DREYFUS STRATEGIC INCOME FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for the Dreyfus Strategic Income
Fund. For its fiscal year ended October 31, 1997, your Fund produced a total
return, including share price changes and dividend income, of 11.94%,*
compared to 8.99% for the Merrill Lynch Domestic Master Index.** Income
dividends paid from net investment income during the period amounted to
approximately $1.023, representing a distribution rate per share of 6.89%.***
THE ECONOMY
With the level of inflation as low as has been seen 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 plants 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 now 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 AND PORTFOLIO FOCUS
Market interest rates have moved through more than a 100-basis-point
range during the past year. Ten-year U.S. Treasury rates peaked at nearly 7%
in April 1997 and have reached a current low of 5.8%. We have adjusted the
Fund's duration numerous times during this period, at times being modestly
longer than the benchmark Merrill Lynch Domestic Master Index, and at times
modestly shorter. On balance, the timing of these adjustments has had a
positive impact on the Fund's performance. In fact, it substantially
contributed to your Fund's strong performance compared to its peer group over
the past fiscal year.
The Fund has consistently been overweight in Corporate and Mortgage
securities and underweight in U.S. Treasuries. This strategy has served the
Fund well as spreads generally narrowed throughout the past year, until very
recently. At the end of October, spreads widened somewhat, reflecting
investors' concerns about a drop in the stock market and continuing economic
crises in several Asian countries. We remain underweight in U.S Treasuries,
believing that the best opportunities exist in other areas of the fixed
income market.
The greatest areas of sector concentration in the Fund are commercial
mortgages, residential mortgages, and banking-related corporate bonds. These
sectors have performed well during the past year and we anticipate further
positive performance. We have also benefited from investments in several
convertible bonds, namely Magnetek, Rite-Aid, and Scandinavian Broadcasting.
Our consistent underrepresentation in the agency mortgage sector has held
back performance, as these securities have performed well amid heavy
purchasing by Freddie Mac and Fannie Mae. However, we believe this position
is likely to benefit the Fund in the near future due to ever-increasing
prepayment risks at these lower interest rate levels.
As always, we remain focused on the Fund's investment objective to
maximize current income. We will be monitoring all areas of the fixed income
markets for superior risk/reward relationships to capitalize on in the Fund.
It is both an honor and a pleasure to be managing your investments.
Very truly yours,
[Kevin M. McClintock signature logo]
Kevin M. McClintock
Portfolio Manager
November 18, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** The Merrill Lynch Domestic Master Index is an unmanaged performance
benchmark for comparing portfolios that include U.S. Government, Mortgage and
BBB or higher rated corporate securities with maturities greater than or
equal to one year.
***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.
DREYFUS STRATEGIC INCOME FUND OCTOBER 31, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS STRATEGIC
INCOME FUND
AND THE MERRILL LYNCH DOMESTIC MASTER INDEX
[Exhibit A:
Dollars
$27,697
Dreyfus Strategic
Income Fund
$24,304
Merrill Lynch Domestic
Master Index*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.]
Average Annual Total Returns
<TABLE>
<CAPTION>
One Year Ended Five Years Ended Ten Years Ended
October 31, 1997 October 31, 1997 October 31, 1997
---------------------- ---------------------- -------------------------
<S> <C> <C>
11.94% 9.04% 10.72%
</TABLE>
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Strategic
Income Fund on 10/31/87 to a $10,000 investment made in the Merrill Lynch
Domestic Master Index (the "Index") on that date. All dividends and capital
gain distributions are reinvested.
The Fund invests primarily in debt securities of domestic and foreign
issuers. The Fund's performance shown in the line graph takes into account
all applicable fees and expenses. Unlike the Fund, the Index is an unmanaged
performance benchmark composed of U.S. Government, mortgage and BBB or
higher-rated corporate securities with maturities greater than or equal to
one year; corporate and Treasury securities in the Index must have par
amounts outstanding greater than or equal to $25 million and generic mortgage-
backed securities $200 million per coupon. The Index does not take into
account charges, fees and other expenses. Further information relating to
Fund performance, including expense reimbursements, if applicable, is
contained in the Financial Highlights section of the Prospectus and elsewhere
in this report.
