan and the
appropriate form of custodial agreement for further details on eligibility,
service fees and tax implications, and should consult a tax adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "How to Buy Shares."
Valuation of Portfolio Securities. The Fund's investments are valued
each business day using available market quotations or at fair value.
Substantially all of each Fund's fixed-income investments (excluding short-
term investments) are valued by one or more independent pricing services
(the "Service") approved by the Board. Securities valued by the Service for
which quoted bid prices in the judgment of the Service are readily available
and are representative of the bid side of the market are valued at the mean
between the quoted bid prices (as obtained by the Service from dealers in
such securities) and asked prices (as calculated by the Service based upon
its evaluation of the market for such securities). Other investments valued
by the Service are carried at fair value as determined by the Service, based
on methods which include consideration of: yields or prices of securities
of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. Short-term investments are not
valued by the Service and are valued at the mean price or yield equivalent
for such securities or for securities of comparable maturity, quality and
type as obtained from market makers. Other investments that are not valued
by the Service (including the Equity Securities (as defined in the
Prospectus) purchased by Dreyfus Equity Dividend Fund) are valued at the
last sales price for securities traded primarily on an exchange or the
national securities market or otherwise at the average of the most recent
bid and asked prices. Bid price is used when no asked price is available.
Any assets or liabilities initially expressed in terms of foreign currency
will be translated into U.S. dollars at the midpoint of the New York
interbank market spot exchange rate as quoted on the day of such translation
by the Federal Reserve Bank of New York or, if no such rate is quoted on
such date, at the exchange rate previously quoted by the Federal Reserve
Bank of New York or at such other quoted market exchange rate as may be
determined to be appropriate by the Manager. Expenses and fees, including
the management fee (reduced by the expense limitation, if any), are accrued
daily and taken into account for the purpose of determining the net asset
value of a Fund's shares.
Restricted securities, as well as securities or other assets for which
recent market quotations are not readily available, or are not valued by the
Service, are valued at fair value as determined in good faith by the Board.
The Board will review the method of valuation on a current basis. In making
their good faith valuation of restricted securities, the Board members
generally will take the following factors into consideration: restricted
securities which are, or are convertible into, securities of the same class
of securities for which a public market exists usually will be valued at
market value less the same percentage discount at which purchased. This
discount will be revised periodically by the Board if it believes that the
discount no longer reflects the value of the restricted securities.
Restricted securities not of the same class as securities for which a public
market exists usually will be valued initially at cost. Any subsequent
adjustment from cost will be based upon considerations deemed relevant by
the Board.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "Dividends,
Distributions and Taxes."
Management of the Company believes that each Fund qualified for the
fiscal year ended October 31, 1997 as a "regulated investment company" under
the Code. Each Fund intends to continue to so qualify if such qualification
is in the best interests of its shareholders. As a regulated investment
company, each Fund will pay no Federal income tax on net investment income
and net realized securities gains to the extent that such income and gains
are distributed to shareholders in accordance with applicable provisions of
the Code. The term "regulated investment company" does not imply the
supervision of management or investment practices or policies by any
government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of the shares
below the cost of the investment. Such a dividend or distribution would be
a return of investment in an economic sense, although taxable as stated
above. In addition, the Code provides that if a shareholder holds shares of
a Fund for six months or less and has received a capital gain distribution
with respect to such shares, any loss incurred on the sale of such shares
will be treated as long-term capital loss to the extent of the capital gain
distribution received.
Depending upon the composition of a Fund's income, the entire amount or
a portion of the dividends paid by such Fund from net investment income may
qualify for the dividends received deduction allowable to qualifying U.S.
corporate shareholders ("dividends received deduction"). In general,
dividend income of a Fund distributed to qualifying corporate shareholders
will be eligible for the dividends received deduction only to the extent
that such Fund's income consists of dividends paid by U.S. corporations.
However, Section 246(c) of the Code provides that if a qualifying corporate
shareholder has disposed of Fund shares held for less than 46 days, which 46
days generally must be during the 90-day period commencing 45 days before
the shares become ex-dividend, and has received a dividend from net
investment income with respect to such shares, the portion designated by the
Fund as qualifying for the dividends received deduction will not be eligible
for such shareholder's dividends received deduction. In addition, the Code
provides other limitations with respect to the ability of a qualifying
corporate shareholder to claim the dividends received deduction in
connection with holding Fund shares. The Company anticipates that no
dividend paid by the Dreyfus High Yield Funds, Dreyfus Real Estate Mortgage
Fund or Dreyfus Strategic Income Fund will qualify for the dividends-
received deduction.
A Fund may qualify for and may make an election permitted under Section
853 of the Code so that shareholders may be eligible to claim a credit or
deduction on their Federal income tax returns for, and will be required to
treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid or incurred by the Fund to foreign countries (which
taxes relate primarily to investment income). A Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of
the Fund's total assets at the close of the taxable year consists of
securities in foreign corporations, and the Fund satisfies the applicable
distribution provisions of the Code. The foreign tax credit available to
shareholders is subject to certain limitations imposed by the Code.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, a portion of the gain or
loss realized from the disposition of foreign currencies (including foreign
currency denominated bank deposits) and non-U.S. dollar denominated
securities (including debt instruments and certain forward contracts and
options) may be treated as ordinary income or loss under Section 988 of the
Code. In addition, all or a portion of any gains realized from the sale or
other disposition of certain market discount bonds will be treated as
ordinary income under Section 1276 of the Code. Finally, all or a portion
of the gain realized from engaging in "conversion transactions" may be
treated as ordinary income under Section 1258 of the Code. "Conversion
transactions" are defined to include certain forward, futures, option and
straddle transactions, transactions marketed or sold to produce capital
gains, or transactions described in Treasury regulations to be issued in the
future.
Under Section 1256 of the Code, any gain or loss realized by a Fund
from certain forward contracts and options transactions will be treated as
60% long-term capital gain or loss and 40% short-term capital gain or loss.
