<PAGE>
Dreyfus
High Yield
Securities Fund
Annual Report
October 31, 1997
<PAGE>
Dreyfus High Yield Securities Fund
Letter to Shareholders
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus High Yield
Securities Fund. For the 12-month period ended October 31, 1997, your Fund
achieved a total return, including share price changes and dividend income,
of 21.13%.* Income dividends paid from net investment income during the
period amounted to $1.56 per share, representing a distribution rate per
share of 10.41%.**
Economic Review
With the level of inflation at its lowest since 1964, and unemployment
still near a 23-year low, the economy continued its solid growth over the
reporting period. Gross Domestic Product (GDP) _ the dollar total of all
goods and services produced in the United States _ has grown in excess of 3%
for the past four quarters, a level and consistency of gain unmatched since
1984. This extraordinary economic performance has been fueled by huge
business investment in new plant and equipment as well as a renewed surge in
consumer spending over the summer. Consumers play a substantial role in
determining the course of the economy since their spending accounts for
two-thirds of all economic activity. Retail sales rose through the summer and
into September, although there was some sign of deceleration as the third
quarter progressed.
The big economic story continued to be the lack of inflation in an
economy in its seventh year of expansion. This remarkable price stability, at
a time in the business cycle when inflationary pressures would usually be
apparent, has enabled the Federal Reserve Board (the "Fed") to refrain from
tightening monetary policy. The Federal Open Market Committee (FOMC), the
policy-making arm of the Fed, has raised interest rates just once in over two
years, a period roughly coinciding with the surge of growth in the economy.
The last increase in short-term interest rates came on March 25, 1997 when
the FOMC increased the Federal Funds rate by a modest one-quarter of a
percentage point to 5.50%. (The Federal Funds rate is the rate of interest
that banks charge one another for overnight loans.)
Of course, the recent financial market turbulence arising from currency
devaluations in some of the economically weaker Southeast Asian countries has
added a cautionary note to any Fed monetary actions that might further roil
investment markets. The Southeast Asian economies have been cooling or in
outright recession for some time and represent a large share of the global
economy and the U.S. import/export market. The recent crisis has boosted the
value of the U.S. dollar and could further dampen the demand for U.S. exports
to this region. This bodes well for continued low inflation in the U.S. and
weakens the argument that we are on the brink of price acceleration.
In fact, inflation remains in check. The Implicit Price Deflator, an
indicator of inflation that measures the prices of all goods and services in
the U.S., has risen at an annual rate of less than 2% for the past two
quarters. This favorable trend in prices has been mirrored by both the
Consumer Price and Producer Price Indices. The Labor Department's Employment
Cost Index, a broad measure of changes in wages and benefits, has indicated
relatively modest increases in labor costs. Still, the labor market remains
tight, with the unemployment rate at a level unmatched in 23 years.
Whether the economy will slow without further monetary restraint by the
Fed remains an open question. Industrial production has been strong and
operating rates, an indicator of possible future price pressures, have edged
to their highest
level in two years. Of paramount concern to Fed Chairman Alan Greenspan is
the possibility of continuing economic growth so strong that the unemployment
rate is driven even lower, and a subsequent corresponding upsurge in wage
rates reignites inflation. The performance of the economy over the coming
months appears crucial in determining whether the Fed will actively restrain
the economy. We remain alert to changes in economic trends that would
increase the risk of rising inflation and, consequently, the prospect of
higher interest rates.
Market Environment
The high yield market ended another fairly exuberant period that
corrected in March and April, rallied throughout the summer, and finished
with a much weaker correction late in October due to turmoil in the emerging
market sectors. The forces driving market strength include investor demand
for high yield assets, continued strong, steady growth in the domestic
economy, and less perceived credit risk in key sectors like
telecommunications and cable. The influence of emerging markets debt has
grown as more foreign corporations have issued high yield bonds. Investor
sell-off of these issues in October briefly spilled over into domestic high
yield issues, but concerns of heavy high yield mutual fund redemptions proved
unwarranted. In fact, continued positive demand has supported the high yield
market during this recent turmoil. Until the worldwide effects of the Asian
monetary crisis are better understood, the high yield market should expect
some level of short-term volatility.
The Portfolio
We are pleased to report that your Fund's total return ranked 6th out of
173 funds in the Lipper High Current Yield Category for the one-year period
ended October 31, 1997. For the six months ended October 31, 1997, the
Dreyfus High Yield Securities Fund achieved a total return of 15.49%. The
Fund's relative performance has been primarily aided by its overweighting in
telecommunications and radio issues.