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS OCTOBER 31, 1997
Principal
Bonds and Notes-101.7% Amount Value
______________ ______________
<S> <C> <C> <C>
Airlines- 2.6% America West Airlines Pass-Through Trust,
Pass-Through Ctfs.,
Ser. 1997-1, Cl. C, 7.53%, 2004...... $ 7,000,000 $ 7,212,187
_____________
Banking-4.9% Colonial Bancgroup ,
Gtd. Capital Securities, 8.92%, 2027. 9,000,000 9,443,826
First Union Institutional Capital I,
Gtd. Capital Securities, 8.04%, 2026. 4,000,000 4,170,948
_____________
13,614,774
_____________
Commercial
Mortgage Backed-17.8% 277 Park Avenue Finance,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1997-C1.:
Cl. A-2, 7.68%, 2007............................ 5,000,000 (a) 5,390,625
Cl. B-1, 7.88%, 2007............................ 5,000,000 (a) 5,389,063
AMRESCO Commercial Mortgage Funding I,
Mortgage Pass-Through Ctfs., Ser. 1997-C1,
Cl. F, 7.64%, 2029................................ 9,601,000 9,862,915
First Union-Lehman Brothers Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1997-C1, Cl. C, 7.44%, 2007.................. 4,000,000 4,210,625
GS Mortgage Securities II,
Ser. 1997-GL1, Cl. G, 7.8219%, 2030............... 4,000,000 (b) 4,122,320
Structured Asset Securities,
Multiclass Pass-Through Ctfs., REMIC,
Ser. 1996-CFL:
Cl. C, 6.525%, 2028............................. 7,192,927 (a) 7,194,051
Cl. F, 7 3\4%, 2028............................. 9,000,000 (a) 9,073,125
Cl. H, 7 3\4%, 2028............................. 4,750,000 (a) 3,722,813
_____________
48,965,537
_____________
Consumer-1.3% Revlon Worldwide,
Sr. Secured Discount Notes, Ser. B, Zero Coupon, 1998 3,500,000 3,430,746
_____________
Energy-5.1% DeepTech International,
Sr. Secured Notes, 12%, 2000...................... 4,850,000 5,116,750
Dual Drilling,
Sr. Sub. Notes, 9 7\8%, 2004...................... 3,000,000 3,232,500
Louisiana Land & Exploration,
Deb., 7.65%, 2023................................. 5,450,000 5,825,625
_____________
14,174,875
_____________
Entertainment- 1.1% Speedway Motorsports,
Sr. Sub. Notes, 81\2%, 2007....................... 3,000,000 3,015,000
_____________
Foreign-9.0% Industrial Finance of Thailand,
Bonds, 7 1\8%, 2002............................... 3,000,000 (a) 2,854,446
Petroleos Mexicanos,
Gtd. Notes, 8%, 1998.............................. 4,500,000 (a) 4,520,250
Power Finance, Ltd.,
Notes, 7 1\2%, 2009............................... 5,000,000 (a) 4,431,870
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1997
Principal
Bonds and Notes (continued) Amount Value
______________ ______________
Foreign (continued) Scandinavian Broadcasting,
Conv. Sub. Deb., 7 1\4%, 2005........ $ 4,455,000 $ 4,666,612
Teekay Shipping,
First Preferred Ship Mortgage Notes,
8.32%, 2008.......................... 8,250,000 8,291,250
_____________
24,764,428
_____________
Foreign/Governmental-6.2% Federative Republic of Brazil:
Bonds, 10 1\8%, 2027................. 2,000,000 1,500,000
Ser. L, Bonds, 8%, 2014.............. 4,561,040 3,124,312
Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5.719%, 2000 1,916,160 (b) 1,778,630
Republic of Colombia,
Notes, 8 3\8%, 2027.................. 5,000,000 4,606,195
Republic of Kazakhstan:
Notes, 9 1\4%, 1999.................. 3,500,000 (a) 3,465,000
Sr. Notes, 8 3\8%, 2002.............. 3,000,000 (a) 2,737,500
_____________
17,211,637
_____________
Industrial-1.6% Renco Metals,
Sr. Notes, 11 1\2%, 2003............. 2,845,000 3,001,475
Tracor,
Sr. Sub. Notes, 8 1\2%, 2007......... 1,500,000 1,533,750
_____________
4,535,225
_____________
Insurance-5.1% AFC Capital Trust I,
Gtd. Capital Securities, 8.207%, 2027 5,000,000 5,390,580
Aetna Industries,
Sr. Notes, 11 7\8%, 2006............. 8,600,000 8,643,000
_____________
14,033,580
_____________
Publishing-Newspapers-2.5% A.H. Belo:
Sr. Deb., 7 3\4%, 2027............... 1,250,000 1,340,804
Sr. Notes, 6 7\8%, 2002.............. 5,500,000 5,617,865
_____________
6,958,669
_____________
Real Estate-2.9% Crescent Real Estate Equities, L.P.,
Notes, 6 5\8%, 2002.................. 8,000,000 (a) 8,002,000
_____________
Residential
Mortgage Backed-8.0% GE Capital Mortgage Services:
Home Equity Loan Pass-Through Ctfs.,
Ser. 1996-HE4, Cl. B3, 9.389%, 2026............. 1,406,359 (a,b) 1,359,774
REMIC Multiclass Pass-Through Ctfs.:
Ser. 1993-11, Cl. B4, 6%, 2008.................. 159,797 (a) 150,559
Ser. 1993-15, Cl. B3, 6%, 2008.................. 444,102 (a) 417,456