Gain or loss will arise upon exercise or lapse of such contracts and options
as well as from closing transactions. In addition, any such contracts or
options remaining unexercised at the end of a Fund's taxable year will be
treated as sold for their then fair market value, resulting in additional
gain or loss to such Fund characterized in the manner described above.
Offsetting positions held by a Fund involving certain futures or
forward contracts or options transactions may be considered, for tax
purposes, to constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax
treatment of straddles is governed by Sections 1092 and 1258 of the Code,
which, in certain circumstances, override or modify the provisions of
Sections 1256 and 988 of the Code. As such, all or a portion of any short
or long-term capital gain from certain straddle transactions may be
recharacterized to ordinary income.
If a Fund were treated as entering into straddles by reason of its
engaging in financial futures or forward contracts or options transactions,
such straddles would be characterized as "mixed straddles" if the futures or
forward contracts or options transactions comprising a part of such
straddles were governed by Section 1256 of the Code. The Fund may make one
or more elections with respect to "mixed straddles." Depending upon which
election is made, if any, the results to the Fund may differ. If no
election is made, to the extent the straddle and conversion transaction
rules apply to positions established by a Fund, losses realized by the Fund
will be deferred to the extent of unrealized gain in the offsetting
position. Moreover, as a result of the straddle and conversion transaction
rules, short-term capital loss on "straddle" positions may be
recharacterized as long-term capital loss, and long-term capital gains or
straddle positions may be treated as short-term capital gains or ordinary
income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally will apply if the Fund either (1) holds an appreciated
financial position with respect to stock, certain debt obligations, or
partnership interests ("appreciated financial position") and then enters
into a short sale, futures, forward, or offsetting notional principal
contract (collectively, a "Contract") respecting the same or substantially
identical property or (2) holds an appreciated financial position that is a
Contract and then acquires property that is the same as, or substantially
identical to, the underlying property. In each instance, with certain
exceptions, the Fund generally will be taxed as if the appreciated financial
position were sold at its fair market value on the date the Fund enters into
the financial position or acquires the property, respectively. Transactions
that are identified hedging or straddle transactions under other provisions
of the Code can be subject to the constructive sale provisions.
Investment by a Fund in securities issued or acquired at a discount, or
providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount,
timing and character of distributions to shareholders by causing a Fund to
recognize income prior to the receipt of cash payments. For example, a Fund
could be required to accrue a portion of the discount (or deemed discount)
at which the securities were issued each year and to distribute such income
in order to maintain its qualification as a regulated investment company.
In such case, a Fund may have to dispose of securities which it might
otherwise have continued to hold in order to generate cash to satisfy these
distribution requirements.
PORTFOLIO TRANSACTIONS
The Manager assumes general supervision over placing orders on behalf
of the Company for the purchase or sale of portfolio securities. Allocation
of brokerage transactions, including their frequency, is made in the best
judgment of the Manager and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders at
the most favorable net price. Subject to this consideration, the brokers
selected will include those that supplement the Manager's research
facilities with statistical data, investment information, economic facts and
opinions. Information so received is in addition to and not in lieu of
services required to be performed by the Manager and the Manager's fees are
not reduced as a consequence of the receipt of such supplemental
information. Such information may be useful to the Manager in serving both
the Company and other funds which it advises and, conversely, supplemental
information obtained by the placement of business of other clients may be
useful to the Manager in carrying out its obligations to the Company.
Sales of Fund shares by a broker may be taken into consideration, and
brokers also will be selected because of their ability to handle special
executions such as are involved in large block trades or broad
distributions, provided the primary consideration is met. Large block
trades may, in certain cases, result from two or more funds advised or
administered by the Manager being engaged simultaneously in the purchase or
sale of the same security. Certain of a Fund's transactions in securities
of foreign issuers may not benefit from the negotiated commission rates
available to a Fund for transactions in securities of domestic issuers.
When transactions are executed in the over-the-counter market, each Fund
will deal with the primary market makers unless a more favorable price or
execution otherwise is obtainable. Foreign exchange transactions are made
with banks or institutions in the interbank market at prices reflecting a
mark-up or mark-down and/or commission.
Portfolio turnover may vary from year to year as well as within a year.
It is anticipated that in any fiscal year the turnover rate will be less
than 100% for Dreyfus Equity Dividend Fund, less than 200% for Dreyfus Real
Estate Mortgage Fund, and may approach the 200% level for each Dreyfus High
Yield Fund and Dreyfus Strategic Income Fund. In periods in which
extraordinary market conditions prevail, the Manager will not be deterred
from changing a Fund's investment strategy as rapidly as needed, in which
case higher turnover rates can be anticipated which would result in greater
brokerage expenses. The overall reasonableness of brokerage commissions
paid is evaluated by the Manager based upon its knowledge of available
information as to the general level of commissions paid by other
institutional investors for comparable services.
For the fiscal year ended October 31, 1995, Dreyfus Strategic Income
Fund paid no brokerage commissions. For fiscal years ended October 31, 1996
and 1997, Dreyfus Strategic Income Fund paid brokerage commissions of
$28,188 and $41,764, respectively. Gross spreads and concessions on
principal transactions, where determinable, amounted to $633,150, $1,421,838
and $217,238 for the fiscal years ended October 31, 1995, 1996 and 1997,
respectively, for Dreyfus Strategic Income Fund, none of which was paid to
the Distributor. For the period from commencement of operations of each
Fund through October 31, 1996, and for the fiscal year ended October 31,
1997, Dreyfus Equity Dividend, Dreyfus High Yield Securities Fund, and
Dreyfus Short Term High Yield Fund paid brokerage commissions of $10,205,
$11,048, $5,740, $17,136, $250 and $80, respectively. Gross spreads and
concessions on principal transactions, where determinable, amounted to
$2,875 and $1,637, $133,243 and $266,750 and $18,500 and $52,200, for the
period from commencement of operations of each Fund through October 31, 1996
and for the fiscal year ended October 31, 1997 for Dreyfus Equity Dividend,
Dreyfus High Yield Securities Fund and Dreyfus Short Term High Yield Fund,
respectively, none of which was paid to the Distributor. For the period
from September 30, 1997 (commencement of operations) through October 31,
1997, Dreyfus Real Estate Mortgage Fund paid $3,000 in brokerage
commissions. Gross spreads and concessions on principal transactions, where
determinable, amounted to $0, for the period from September 30, 1997 through
October 31, 1997, none of which was paid to the Distributor.