The solid economy and strong capital markets over the last year bode well
for holders of credit risk. The Fund's investments are concentrated in two
areas. One area is special situations for pursuing high total return, which
generally involve bonds bought at a discount with a potential trigger event
identified to unleash the projected value. Investments in this area that
favorably affected the performance of the Fund were Revlon, Spanish
Broadcasting System, Microcell Telecommunications, and CCA Holdings. The
other area is high coupon stable credits to generate interest income.
Investments in DeepTech International and Fairchild positively contributed to
the Fund's performance.
Asset-backed securities, once a major investment area, have declined as a
percentage of the Fund as they appear to have become fully valued by the
market. Industries expected to have good prospects are telecommunications,
oil field services, aerospace, radio broadcasting, and cable television.
Given the volatility in the market, our limited exposure to emerging
markets was advantageous for the Fund. In addition, foreign holdings are
concentrated in investment-grade countries like Canada, Germany, and
Colombia, and are generally in companies where investment-grade multinational
firms like Sprint, Bell Canada, and News Corp. have significant equity
stakes. No changes in this strategy currently are anticipated.
Our primary task _ to maximize total return through capital appreciation
and high current income _ will guide our portfolio management decisions. We
will continue to use intensive fundamental research in seeking to achieve
high returns while minimizing risk. We feel this approach will reward the
patient investor.
Very truly yours,
[Roger King signature logo]
Roger King
Portfolio Manager
November 18, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** Distribution rate per share is based upon dividends per share paid from
net investment income during the period, divided by the net asset value per
share at the end of the period, adjusted for capital gain distributions.
<PAGE>
Dreyfus High Yield Securities Fund October 31, 1997
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS HIGH YIELD
SECURITIES FUND AND THE MERRILL LYNCH HIGH YIELD MASTER II INDEX
$13,956
Dreyfus High Yield
Securities Fund
Dollars
$12,177
Merrill Lynch
High Yield
Master II Index*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
Average Annual Total Returns
- --------------------------------------------------------------------------------
One Year Ended From Inception (3/25/96)
October 31, 1997 to October 31, 1997
---------------- ------------------------
21.13% 23.16%
- ------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus High Yield
Securities Fund on 3/25/96 (Inception Date) to a $10,000 investment made in
the Merrill Lynch High Yield Master II Index on that date. For comparative
purposes, the value of the Index on 3/31/96 is used as the beginning value on
3/25/96. All dividends and capital gain distributions are reinvested.
The Fund seeks to achieve its objective by investing in lower rated
fixed-income securities, commonly known as "Junk Bonds". The Fund's
performance shown in the line graph takes into account all applicable fees
and expenses. The Merrill Lynch High Yield Master II Index is a market
capitalization weighted index including all domestic and yankee high-yield
bonds with at least $100 million par amount outstanding and greater than or
equal to one year to maturity. Both interest and price changes for the Index
are calculated daily based on an accrued schedule and trader pricing. The
Index does not take into account charges, fees and other expenses. Further
information relating to Fund performance, including expense reimbursements, if
applicable, is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Investments October 31, 1997
<TABLE>
<CAPTION>
Principal
Bonds and Notes--82.5% Amount Value
- -------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
Aircraft & Aerospace--4.4% AM General,
Sr. Notes, 12 7/8%, 2002.................... $ 2,500,000 $ 2,687,500
Aircraft Lease Portfolio Securitisation 96-1
Pass Through Trust, Ctfs.,
Cl. D, 12 3/4%, 2006........................ 997,252 1,077,033
Fairchild,
Sub. Deb., 12%, 2001........................ 1,500,000 1,515,000
RHI Holdings,
Sr. Sub. Deb., 11 7/8%, 1999................ 73,000 72,818