Ser. 1996-10, Cl. B3, 6 3\4%, 2011.............. 530,705 (a) 499,195
Ser. 1996-12, Cl. B2, 7 1\4%, 2011.............. 826,743 (a) 846,637
Ser. 1996-12, Cl. B3, 7 1\4%, 2011.............. 353,910 (a) 341,524
Ser. 1996-14, Cl. 2B3, 7 1\4%, 2011............. 264,772 (a) 255,423
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1997
Principal
Bonds and Notes (continued) Amount Value
______________ ______________
Residential
Mortgage Backed (continued) MORSERV,
Sub. Multi-Class Mortgage Pass-Through Ctfs.,
Ser. 1996-1:
Cl. B2, 7%, 2011................................ $ 844,956 $ 856,575
Cl. B3, 7%, 2011................................ 422,478 (a) 413,765
Norwest Asset Securities, Mortgage Pass-Through Ctfs.,
Ser. 1997-15, Cl. B3, 6 3\4%, 2012................ 508,434 (a) 470,302
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-7:
Cl. B2, 6 3\4%, 2011............................ 491,546 491,393
Cl. B3, 6 3\4%, 2011............................ 1,890,852 (a) 1,775,629
Cl. B4, 6 3\4%, 2011............................ 871,976 (a) 735,186
Residential Accredit Loans,
Ser. 1997-QS6, Cl. B1, 7 1\2%, 2012............... 367,238 (a) 349,565
Residential Funding Mortgage Securities I,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-S7, Cl. A-12, 7%, 2026.................. 9,939,411 10,013,958
Structured Asset Securities,
Mortgage Pass-Through Ctfs.,
REMIC, Ser. Greenpoint 1996-A:
Cl. B-1, 8.441%, 2027........................... 1,785,913 1,904,230
Cl. B-2, 8.441%, 2027........................... 713,973 777,784
Cl. B-4, 8.464%, 2027........................... 429,086 (a,b) 416,080
_____________
22,075,035
_____________
Retail Trade-Drug Stores- 5.7% Rite Aid,
Conv. Sub. Notes, 5 1\4%, 2002.................... 6,000,000 (a) 6,465,000
Smith's Food & Drug Centers
Pass Through Trusts, Pass Through Ctfs.,
Ser. 1994-A3, 9.20%, 2018......................... 8,000,000 9,180,000
_____________
15,645,000
_____________
Telecommunications-1.1% Comunicacion Celular SA,
Bonds, Zero Coupon, 2000.......................... 2,500,000 (c) 1,887,500
Viatel,
Sr. Discount Notes, Zero Coupon, 2000............. 1,500,000 (d) 1,147,500
_____________
3,035,000
_____________
Transportation-2.5% Golden Ocean Group, Ltd.,
Sr. Notes, 10%, 2001 (Units)...................... 2,770,000 (a,e) 2,285,250
ValuJet Airlines,
Sr. Secured Notes, 10 1\4%, 2001.................. 5,000,000 4,662,500
_____________
6,947,750
_____________
Utilities-2.7% Indiantown Cogeneration,
First Mortgage, Ser. A-10, 9.77%, 2020............ 6,000,000 7,300,638
_____________
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1997
Principal
Bonds and Notes (continued) Amount Value
______________ ______________
U.S. Government
Agencies-18.9% Federal National Mortgage Association:
9%, 8/1/2026...................................... $ 6,479,940 $ 6,901,136
REMIC Trust,
Pass-Through Ctfs. (Collateralized by FNMA
Pass-Through Ctfs.), (Interest Only):
Ser.1993-137, Cl. PT, 7%, 6/25/2022............. 8,410,157 (f) 2,253,081
Ser. 1997-40, Cl. PF, 7%, 12/18/2026............ 11,000,000 (f) 4,468,750
Ser. 1997-56, Cl. PM, 7%, 6/18/2026..... 3,142,293 (f) 1,036,957
Government National Mortgage Association I:
7 1\2%, 1/15/2002-7/15/2002....................... 515,358 530,494
9%, 11/15/2017.................................... 12,852,035 13,916,313
Government National Mortgage Association II,
Adjustable Rate Mortgage,
5 1\2%, 10/20/2027................................ 23,000,000 (g) 22,949,630
_____________
52,056,361
_____________
U.S. Government-2.7% U.S. Treasury Bonds,
6 3\8%, 8/15/2027................................. 7,100,000 7,308,562
_____________
TOTAL BONDS AND NOTES
(cost $274,213,188)............................... $280,287,004
=============
Equity-Related Securities-5.6% Shares
______________
Common Stocks-.4%
Industrial; MagneTek............................................ 54,749 (h) $ 1,112,089
_____________
Warrants-.6%
Broadcasting-.5% Spanish Broadcasting System......................... 6,250 (a,h) 1,468,750
_____________
Foreign-.1% Comunicacion Celular SA............................. 2,500 (h) 150,000
_____________
Transportation-.0% Golden Ocean Group, Ltd............................. 2,770 (a,h) 28
_____________
Total Warrants...................................... 1,618,778
_____________
Preferred Stocks-4.6%
Broadcasting-3.8% Spanish Broadcasting System,