With respect to Dreyfus Equity Dividend Fund, the aggregate amount of
transactions during the fiscal year ended October 31, 1997 in securities
offered on an agency basis through a broker in consideration of , among
other things, research services provided was $3,066,319 and the commissions
and concessions related to such transactions were $4,791.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "Performance
Information."
Dreyfus Strategic Income Fund's current yield for the 30-day period
ended October 31, 1997 was 6.48%. Dreyfus High Yield Securities Fund's
current yield for the 30-day period ended October 31, 1997 was 11.32%.
During this period, the Manager was waiving receipt of a portion of the
management fee and/or absorbing certain expenses of Dreyfus High Yield
Securities Fund, without which the Fund's 30-day yield would have been
11.23%. Dreyfus Short Term High Yield Fund's current yield for the 30-day
period ended October 31, 1997 was 8.77%. Dreyfus Real Estate Mortgage
Fund's current yield for the period ended October 31, 1997 was 5.04%.
Current yield for a Fund is computed pursuant to a formula which operates as
follows: the amount of the Fund's expenses accrued for the 30-day period
(net of reimbursements) is subtracted from the amount of the dividends and
interest earned (computed in accordance with regulatory requirements) by the
Fund during the period. That result is then divided by the product of: (a)
the average daily number of shares outstanding during the period that were
entitled to receive dividends, and (b) the net asset value per share on the
last day of the period less any undistributed earned income per share
reasonably expected to be declared as a dividend shortly thereafter. The
quotient is then added to 1, and that sum is raised to the 6th power, after
which 1 is subtracted. The current yield is then arrived at by multiplying
the result by 2.
Dreyfus Strategic Income Fund's average annual return for the one-,
five- and ten-year periods ended October 31, 1997, was 11.94%, 9.04% and
10.72%, respectively. Dreyfus High Yield Securities Fund's average annual
total return for the one-year period ended October 31, 1997 and for the
period March 25, 1996 (commencement of operations) through October 31, 1997
was 21.13% and 23.16%, respectively. Dreyfus Short Term High Yield
Securities Fund's average annual total return for the one-year period ended
October 31, 1997 and for the period August 15, 1996 (commencement of
operations) through October 31, 1997 was 13.38% and 14.22%, respectively.
Dreyfus Equity Dividend Fund's average annual total return for the one-year
period ended October 31, 1997 and for the period December 29, 1995
(commencement of operations) through October 31, 1997 was 29.34% and 22.86%,
respectively. Dreyfus Real Estate Mortgage Fund's average annual total
return for the period September 30, 1997 (commencement of operations)
through October 31, 1997 was 5.70%. Average annual total return is
calculated by determining the ending redeemable value of an investment
purchased with a hypothetical $1,000 payment made at the beginning of the
period (assuming the reinvestment of dividends and distributions), dividing
by the amount of the initial investment, taking the "n"th root of the
quotient (where "n" is the number of years in the period) and subtracting 1
from the result.
Dreyfus Strategic Income Fund's total return for the period October 3,
1986 (commencement of operations) through October 31, 1997 was 182.92%.
Dreyfus Equity Dividend Fund's total return for the period December 29, 1995
(commencement of operations) through October 31, 1997 was 46.06%. Dreyfus
High Yield Securities Fund's total return for the period March 25, 1996
(commencement of operations) through October 31, 1997 was 39.56%. Dreyfus
Short Term High Yield Fund's total return for the period August 16, 1996
(commencement of operations) through October 31, 1997 was 17.45%. Dreyfus
Real Estate Mortgage Fund's total return for the period September 30, 1997
(commencement of operations) through October 31, 1997 was 1.52%. During
these periods, receipt of certain fees was being waived, and operating
expenses were borne, by the Manager, without which total returns for Dreyfus
Equity Dividend Fund, each Dreyfus High Yield Fund, and Dreyfus Real Estate
Mortgage Fund would have been lower. Total return for a Fund is calculated
by subtracting the amount of the Fund's net asset value per share at the
beginning of a stated period from the net asset value per share at the end
of the period (after giving effect to the reinvestment of dividends and
distributions during the period), and dividing the result by the net asset
value per share at the beginning of the period.
From time to time, advertising materials for each Fund may include (i)
biographical information relating to its portfolio manager, including honors
or awards received, and may refer to or include commentary by the Fund's
portfolio manager relating to investment strategy, asset growth, current or
past business, political, economic or financial conditions and other matters
of general interest to investors; (ii) information concerning retirement and
investing for retirement, including statistical data or general discussions
about the growth and development of Dreyfus Retirement Services (in terms of
new customers, assets under management, market share, etc.) and its presence
in the defined contribution plan market; (iii) the approximate number of
then-current Fund shareholders; (iv) Lipper or Morningstar ratings and
related analysis supporting the ratings; (v) discussions of the risk and
reward potential of the high yield securities markets, and the mortgage- and
real estate-related markets, and the comparative performance of each against
other securities markets and relevant indices; and (vi) as to Dreyfus Short
Term High Yield Fund, that as of its inception date the Fund was the first
short-term, high yield fund in the mutual fund industry.
From time to time, the Company may compare a fund's performance against
inflation with the performance of other instruments against inflation, such
as short-term Treasury Bills (which are direct obligations of the U.S.
Government), bonds, stocks, and FDIC-insured bank money market accounts.