------------
5,352,351
------------
Automotive--5.9% Aetna Industries,
Sr. Notes, 11 7/8%, 2006.................... 4,000,000 4,020,000
Glasstech,
Sr. Notes, 12 3/4%, 2004 (Units)............ 2,000,000(a,b) 2,120,000
United Auto Group,
Sr. Sub. Notes, 11%, 2007................... 1,000,000(a) 1,027,500
------------
7,167,500
------------
Broadcasting--2.7% Capstar Broadcasting Partners,
Sr. Discount Notes, Zero Coupon, 2002....... 1,750,000(c) 1,203,125
Radio One,
Sr. Sub. Notes, 7%, 2004.................... 1,000,000(a,d) 965,000
Scandinavian Broadcasting System SA,
Conv. Sub. Deb, 7 1/4%, 2005................ 1,000,000 1,047,500
------------
3,215,625
------------
Building Materials--2.2% ICF Kaiser International:
Sr. Sub. Notes, 13%, 2003................... 1,285,000 1,339,613
Sr. Sub. Notes, 13%, 2003 (Units)........... 1,188,000(b) 1,247,400
------------
2,587,013
------------
Cable Television--7.0% CCA Holdings,
Sr. Sub. Notes, Zero Coupon, 1999........... 9,328,404 6,912,500
Echostar Satellite Broadcast,
Gtd. Sr. Secured Notes, 12 1/2%, 2002....... 500,000(a) 533,750
OpTel,
Sr. Notes, 13%, 2005........................ 1,000,000 1,035,000
------------
8,481,250
------------
Commercial
Mortgage Backed--1.1% Structured Asset Securities,
Multiclass Pass-Through Ctfs., REMIC, Ser. 1996-CFL,
Cl. H, 7 3/4%, 2028......................... 1,750,000(a) 1,371,563
------------
Consumer--2.8% BPC Holding,
Sr. Secured Notes, 12 1/2%, 2006............ 1,248,000 1,379,040
Packing Resources,
Sr. Secured Notes, 13%, 2003................ 2,000,000 1,970,000
------------
3,349,040
------------
</TABLE>
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1997
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
Energy--7.4% DeepTech International,
Sr. Secured Notes, 11%, 2000................ $ 3,000,000(a) $ 3,015,000
Petsec Energy,
Sr. Sub. Notes, 9 1/2%, 2007................ 2,600,000(a) 2,684,500
Rutherford-Moran Oil,
Sr. Sub. Notes, 10 3/4%, 2004............... 2,250,000(a) 2,216,250
Statia Terminals,
First Mortgage, Ser. B, 11 3/4%, 2003....... 1,000,000 1,065,000
------------
8,980,750
------------
Financial--3.7% Cityscape Financial,
Sr. Notes, 12 3/4%, 2004.................... 500,000 352,500
Emergent Group,
Sr. Notes, 10 3/4%, 2004.................... 1,000,000(a) 985,000
Southern Pacific Funding,
Sr. Notes, 11 1/2%, 2004.................... 1,000,000 1,002,500
Wilshire Financial Services Group,
Sr. Notes, Ser. A, 13%, 2004................ 2,000,000(a) 2,085,000
------------
4,425,000
------------
Foods and Beverages--1.0% American Rice,
First Mortgage, 13%, 2002 .................. 1,213,000 1,219,065
------------
Foreign--5.7% Comunicacion Celular SA,
Bonds, Zero Coupon, 2000 ................... 1,000,000(e) 755,000
Innova,
Sr. Notes, 12 7/8%, 2007.................... 2,000,000 2,020,000
Ionica PLC,
Sr. Discount Notes, Zero Coupon, 2002....... 2,000,000(f) 1,090,000
Kabelmedia Holdings GMBH,
Sr. Discount Notes, Zero Coupon, 2001....... 1,000,000(g) 715,000
Occidente y Caribe Celular SA,
Sr. Discount Notes, Zero Coupon, 2001....... 1,910,000(h) 1,461,150
Pratama Datakom Asia B.V.,
Gtd. Sr. Notes, 12 3/4%, 2005............... 1,000,000(a) 885,000
------------
6,926,150
------------
Forest Products--.9% Maxxam Group Holdings,
Sr. Secured Notes, 12%, 2003................ 1,000,000 1,072,500
------------
Gaming--1.4% Waterford Gaming, L.L.C./ Finance,
Sr. Notes, 12 3/4%, 2003.................... 1,500,000(a) 1,663,125
------------
Homebuilding--1.0% Oriole Homes,
Sr. Notes, 12 1/2%, 2003.................... 1,286,000 1,189,550
------------
Personnel Services--.8% Employee Solutions,
Sr. Notes, 10%, 2004........................ 1,000,000(a) 985,000
------------
</TABLE>
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1997
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
Residential
Mortgage Backed--4.0% BA Mortgage Securities,
Mortgage Pass-Through Ctfs.,
Ser. 1997-1, Cl. B4, 7 1/2%, 2026........... $ 673,142(a) $ 482,348
Chase Mortgage Finance,
Multiclass Mortgage Pass-Through Ctfs.,
Ser. 1994-E, Cl. B6, 6 1/4%, 2010........... 426,372(a) 162,022
Citicorp Mortgage Securities,
REMIC, Pass-Through Ctfs.,
Ser. 1994-9, Cl. B2, 5 3/4%, 2009........... 502,476(a) 190,941
GE Capital Mortgage Services:
Home Equity Loan Pass-Through Ctfs.,
Ser. 1996-HE4, Cl. B5, 9.389%, 2026...... 1,949,644(a,d) 448,418
REMIC, Multi-Class Pass-Through Ctfs.:
Ser. 1993-13, Cl. B5, 6%, 2008........... 487,418(a) 185,219
Ser. 1994-15, Cl. B5, 6%, 2009........... 763,775(a) 290,235
Ser. 1994-21, Cl. B5, 6 1/2%, 2009....... 1,002,314(a) 380,879
Ser. 1996-10, Cl. B5, 6 3/4%, 2011....... 354,358(a) 134,656
Ser. 1996-12, Cl. B5, 7 1/4%, 2011....... 414,200(a) 157,396
Ser. 1996-14, Cl. 2B5, 7 1/4%, 2011...... 424,346(a) 161,252
MORSERV,
Multi-Class Mortgage Pass-Through Ctfs.,
Ser. 1996-1, Cl. B5, 7%, 2011............... 507,055(a) 192,681
Norwest Asset Securities,
Mortgage Pass-Through Ctfs.:
Ser. 1996-8, Cl. B4, 7 1/2%, 2026........ 125,018(a) 106,031
Ser. 1996-8, Cl. B5, 7 1/2%, 2026........ 186,321(a) 70,802
Ser. 1997-11, Cl. B4, 7%, 2027........... 249,443(a) 192,461
Ser. 1997-11, Cl. B5, 7%, 2027........... 374,165(a) 149,198
Ser. 1997-15, Cl. B4, 6 3/4%, 2012....... 424,692(a) 338,427
Ser. 1997-15, Cl. B5, 6 3/4%, 2012....... 254,580(a) 98,013
Ser. 1997-16, Cl. B5, 6 3/4%, 2027....... 300,920(a) 114,350
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-7, Cl. B5, 6 3/4%, 2011........... 873,558(a) 331,952
Residential
Mortgage Backed (continued) Residential Accredit Loans,
Mortgage Asset-Backed Pass-Through Ctfs., REMIC,
Ser. 1997-QS6:
Cl. B2, 7 1/2%, 2012..................... 157,430(a) 130,962
Cl. B3, 7 1/2%, 2012..................... 368,075(a) 147,920
Structured Asset Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. Greenpoint 1996-A:
Cl. B5, 8.464%, 2027..................... 285,730(a,d) 217,803
Cl. B6, 8.464%, 2027..................... 357,715(a,d) 121,623
------------
4,805,589
------------
</TABLE>
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1997
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
Retail--.9% County Seat Stores,
Sr. Notes, 12 3/4%, 2004 (Units)............ $ 500,000(a,b) $ 505,000
J Crew Group,
Sr. Discount Notes, Zero Coupon, 2002....... 1,000,000(a,i) 545,000
------------
1,050,000
------------
Shipping--.4% Moran Transportation,
First Preferred Ship Mortgage Notes,
11 3/4%, 2004............................... 450,000 504,000
------------
Steel--1.3% Renco Metals,
Sr. Notes, 11 1/2%, 2003.................... 1,500,000 1,582,500
------------
Supermarkets--.7% Electronic Retailing Systems,
Sr. Discount Notes, Zero Coupon, 2000....... 1,250,000(j) 862,500
------------
Telecommunications--18.5% Advanced Radio Telecom,
Sr. Notes, 14%, 2007 (Units)................ 2,000,000(b) 2,093,500
GST USA,
Sr. Discount Notes, Zero Coupon, 2000....... 2,000,000(k) 1,430,000
HighwayMaster Communications,
Sr. Notes, 13 3/4%, 2005 (Units)............ 1,000,000(a,b) 990,000
Iridium LLC/Capital,
Sr. Notes:
Ser. A, 13%, 2005........................ 1,000,000 1,015,000
Ser. B, 14%, 2005........................ 1,000,000 1,055,000
MGC Communications,
Sr. Secured Notes, 13%, 2004 (Units)....... 2,000,000(a,b) 1,990,000
OrbCommunications Global, L.P./Capital,
Sr. Notes, 14%, 2004........................ 2,000,000 2,105,000
Orion Network Systems,
Sr. Discount Notes, Zero Coupon, 2002 (Units) 1,000,000(b,l) 745,000
RCN,
Sr. Discount Notes, Zero Coupon, 2002....... 4,000,000(a,m) 2,340,000
RSL Communications, Ltd.,
Gtd. Sr. Notes, 12 1/4%, 2006 .............. 880,000 963,600
Source Media,
Sr. Secured Notes, 12%, 2004................ 1,000,000(a) 1,000,000
Verio,
Sr. Notes, 13 1/2%, 2004 (Units)............ 1,000,000(a,b) 1,205,000
Viatel,
Sr. Discount Notes, Zero Coupon, 2000....... 7,000,000(n) 5,355,000
------------
22,287,100
------------
Textiles--1.3% Sassco Fashions,
Sr. Notes, 12 3/4%, 2004.................... 1,500,000 1,582,500
------------
Trading--.6% Teletrac,
Sr. Notes, 14%, 2007 (Units)................ 750,000(b) 761,250
------------
</TABLE>
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1997
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
Transportation--6.8% Golden Ocean Group, Ltd.,
Sr. Notes, 10%, 2001 (Units)................ $ 3,000,000(a,o) $ 2,475,000
International Logistics, Ltd.,
Sr. Notes, 9 3/4%, 2007..................... 500,000(a) 495,000
ValuJet,
Sr. Notes, 10 1/4%, 2001.................... 5,650,000 5,268,625
------------
8,238,625
------------
TOTAL BONDS AND NOTES
(cost $96,753,102).......................... $ 99,659,546
------------
------------
Equity-Related Securities--18.6% Shares