INFORMATION ABOUT THE FUNDS
The following information supplements and should be read in conjunction
with the section in each Fund's Prospectus entitled "General Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Fund shares are of one class and have equal rights as to dividends and in
liquidation. Shares have no preemptive, subscription or conversion rights
and are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an
investment company, such as the Company, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2
further provides that a series shall be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical or that the matter does not affect any interest of such series.
However, the Rule exempts the selection of independent accountants and the
election of Board members from the separate voting requirements of the Rule.
Each Fund will send annual and semi-annual financial statements to all
its shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN, COUNSEL
AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island 02940-9671, is the Company's transfer and
dividend disbursing agent. Under a transfer agency agreement with the
Company, Dreyfus Transfer, Inc. arranges for the maintenance of shareholder
account records for each Fund, the handling of certain communications
between shareholders and the Fund, and the payment of dividends and
distributions payable by the Fund. For these services, Dreyfus Transfer,
Inc. receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the Company during the month, and is
reimbursed for certain out-of-pocket expenses. For the fiscal year ended
October 31, 1997, Dreyfus Strategic Income Fund, Dreyfus Equity Dividend
Fund, Dreyfus High Yield Securities Fund and Dreyfus Short Term High Yield
Fund paid the Transfer Agent $226,107, $576, $22,269 and $33,512
respectively. For the period September 30, 1997 (commencement of
operations) through October 31, 1997, Dreyfus Real Estate Mortgage Fund paid
the Transfer Agent $14.
Mellon Bank, N.A. (the "Custodian"), the Manager's parent, located at
One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, acts as the
custodian of each Fund's investments. Under a custody agreement with the
Company, the Custodian holds each Fund's portfolio securities and keeps all
necessary accounts and records. For its custody services, the Custodian
receives a monthly fee based on the market value of each Fund's assets held
in custody and receives certain securities transaction changes. For the
fiscal year ended October 31, 1997, Dreyfus Strategic Income Fund, Dreyfus
Equity Dividend Fund, Dreyfus High Yield Securities Fund and Dreyfus Short
Term High Yield Fund paid the Custodian $34,350, $2,477, $10,516 and
$10,991, respectively. For the period September 30, 1997 (commencement of
operations) through October 31, 1997, Dreyfus Real Estate Mortgage Fund paid
the Custodian $767.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, as counsel for the Company, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of
the shares being sold pursuant to each Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Company.
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
The Company's Annual Report to Shareholders for the fiscal year ended
October 31, 1997 for each Fund are separate documents supplied with this
Statement of Additional Information, and the financial statements,
accompanying notes and, report of independent auditors appearing therein,
are incorporated by reference in this Statement of Additional Information.
APPENDIX
Description of S&P, Moody's, Fitch and Duff ratings:
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within
the major rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Issues assigned an A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
A-1
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
A-3
Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
B
Issues carrying this designation are regarded as having only
speculative capacity for timely payment.
C
This designation is assigned to short-term obligations with doubtful
capacity for payment.
D
Issues carrying this designation are in default, and payment of
interest and/or repayment of principal is in arrears.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and, therefore, not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and
in the categories below B. The modifier 1 indicates a ranking for the
security in the higher end of a rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end
of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory obligations.
The effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirements for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Issuers (or related supporting institutions) rated Not Prime do not
fall within any of the Prime rating categories.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to
other obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual default of interest and/or
principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category covering 12-36
months.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
F-3
Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near-term adverse changes could cause these securities to be rated
below investment grade.
F-S
Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
D
Default. Issues assigned this rating are in actual or imminent payment
default.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. There may be
considerable variability in risk for bonds in this category during economic
cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are
narrow and risk can be substantial with unfavorable economic or industry
conditions and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer has failed to meet scheduled
principal and/or interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by ample
asset protection. Risk factors are minor. Paper rated Duff-2 is regarded
as having good certainty of timely payment, good access to capital markets
and sound liquidity factors and company fundamentals. Risk factors are
small. Paper rated Duff 3 is regarded as having satisfactory liquidity and
other protection factors. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected. Paper rated Duff 4 is
regarded as having speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation. Paper rated
Duff 5 is in default. The issuer has failed to meet scheduled principal
and/or interest payments.
DREYFUS INCOME FUNDS
PART C. OTHER INFORMATION
_________________________
Item 24. Financial Statements and Exhibits. - List
_______ _________________________________________
(a) Financial Statements:
Included in Part A of the Registration Statement:
Condensed Financial Information, with respect to Dreyfus
Equity Dividend Fund for the period from December 29,
1985 (commencement of operations) to October 31, 1986 and for
the ten years ended October 31, 1997; with
respect to Dreyfus High Yield Securities Fund for the
period from March 25, 1986 (commencement of operations)
to October 31, 1986 and for the ten years ended October
31, 1997; with respect to Dreyfus Real Estate Mortgage
Fund for the period from September 30, 1997
(commencement of operations) and for the period ended
October 31, 1997; with respect to Dreyfus Short Term
High Yield Fund for the period from August 16, 1996
(commencement of operations) to October 31, 1996 and for
the ten years ended October 31, 1997 and with respect to
Dreyfus Strategic Income Fund for the period from
October 1, 1986(commencement of operations) to October
31, 1986 and for the ten years ended October 31, 1997.
Incorporated by reference in Part B of the Registration
Statement:
Dreyfus Equity Dividend Fund.
Statement of Investments--as of October 31, 1997.
Statement of Assets and Liabilities--as of October 31,
1997.
Statement of Operations--for the year ended October 31,
1997.
Statement of Changes in Net Assets--from December 29,
1995 (commencement of operations) to October 31, 1996
and for the year ended October, 31, 1997.
Financial Highlights - as of October 31, 1997
Notes to Financial Statements.
Report of Ernst & Young, LLP, Independent Auditors,
dated December 17, 1997.
Dreyfus High Yield Securities Fund.
Statement of Investments--as of October 31, 1997.
Statement of Assets and Liabilities--as of October
31,1997.
Statement of Operations--for the year ended October 31,
1997.