- -------------------------------------------------------------------------------- -------------
Common Stock--.0%
Cable Television; OpTel.......................................... 1,000(a,p) $ 10
------------
Preferred Stock--17.4%
Broadcasting--10.8% Evergreen Media (AM FM),
Conv. Cum., $3.00........................... 30,000(a) 1,848,750
Pegasus Media & Communications:
Cum., $127.50............................... 54 59,724
Cum., $127.50 (Units)....................... 5,109(b) 5,658,218
Spanish Broadcasting System,
Cum., $142.50............................... 5,200(a) 5,512,000
------------
13,078,692
------------
Energy--2.1% Clark USA,
Sr. Cum., $115.00........................... 2,500(a) 2,525,000
------------
Publishing--.9% Source Media,
Cum., $3.375 (Units)........................ 40,000(a,b) 1,020,000
------------
Supermarkets--1.6% Supermarkets General,
Cum., $3.52................................. 96,000(p) 1,920,000
------------
Telecommunications--2.0% American Communications Services,
Jr. Cum., $127.50........................... 1,000(a) 945,000
Hyperion Telecommunications,
Cum., $128.75............................... 10,000(a) 973,750
Jordan Telecommunication Products,
Sr. Cum., $132.50 (Units)................... 500(a,q) 555,000
------------
2,473,750
------------
Total Preferred Stocks......................... 21,017,442
------------
</TABLE>
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1997
<TABLE>
<CAPTION>
Equity-Related Securities (continued) Shares Value
- -------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C> <C>
Warrants--1.2%
Broadcasting--.6% Spanish Broadcasting System.................... 3,000(a,p) $ 705,000
------------
Foreign--.0% Comunicacion Celular SA........................ 1,000(p) 60,000
Occidente y Caribe Celular SA.................. 7,640(p) 7,640
------------
67,640
------------
Supermarkets--.1% Electronic Retailing Systems................... 1,250(p) 75,000
------------
Telecommunications--.5% Hyperion Telecommunications.................... 1,000(p) 75,000
Iridium LLC.................................... 1,000(p) 125,000
Microcell Telecommunications:
Initial Warrants............................ 16,000(p) 304,000
Conditional Warrants........................ 16,000(p) 2
RSL Communications, Ltd........................ 880(p) 79,200
------------
583,202
------------
Transportation--.0% Golden Ocean Group, Ltd........................ 3,000(a,p) 30
------------
Total Warrants................................. 1,430,872
------------
TOTAL EQUITY-RELATED SECURITIES
(cost $21,130,254).......................... $ 22,448,324
------------
------------
TOTAL INVESTMENTS (cost $117,883,356)........................................... 101.1% $122,107,870
------ ------------
------ ------------
LIABILITIES, LESS CASH AND RECEIVABLES.......................................... (1.1%) $ (1,290,265)
------ ------------
------ ------------
NET ASSETS...................................................................... 100.0% $120,817,605
------ ------------
------ ------------
</TABLE>
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Notes to Statement of Investments:
- --------------------------------------------------------------------------------
(a) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1997, these securities amounted to $50,971,817 or 42.2% of net assets.
(b) With Warrants to purchase common stock.
(c) Zero coupon until 2/1/2002, date on which a stated coupon rate of 12 3/4%
becomes effective; the stated maturity is 2/1/2009.
(d) Variable rate security--interest rate subject to periodic change.
(e) Zero coupon until 11/15/2000, date on which a stated coupon rate of 13 1/8%
becomes effective; the stated maturity is 11/15/2003.
(f) Zero coupon until 5/1/2002, date on which a stated coupon rate of 15%
becomes effective; the stated maturity is 5/1/2007.
(g) Zero coupon until 8/1/2001, date on which a stated coupon rate of 13 5/8%
becomes effective; the stated maturity is 8/1/2006.
(h) Zero coupon until 3/15/2001, date on which a stated coupon rate of 14%
becomes effective; the stated maturity is 3/15/2004.
(i) Zero coupon until 10/15/2002, date on which a stated coupon rate of 13 1/8%
becomes effective; the stated maturity is 10/15/2008.
(j) Zero coupon until 2/1/2000, date on which a stated coupon rate of 13 1/4%
becomes effective; the stated maturity is 2/1/2004.
(k) Zero coupon until 12/15/2000, date on which a stated coupon rate of 13 7/8%
becomes effective; the stated maturity is 12/15/2005.
(l) Zero coupon until 1/15/2002, date on which a stated coupon rate of 12 1/2%
becomes effective; the stated maturity is 1/15/2007.
(m) Zero coupon until 10/15/2002, date on which a stated coupon rate of 11 1/8%
becomes effective; the stated maturity is 10/15/2007.
(n) Zero coupon until 1/15/2000, date on which a stated coupon rate of 15%
becomes effective; the stated maturity is 1/15/2005.
(o) With warrants to purchase additional notes.
(p) Non-income producing.
(q) With common stock attached.
See notes to financial statements.
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1997
<TABLE>
<CAPTION>
Cost Value
------------ ------------
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments $117,883,356 $122,107,870
Cash............................................. 1,108,034
Receivable for investment securities sold........ 3,362,010
Receivable for shares of Beneficial Interest subscribed 3,298,152
Dividends and interest receivable................ 1,789,336
Prepaid expenses and other assets................ 6,696
------------
131,672,098
------------
LIABILITIES: Due to The Dreyfus Corporation and affiliates.... 69,880
Bank loans payable--Note 2....................... 7,994,000
Payable for investment securities purchased...... 1,406,375
Payable for shares of Beneficial Interest redeemed 1,270,021
Interest payable................................. 40,714
Accrued expenses................................. 73,503
------------
10,854,493
------------
NET ASSETS..................................................................... $120,817,605
------------
------------
REPRESENTED BY: Paid-in capital.................................. $115,154,452
Accumulated undistributed investment income--net. 1,315,763
Accumulated net realized gain (loss) on investments 122,876
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4(b)...................... 4,224,514
------------
NET ASSETS..................................................................... $120,817,605
------------
------------
SHARES OUTSTANDING............................................................. 8,185,859
(unlimited number of $.001 par value shares of Beneficial Interest authorized)
NET ASSET VALUE, offering and redemption price per share--Note 3(d)............ $14.76
------
------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Operations Year Ended October 31, 1997
<TABLE>
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME: Interest................................... $ 7,821,825
Cash dividends............................. 535,621
-----------
Total Income............................. $ 8,357,446
EXPENSES: Management fee--Note 3(a).................. 425,180
Interest expense--Note 2................... 219,194
Shareholder servicing costs--Note 3(b)..... 200,888
Registration fees.......................... 55,638
Professional fees.......................... 25,340
Prospectus and shareholders' reports....... 14,687
Custodian fees--Note 3(b).................. 10,516
Trustees' fees and expenses--Note 3(c)..... 6,183
Miscellaneous.............................. 10,842
-----------
Total Expenses........................... 968,468
Less--reduction in management fee due to
undertakings--Note 3(a).................. (279,698)
-----------
Net Expenses............................. 688,770
-----------
INVESTMENT INCOME--NET................................................... 7,668,676
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments:
Long transactions........................ $ 112,150
Short sale transactions.................. 1,563
Net realized gain (loss) on financial futures (49,664)
-----------
Net Realized Gain (Loss)................. 64,049
Net unrealized appreciation (depreciation) on
investments [including $48,750 unrealized
appreciation on financial futures]....... 3,314,766
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS................... 3,378,815
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $11,047,491
-----------
-----------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996*
---------------- -----------------
<S> <C> <C>
OPERATIONS:
Investment income--net...................................................... $ 7,668,676 $ 1,270,718
Net realized gain (loss) on investments..................................... 64,049 598,178
Net unrealized appreciation (depreciation) on investments................... 3,314,766 909,748
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations........... 11,047,491 2,778,644
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net...................................................... (6,607,356) (1,016,275)
Net realized gain on investments............................................ (539,351) --
------------ ------------
Total Dividends........................................................... (7,146,707) (1,016,275)
------------ ------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold............................................... 157,007,092 35,821,078
Dividends reinvested........................................................ 5,302,674 662,219
Cost of shares redeemed..................................................... (70,249,795) (13,388,816)
------------ ------------
Increase (Decrease) in Net Assets from Beneficial Interest Transactions... 92,059,971 23,094,481
------------ ------------
Total Increase (Decrease) in Net Assets................................. 95,960,755 24,856,850
NET ASSETS:
Beginning of Period......................................................... 24,856,850 ------
------------ ------------
------------ ------------
End of Period............................................................... $120,817,605 $ 24,856,850
------------ ------------
------------ ------------
Undistributed investment income--net.......................................... $ 1,315,763 $ 254,443
------------ ------------
Shares Shares
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold................................................................. 10,939,518 2,722,666
Shares issued for dividends reinvested...................................... 378,089 49,314
Shares redeemed............................................................. (4,928,619) (975,109)
------------ ------------
Net Increase (Decrease) in Shares Outstanding............................. 6,388,988 1,796,871
------------ ------------
------------ ------------
<FN>
* From March 25, 1996 (commencement of operations) to October 31, 1996.