Statement of Changes in Net Assets--for the two years
ended October 31, 1996 and 1997.
Notes to Financial Statements.
Report of Ernst & Young LLP, Independent Auditors, dated
December 17, 1997.
Dreyfus Real Estate Mortgage Fund.
Statement of Investments--as of October 31, 1997.
Statement of Assets and Liabilities--as of October 31,
1997.
Statement of Operations--from September 30, 1997
(commencement of operations) to October 31, 1997.
Statement of Changes in Net Assets--from September 30,
1997 (commencement of operations) to October 31, 1997.
Financial Highlights - as of October 31, 1997
Notes to Financial Statements.
Report of Ernst & Young LLP, Independent Auditors, dated
December 17, 1997.
Dreyfus Short Term High Yield Fund.
Statement of Investments--as of October 31, 1997.
Statement of Assets and Liabilities--as of October
31,1997.
Statement of Operations--for the year ended October 31,
1997.
Statement of Changes in Net Assets--for the two years
ended October 31, 1996 and 1997.
Financial Highlights - as of October 31, 1997
Notes to Financial Statements.
Report of Ernst & Young, LLP, Independent Auditors,
dated December 17, 1997.
Dreyfus Strategic Income Fund.
Statement of Investments--as of October 31, 1997.
Statement of Assets and Liabilities--as of October 31,
1997.
Statement of Operations--for the year ended October 31,
1997.
Statement of Changes in Net Assets--for the two years
ended October 31, 1996 and 1997.
Financial Highlights - as of October 31, 1997
Notes to Financial Statements.
Report of Ernst & Young LLP, Independent Auditors, dated
December 17, 1997.
Schedules No. I through VII and other financial statement information, for
which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are either omitted because they are not
required under the related instructions, they are inapplicable, or the
required information is presented in the financial statements or notes which
are included in Part B of the Registration Statement.
Item 24. Financial Statements and Exhibits. - List (continued)
_______ _____________________________________________________
(b) Exhibits:
(1)(a) Registrant's Amended and Restated Agreement and Declaration of
Trust, dated June 25, 1992, is incorporated by reference to
Exhibit (1)(a) of Post-Effective Amendment No. 13 to the
Registration Statement, filed on December 29, 1995.
(1)(b) Registrant's Articles of Amendment dated December 6, 1995, are
incorporated by reference to Exhibit (1)(b) of Post-Effective
Amendment No. 13 to the Registration Statement, filed on December
29, 1995.
(2) Registrant's By-Laws, as amended December 6, 1995, are
incorporated by reference to Exhibit (2) of Post-Effective
Amendment No. 13 to the Registration Statement, filed on December
29, 1995.
(5) Management Agreement dated August 24, 1994, as amended December 6,
1995 is incorporated by reference to Exhibit (5) of Post-Effective
Amendment No. 13 to the Registration Statement, filed on December
29, 1995.
(6) Distribution Agreement dated August 24, 1994, as amended December
6, 1995 is incorporated by reference to Exhibit (6) of Post-
Effective Amendment No. 13 to the Registration Statement, filed on
December 29, 1995.
(6)(b) Forms of Service Agreement are incorporated by reference to
Exhibit (6)(b) and (6)(c) of Post-Effective Amendment No. 10 to
the Registration Statement, filed on December 30, 1994.
(8)(a) Registrant's Amended and Restated Custody Agreement is
incorporated by reference to Exhibit (8) of Post-Effective
Amendment No. 13 to the Registration Statement, filed on December
29, 1995.
(9) Shareholder Services Plan dated August 24, 1994, as amended
December 6, 1995 is incorporated by reference to Exhibit (9) of
Post-Effective Amendment No. 13 to the Registration Statement,
filed on December 29, 1995.
(10) Opinion and Consent of Stroock & Stroock & Lavan, Registrant's
counsel is incorporated by reference to Exhibit (10) of Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-
1A, filed on October 2, 1986.
(11) Consent of Ernst & Young LLP.
(16) Schedule of Computation of Performance Data as to Dreyfus
Strategic Income Fund is incorporated by reference to Exhibit (16)
of Post-Effective Amendment No. 9 to the Registration Statement,
filed on January 20, 1994; and as to Dreyfus Equity Dividend Fund
to Post-Effective Amendment No. 14, filed on May 30, 1996.
(17) Financial Data Schedules.
Other Exhibits
______________
(a) Power of Attorney for the Trustees and officers are
incorporated by reference to the Other Exhibits (a) of
Post-Effective Amendments Nos. 7 and 9 to the
Registration Statement, filed on December 31, 1991, and
January 20, 1994.
Item 24. Financial Statements and Exhibits. - List (continued)
_______ _____________________________________________________
(b) Certificate of Assistant Secretary is incorporated
by reference to the Other Exhibits (b) of Post-Effective
Amendment No. 10 to the Registration Statement, filed on
December 30, 1994.
Item 25. Persons Controlled by or under Common Control with Registrant.
_______ ______________________________________________________________
Not Applicable
Item 26. Number of Holders of Securities.
_______ ________________________________
(1) (2)
Number of Record Holders
Title of Class (as of February 17, 1997)
______________ _______________________________
Beneficial Interest Dreyfus Strategic Income Fund - 10,678
(Par value $.001)
Dreyfus Equity Dividend Fund - 90
Dreyfus High Yield Securities Fund - 3,517
Dreyfus Short Term High Yield Fund - 4,608
Dreyfus Real Estate Mortgage Fund - 114
Item 27. Indemnification
_______ _______________
Reference is made to Article EIGHTH of the Registrant's Amended and
Restated Agreement and Declaration of Trust, dated June 25, 1992,
and the laws of the State of Maryland. The application of these
provisions is limited by Article VIII of the Registrant's By-Laws
and by the following undertaking set forth in the rules promulgated
by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted Board members, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
such Act and will be governed by the final adjudication of such
issue.
Reference is also made to the Distribution Agreement incorporated by
reference to Exhibit (6) of Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A, filed on December 29,
1995.