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Financial Highlights
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This information
has been derived from the Fund's financial statements.
<TABLE>
Year Ended October 31,
------------------------
PER SHARE DATA: 1997 1996(1)
------ --------
<S> <C> <C>
Net asset value, beginning of period........................................ $13.83 $12.50
------ ------
Investment Operations:
Investment income--net...................................................... 1.58 .69
Net realized and unrealized gain (loss) on investments...................... 1.14 1.19
------ ------
Total from Investment Operations............................................ 2.72 1.88
------ ------
Distributions:
Dividends from investment income--net....................................... (1.56) (.55)
Dividends from net realized gain on investments............................. (.23) --
------ ------
Total Distributions......................................................... (1.79) (.55)
------ ------
Net asset value, end of period.............................................. $14.76 $13.83
------ ------
------ ------
TOTAL INVESTMENT RETURN........................................................ 21.13%(2) 25.14%(2,3)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets........................... .71% .02%(3)
Ratio of interest expense to average net assets............................. .34% .27%(3)
Ratio of net investment income to average net assets........................ 11.72% 11.33%(3)
Decrease reflected in above expense ratios due to undertakings by the Manager .43% 1.55%(3)
Portfolio Turnover Rate..................................................... 252.50% 233.62%(4)
Net Assets, end of period (000's Omitted)................................... $120,818 $24,857
<FN>
- ---------------
(1) From March 25, 1996 (commencement of operations) to October 31, 1996.
(2) Exclusive of redemption fee.
(3) Annualized.
(4) Not annualized.
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus High Yield Securities Fund (the "Fund") is a series of Dreyfus Income
Funds (the "Company") which is registered under the Investment Company Act of
1940 ("Act") as a diversified open-end management investment company and
operates as a series company currently offering five series, including the Fund.
The Fund's investment objective is to maximize total return, consisting of
capital appreciation and current income. The Dreyfus Corporation ("Manager")
serves as the Fund's investment adviser. The Manager is a direct subsidiary of
Mellon Bank, N.A. ("Mellon"). Premier Mutual Fund Services, Inc. (the
"Distributor") is the distributor of the Fund's shares, which are sold to the
public without a sales charge.
The Company accounts separately for the assets, liabilities and operations of
each fund. Expenses directly attributable to each fund are charged to that
fund's operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding short-term
investments, financial futures and U.S. Government obligations) are valued each
business day by an independent pricing service ("Service") approved by the Board
of Trustees. Investments for which quoted bid prices are readily available and
are representative of the bid side of the market in the judgment of the Service
are valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Other investments
(which constitute a majority of the portfolio securities) are carried at fair
value as determined by the Service, based on methods which include consideration
of: yields or prices of securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions.
Securities for which there are no such valuations are valued at fair value as
determined in good faith under the direction of the Board of Trustees.
Investments in U.S. Government obligations, including U.S. Treasury Bills, are
valued at the mean between quoted bid and asked prices. Short-term investments,
excluding U.S. Treasury Bills, are carried at amortized cost, which approximates
value. Financial futures are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market on each business day. Investments
denominated in foreign currencies are translated to U.S. dollars at the
prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions
are recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income, including, where
applicable, amortization of discount on investments, is recognized on the
accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare and
pay dividends quarterly from investment income-net. Dividends from net realized
capital gain are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that net realized
capital gain can be offset by capital loss carryovers, if any, it is the policy
of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the applicable provisions of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes.
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2--Bank Lines of Credit:
The Fund may borrow up to $10 million for leveraging purposes under a
short-term unsecured line of credit and participates with other Dreyfus-managed
funds in a $100 million unsecured line of credit primarily to be utilized for
temporary or emergency purposes, including the financing of redemptions.
Interest is charged to the Fund at rates which are related to the Federal Funds
rate in effect at the time of borrowings. Outstanding borrowings on October 31,
1997, amounted to $7,994,000.
The average daily amount of borrowings outstanding under both arrangements
during the period ended October 31, 1997 was approximately $3.7 million, with a
related weighted average annualized interest rate of 5.95%. The maximum amount
borrowed at any time during the period ended October 31, 1997 was $12.1 million.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(A) Pursuant to a management agreement with the Manager, the management fee
is computed at the annual rate of .65 of 1% of the value of the Fund's average
daily net assets and is payable monthly. The Manager had undertaken from
November 1, 1996 through January 1, 1997, to waive receipt of the management fee
and shareholder services plan fee payable to it by the Fund, and thereafter, had
undertaken through September 29, 1997, to reduce the management fee paid by the
Fund, or reimburse such excess expenses of the Fund, exclusive of taxes,
brokerage, interest on borrowings and extraordinary expenses, to the extent that
the Fund's aggregate expenses exceeded specified annual percentages of the
Fund's average daily net assets. The reduction in management fee, pursuant to
the undertakings, amounted to $279,698 for the period ended October 31, 1997.