Item 28. Business and Other Connections of Investment Adviser.
_______ ____________________________________________________
The Dreyfus Corporation ("Dreyfus") and subsidiary
companies comprise a financial service organization whose
business consists primarily of providing investment management
services as the investment adviser and manager for sponsored
investment companies registered under the Investment Company Act
of 1940 and as an investment adviser to institutional and
individual accounts. Dreyfus also serves as sub-investment
adviser to and/or administrator of other investment companies.
Dreyfus Service Corporation, a wholly-owned subsidiary of
Dreyfus, is a registered broker-dealer. Dreyfus Investment
Advisors, Inc., another wholly-owned subsidiary, provides
investment management services to various pension plans,
institutions and individuals.
Item 28. Business and Other Connections of Investment Adviser (continued)
________ ________________________________________________________________
Officers and Directors of Investment Adviser
____________________________________________
Name and Position
with Dreyfus Other Businesses
_________________ ________________
MANDELL L. BERMAN Real estate consultant and private investor
Director 29100 Northwestern Highway, Suite 370
Southfield, Michigan 48034;
Past Chairman of the Board of Trustees:
Skillman Foundation;
Member of The Board of Vintners Intl.
BURTON C. BORGELT Chairman Emeritus of the Board and
Director Past Chairman, Chief Executive Officer and
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405;
Director:
DeVlieg-Bullard, Inc.
1 Gorham Island
Westport, Connecticut 06880
Mellon Bank Corporation***;
Mellon Bank, N.A.***
FRANK V. CAHOUET Chairman of the Board, President and
Director Chief Executive Officer:
Mellon Bank Corporation***;
Mellon Bank, N.A.***;
Director:
Avery Dennison Corporation
150 North Orange Grove Boulevard
Pasadena, California 91103;
Saint-Gobain Corporation
750 East Swedesford Road
Valley Forge, Pennsylvania 19482;
Teledyne, Inc.
1901 Avenue of the Stars
Los Angeles, California 90067
W. KEITH SMITH Chairman and Chief Executive Officer:
Chairman of the Board The Boston Company****;
Vice Chairman of the Board:
Mellon Bank Corporation***;
Mellon Bank, N.A.***;
Director:
Dentsply International, Inc.
570 West College Avenue
York, Pennsylvania 17405
CHRISTOPHER M. CONDRON Vice Chairman:
President, Chief Mellon Bank Corporation***;
Executive Officer, The Boston Company****;
Chief Operating Deputy Director:
Officer and a Mellon Trust***;
Director Chief Executive Officer:
The Boston Company Asset Management,
Inc.****;
President:
Boston Safe Deposit and Trust Company****
STEPHEN E. CANTER Director:
Vice Chairman and The Dreyfus Trust Company++;
Chief Investment Officer, Formerly, Chairman and Chief Executive Officer:
and a Director Kleinwort Benson Investment Management
Americas Inc.*
LAWRENCE S. KASH Chairman, President and Chief
Vice Chairman-Distribution Executive Officer:
and a Director The Boston Company Advisors, Inc.
53 State Street
Exchange Place
Boston, Massachusetts 02109;
Executive Vice President and Director:
Dreyfus Service Organization, Inc.**;
Director:
Dreyfus America Fund+++;
The Dreyfus Consumer Credit Corporation*;
The Dreyfus Trust Company++;
Dreyfus Service Corporation*;
President:
The Boston Company****;
Laurel Capital Advisors***;
Boston Group Holdings, Inc.;
Executive Vice President:
Mellon Bank, N.A.***;
Boston Safe Deposit and Trust
Company****
RICHARD F. SYRON Chairman of the Board and
Director Chief Executive Officer:
American Stock Exchange
86 Trinity Place
New York, New York 10006;
Director:
John Hancock Mutual Life Insurance Company
John Hancock Place, Box 111
Boston, Massachusetts, 02117;
Thermo Electron Corporation
81 Wyman Street, Box 9046
Waltham, Massachusetts 02254-9046;
American Business Conference
1730 K Street, NW, Suite 120
Washington, D.C. 20006;
Trustee:
Boston College - Board of Trustees
140 Commonwealth Ave.
Chestnut Hill, Massachusetts 02167-3934
WILLIAM T. SANDALLS, JR. Director:
Senior Vice President and Dreyfus Partnership Management, Inc.*;
Chief Financial Officer Seven Six Seven Agency, Inc.*;
Chairman and Director:
Dreyfus Transfer, Inc.
One American Express Plaza
Providence, Rhode Island 02903
President and Director:
Lion Management, Inc.*;
Executive Vice President and Director:
Dreyfus Service Organization, Inc.*;
Vice President, Chief Financial Officer and
Director:
Dreyfus America Fund+++;
Vice President and Director:
The Dreyfus Consumer Credit Corporation*;
The Truepenny Corporation*;
Treasurer, Financial Officer and Director:
The Dreyfus Trust Company++;
Treasurer and Director:
Dreyfus Management, Inc.*;
Dreyfus Service Corporation*;
Formerly, President and Director:
Sandalls & Co., Inc.
MARK N. JACOBS Vice President, Secretary and Director:
Vice President, Lion Management, Inc.*;
General Counsel Secretary:
and Secretary The Dreyfus Consumer Credit Corporation*;
Dreyfus Management, Inc.*;
Assistant Secretary:
Dreyfus Service Organization, Inc.**;
Major Trading Corporation*;
The Truepenny Corporation*
PATRICE M. KOZLOWSKI None
Vice President-
Corporate Communications
MARY BETH LEIBIG None
Vice President-
Human Resources
ANDREW S. WASSER Vice President:
Vice President-Information Mellon Bank Corporation***
Services
WILLIAM V. HEALEY President:
Assistant Secretary The Truepenny Corporation*;
Vice President and Director:
The Dreyfus Consumer Credit Corporation*;
Secretary and Director:
Dreyfus Partnership Management Inc.*;
Director:
The Dreyfus Trust Company++;
Assistant Secretary:
Dreyfus Service Corporation*;
Dreyfus Investment Advisors, Inc.*;
Assistant Clerk:
Dreyfus Insurance Agency of Massachusetts,
Inc.+++++
______________________________________
* The address of the business so indicated is 200 Park Avenue, New York,
New York 10166.