(B) Under the Shareholder Services Plan, the Fund pays the Distributor at an
annual rate of .25 of 1% of the value of the Fund's average daily net assets for
the provision of certain services. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund and providing reports and other information, and
services related to the maintenance of shareholder accounts. The Distributor may
make payments to Service Agents (a securities dealer, financial institution or
other industry professional) in respect of these services. The Distributor
determines the amounts to be paid to Service Agents. During the period ended
October 31, 1997, the Fund was charged $163,531 pursuant to the Shareholder
Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the
Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. During the period
ended October 31, 1997, the Fund was charged $22,269 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement to provide custodial
services for the Fund. During the period ended October 31, 1997, the Fund was
charged $10,516 pursuant to the custody agreement.
(C) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $2,500 and an attendance fee of $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
(D) A 1% redemption fee is charged and retained by the Fund on certain
redemptions of Fund shares (including redemptions through the use of the Fund
Exchanges service) where the redemption or exchange occurs within a six-month
period following the date of issuance. During the period ended October 31, 1997,
redemption fees amounted to $397,609.
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4--Securities Transactions:
(A) The following summarizes the aggregate amount of purchases and sales
(including paydowns) of investment securities and securities sold short,
excluding short-term securities and financial futures, during the period ended
October 31, 1997:
Purchases Sales
----------- ------------
Long transactions.................. $261,937,187 $174,348,566
Short sale transactions............ 10,362,500 10,364,063
------------ ------------
TOTAL........................... $272,299,687 $184,712,629
------------ ------------
------------ ------------
The Fund is engaged in short-selling which obligates the Fund to replace the
securities borrowed by purchasing the security at current market value. The Fund
would incur a loss if the price of the security increases between the date of
the short sale and the date on which the Fund replaces the borrowed security.
The Fund would realize a gain if the price of the security declines between
those dates. Until the Fund replaces the borrowed security, the Fund will
maintain daily, a segregated account with a broker and custodian, of cash and/or
U.S. Government securities sufficient to cover its short position. At October
31, 1997, there were no securities sold short outstanding.
The Fund may invest in financial futures contracts in order to gain exposure
to or protect against changes in the market. The Fund is exposed to market risk
as a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the Fund to "mark to market" on a daily
basis, which reflects the change in market value of the contracts at the close
of each day's trading. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains or losses. When the contracts are closed,
the Fund recognizes a realized gain or loss. These investments require initial
margin deposits with a custodian, which consist of cash or cash equivalents, up
to approximately 10% of the contract amount. The amount of these deposits is
determined by the exchange or Board of Trade on which the contract is traded and
is subject to change. At October 31, 1997, there were no financial futures
contracts outstanding.
(B) At October 31, 1997, accumulated net unrealized appreciation on
investments was $4,224,514, consisting of $6,052,901 gross unrealized
appreciation and $1,828,387 gross unrealized depreciation.
At October 31, 1997, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
<PAGE>
Dreyfus High Yield Securities Fund
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS HIGH YIELD SECURITIES FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus High Yield Securities Fund,
one of the Funds constituting Dreyfus Income Funds, as of October 31, 1997, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
financial highlights for each of the years indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held by the custodian as of October 31, 1997 and
confirmation of securities not held by the custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus High Yield Securities Fund at October 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated years, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
December 17, 1997
Important Tax Information (Unaudited)
In accordance with Federal tax law, the Fund hereby designates 5.58% of the
ordinary dividends paid during the fiscal year ended October 31, 1997 as
qualifying for the corporate dividends received deduction. Shareholders will
receive notification in January 1998 of the percentage applicable to the
preparation of their 1997 income tax returns.
<PAGE>
Dreyfus High Yield Securities Fund
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 043AR9710
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS HIGH YIELD SECURITIES FUND AND THE
MERRILL LYNCH HIGH YIELD MASTER II INDEX
EXHIBIT A:
MERRILL LYNCH DREYFUS
HIGH YIELD HIGH YIELD
PERIOD MASTER II SECURITIES
INDEX * FUND
3/25/96 10,000 10,000
4/30/96 10,014 10,080
7/31/96 10,193 10,823
10/31/96 10,651 11,522
1/31/97 11,038 12,465
4/30/97 11,195 12,085
7/31/97 11,915 13,289
10/31/97 12,177 13,956
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