** The address of the business so indicated is 131 Second Street,
Lewes, Delaware 19958.
*** The address of the business so indicated is One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258.
**** The address of the business so indicated is One Boston Place,
Boston, Massachusetts 02108.
+ The address of the business so indicated is Atrium Building,
80 Route 4 East, Paramus, New Jersey 07652.
++ The address of the business so indicated is 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144.
+++ The address of the business so indicated is 69, Route `d'Esch, L-
1470 Luxembourg.
++++ The address of the business so indicated is 69, Route `d'Esch, L-
2953 Luxembourg.
+++++ The address of the business so indicated is 53 State Street, Boston,
Massachusetts 02103.
Item 29. Principal Underwriters
________ ______________________
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or
exclusive distributor:
1) Comstock Partners Funds, Inc.
2) Dreyfus A Bonds Plus, Inc.
3) Dreyfus Appreciation Fund, Inc.
4) Dreyfus Asset Allocation Fund, Inc.
5) Dreyfus Balanced Fund, Inc.
6) Dreyfus BASIC GNMA Fund
7) Dreyfus BASIC Money Market Fund, Inc.
8) Dreyfus BASIC Municipal Fund, Inc.
9) Dreyfus BASIC U.S. Government Money Market Fund
10) Dreyfus California Intermediate Municipal Bond Fund
11) Dreyfus California Tax Exempt Bond Fund, Inc.
12) Dreyfus California Tax Exempt Money Market Fund
13) Dreyfus Cash Management
14) Dreyfus Cash Management Plus, Inc.
15) Dreyfus Connecticut Intermediate Municipal Bond Fund
16) Dreyfus Connecticut Municipal Money Market Fund, Inc.
17) Dreyfus Florida Intermediate Municipal Bond Fund
18) Dreyfus Florida Municipal Money Market Fund
19) The Dreyfus Fund Incorporated
20) Dreyfus Global Bond Fund, Inc.
21) Dreyfus Global Growth Fund
22) Dreyfus GNMA Fund, Inc.
23) Dreyfus Government Cash Management
24) Dreyfus Growth and Income Fund, Inc.
25) Dreyfus Growth and Value Funds, Inc.
26) Dreyfus Growth Opportunity Fund, Inc.
27) Dreyfus Income Funds
28) Dreyfus Institutional Money Market Fund
29) Dreyfus Institutional Short Term Treasury Fund
30) Dreyfus Insured Municipal Bond Fund, Inc.
31) Dreyfus Intermediate Municipal Bond Fund, Inc.
32) Dreyfus International Funds, Inc.
33) Dreyfus Investment Grade Bond Funds, Inc.
34) The Dreyfus/Laurel Funds, Inc.
35) The Dreyfus/Laurel Funds Trust
36) The Dreyfus/Laurel Tax-Free Municipal Funds
37) Dreyfus LifeTime Portfolios, Inc.
38) Dreyfus Liquid Assets, Inc.
39) Dreyfus Massachusetts Intermediate Municipal Bond Fund
40) Dreyfus Massachusetts Municipal Money Market Fund
41) Dreyfus Massachusetts Tax Exempt Bond Fund
42) Dreyfus MidCap Index Fund
43) Dreyfus Money Market Instruments, Inc.
44) Dreyfus Municipal Bond Fund, Inc.
45) Dreyfus Municipal Cash Management Plus
46) Dreyfus Municipal Money Market Fund, Inc.
47) Dreyfus New Jersey Intermediate Municipal Bond Fund
48) Dreyfus New Jersey Municipal Bond Fund, Inc.
49) Dreyfus New Jersey Municipal Money Market Fund, Inc.
50) Dreyfus New Leaders Fund, Inc.
51) Dreyfus New York Insured Tax Exempt Bond Fund
52) Dreyfus New York Municipal Cash Management
53) Dreyfus New York Tax Exempt Bond Fund, Inc.
54) Dreyfus New York Tax Exempt Intermediate Bond Fund
55) Dreyfus New York Tax Exempt Money Market Fund
56) Dreyfus 100% U.S. Treasury Intermediate Term Fund
57) Dreyfus 100% U.S. Treasury Long Term Fund
58) Dreyfus 100% U.S. Treasury Money Market Fund
59) Dreyfus 100% U.S. Treasury Short Term Fund
60) Dreyfus Pennsylvania Intermediate Municipal Bond Fund
61) Dreyfus Pennsylvania Municipal Money Market Fund
62) Dreyfus Premier California Municipal Bond Fund
63) Dreyfus Premier Equity Funds, Inc.
64) Dreyfus Premier International Funds, Inc.
65) Dreyfus Premier GNMA Fund
66) Dreyfus Premier Worldwide Growth Fund, Inc.
67) Dreyfus Premier Insured Municipal Bond Fund
68) Dreyfus Premier Municipal Bond Fund
69) Dreyfus Premier New York Municipal Bond Fund
70) Dreyfus Premier State Municipal Bond Fund
71) Dreyfus Premier Value Fund
72) Dreyfus Index Funds, Inc.
73) Dreyfus Short-Intermediate Government Fund
74) Dreyfus Short-Intermediate Municipal Bond Fund
75) The Dreyfus Socially Responsible Growth Fund, Inc.
76) Dreyfus Stock Index Fund, Inc.
77) Dreyfus Tax Exempt Cash Management
78) The Dreyfus Third Century Fund, Inc.
79) Dreyfus Treasury Cash Management
80) Dreyfus Treasury Prime Cash Management
81) Dreyfus Variable Investment Fund
82) Dreyfus Worldwide Dollar Money Market Fund, Inc.
83) General California Municipal Bond Fund, Inc.
84) General California Municipal Money Market Fund
85) General Government Securities Money Market Fund, Inc.
86) General Money Market Fund, Inc.
87) General Municipal Bond Fund, Inc.
88) General Municipal Money Market Fund, Inc.
89) General New York Municipal Bond Fund, Inc.
90) General New York Municipal Money Market Fund
(b)
Positions and
Name and principal Positions and offices with offices with
business address the Distributor Registrant
__________________ ___________________________ _____________
Marie E. Connolly+ Director, President, Chief President and
Executive Officer and Compliance Treasurer
Officer
Joseph F. Tower, III+ Director, Senior Vice President, Vice President
Treasurer and Chief Financial and Assistant
Officer Treasurer
Richard W. Ingram Executive Vice President Vice President
and Assistant
Treasurer
Mary A. Nelson+ Vice President Vice President
and Assistant
Treasurer
Paul Prescott+ Vice President None
Jean M. O'Leary+ Assistant Secretary and None
Assistant Clerk
John W. Gomez+ Director None
William J. Nutt+ Director None
________________________________
+ Principal business address is 60 State Street, Boston, Massachusetts
02109.
++ Principal business address is 200 Park Avenue, New York, New York 10166.
Item 30. Location of Accounts and Records
________________________________
1. First Data Investor Services Group, Inc.,
a subsidiary of First Data Corporation
P.O. Box 9671
Providence, Rhode Island 02940-9671
2. Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
3. Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, Rhode Island 02940-9671
4. The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Item 31. Management Services
_______ ___________________
Not Applicable
Item 32. Undertakings
________ ____________
(1) To file a post-effective amendment, using financial statements
which need not be certified, within four to six months, from the
effective date of Registrant's 1933 Act Registration Statement
with respect to the Registrant's Dreyfus Technology Growth Fund.
(2) To call a meeting of shareholders for the purpose of voting upon
the question of removal of a Board member or Board members when
requested in writing to do so by the holders of at least 10% of
the Registrant's outstanding shares and in connection with such
meeting to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder
communications.
(3) To furnish each person to whom a prospectus is delivered with a
copy of the Fund's latest Annual Report to Shareholders, upon
request and without charge.
SIGNATURES
_________
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State
of New York on the 26th day of February 1998.
DREYFUS INCOME FUNDS
BY: /s/Marie E. Connolly*
-----------------------------------
Marie E. Connolly, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signatures Title Date
__________________________ ______________________________ __________
/s/Marie E. Connolly* President and Treasurer 2/26/98
- --------------------------- (Principal Executive,
Marie E. Connolly Accounting and Financial Officer)
/s/David W. Burke* Board Member 2/26/98
- ---------------------------
David W. Burke
/s/Joseph S. DiMartino* Board Member 2/26/98
- ---------------------------
Joseph S. DiMartino
/s/Diane Dunst* Board Member 2/26/98
- ---------------------------
Diane Dunst
/s/Rosalind Gersten Jacobs* Board Member 2/26/98
- ---------------------------
Rosalind Gersten Jacobs
/s/Jay I. Meltzer* Board Member 2/26/98
- ---------------------------
Jay I. Meltzer
/s/Daniel Rose* Board Member 2/26/98
- ---------------------------
Daniel Rose
/s/Warren B. Rudman* Board Member 2/26/98
- ---------------------------
Warren B. Rudman
/s/Sander Vanocur* Board Member 2/26/98
- ---------------------------
Sander Vanocur
*BY: /s/Richard W. Ingram
---------------------------
Richard W. Ingram,
Attorney-in-Fact
EXHIBIT INDEX
---------------
Exhibits
(11) Consent of Independent Auditors
(17) Financial Data Schedule
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Condensed
Financial Information" and "Transfer and Dividend Disbursing Agent,
Custodian, Counsel and Independent Auditors" and to the use of our reports
dated December 17, 1997 Dreyfus Income Funds (comprising Dreyfus Equity
Dividend Fund, Dreyfus High Yield Securities Fund, Dreyfus Real Estate Mortgage
Fund, Dreyfus Short Term High Yield Fund and Dreyfus Strategic Income Fund),
which is incorporated by reference, in this Registration Statement (Form N-1A
No. 33-7172) of Dreyfus Income Funds.
ERNST & YOUNG LLP
New York, New York
February 24, 1998
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<NET-INVESTMENT-INCOME> 8137
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<APPREC-INCREASE-CURRENT> 134
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<DISTRIBUTIONS-OF-GAINS> (105)
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<GROSS-EXPENSE> 1082
<AVERAGE-NET-ASSETS> 81191
<PER-SHARE-NAV-BEGIN> 12.69
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<PER-SHARE-NAV-END> 12.98
<EXPENSE-RATIO> .013
<AVG-DEBT-OUTSTANDING> 3045
<AVG-DEBT-PER-SHARE> .49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000797073
<NAME> DREYFUS INCOME FUNDS
<SERIES>
<NUMBER> 5
<NAME> DREYFUS REAL ESTATE MORTGAGE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
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<INVESTMENTS-AT-VALUE> 11574
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<ASSETS-OTHER> 102
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<TOTAL-ASSETS> 13976
<PAYABLE-FOR-SECURITIES> 2987
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 593
<TOTAL-LIABILITIES> 3580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10242
<SHARES-COMMON-STOCK> 819
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 124
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (18)
<NET-ASSETS> 10396
<DIVIDEND-INCOME> 7
<INTEREST-INCOME> 49
<OTHER-INCOME> 0
<EXPENSES-NET> 8
<NET-INVESTMENT-INCOME> 48
<REALIZED-GAINS-CURRENT> 124
<APPREC-INCREASE-CURRENT> (18)
<NET-CHANGE-FROM-OPS> 154
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 819
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10396
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33
<AVERAGE-NET-ASSETS> 10150
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> 0
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.69
<EXPENSE-RATIO> .009
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