Cum., $142.50..................................... 9,881 (a) 10,473,860
_____________
Real Estate-.8% Federal Realty Investment Trust,
Cum., $1.9875..................................... 91,300 2,219,731
_____________
Total Preferred Stocks.............................. 12,693,591
_____________
TOTAL EQUITY-RELATED SECURITIES
(cost $13,362,791)................................ $ 15,424,458
=============
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1997
Options-.1% Contracts Value
______________ ______________
Call Options; U.S. Treasury Bonds, 6 3\8%, 8/15/2027
October '98 @ $102.9375
(cost $200,000)................................... 50 $ 204,450
=============
Short-Term Investments-.1% Principal
______________
U.S. Treasury Bills; 4.87%, 12/11/1997................................... $ 55,000 (i) $ 54,702
4.91%, 1/8/1998..................................... 114,000 (i) 112,909
4.99%, 1/15/1998.................................... 127,000 (i) 125,659
_____________
TOTAL SHORT-TERM INVESTMENTS
(cost $293,325)................................... $ 293,270
=============
TOTAL INVESTMENTS (cost $288,069,304)................................... 107.5% $296,209,182
======= =============
LIABILITIES, LESS CASH AND RECEIVABLES................................................... (7.5%) $ (20,691,269)
======= =============
NET ASSETS............................................................................... 100.0% $275,517,913
======= =============
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 $85,504,726 or 31.0% of net
assets.
(b) Variable rate security-interest rate subject to periodic changes.
(c) Zero coupon until 11/15/2000, date on which a stated coupon rate of
13 1/8% becomes effective: the stated maturity date is 11/15/2003.
(d) Zero coupon until 1/15/2000, date on which a stated coupon rate of
15% becomes effective: the stated maturity date is 1/15/2005.
(e) With warrants to purchase additional notes.
(f) Reflects notional face.
(g) Purchased on a forward commitment basis.
(h) Non-income producing.
(i) Held by the custodian in a segregated account as collateral for
open futures positions.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF OPTIONS WRITTEN OCTOBER 31,1997
Call Options
Issuer Contracts Value
_____ _________ _________
<S> <C> <C>
U.S. Treasury Bonds, 6 3\8%, 8/15/2027, October '98 @ $108.4375
(premiums received $100,000).............................................. 50 $118,750
_________
Put Options
Issuer
_____
U.S. Treasury Bonds, 6 3\8%, 8/15/2027, October '98 @ $95.25
(premiums received $100,000).............................................. 50 103,516
_________
Total Options Written (premiums received $200,000)...................... $222,266
=========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL FUTURES OCTOBER 31,1997
Market Value Unrealized
Covered Appreciation
Financial Futures Long Contracts by Contracts Expiration at 10/31/97
___________________ ____________ ____________ ____________ ____________
<S> <C> <C> <C> <C>
U.S. Treasury 30 year bonds 147 $17,414,906 December '97 $ 466,656
============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997
Cost Value
_____________ _____________
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $288,069,304 $296,209,182
Cash....................................... 745,078
Receivable for investment securities sold.. 37,486,230
Interest receivable........................ 4,027,767
Receivable for futures variation margin-Note 4(a) 45,938
Receivable for shares of Beneficial Interest subscribed 11,880
Prepaid expenses and other assets.......... 23,142
_____________
338,549,217
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates 216,844
Payable for investment securities purchased 53,717,225
Bank loan payable-Note 2................... 6,902,000
Payable for shares of Beneficial Interest redeemed 1,845,959
Outstanding options written, at value
(premiums received $200,000)-see statement 222,266
Interest payable-Note 2.................... 33,549
Accrued expenses........................... 93,461
_____________
63,031,304
_____________
NET ASSETS.................................................................. $275,517,913
=============
REPRESENTED BY: Paid-in capital............................ $271,343,740
Accumulated undistributed investment income-net559,978
Accumulated net realized gain (loss) on investments (4,970,073)
Accumulated net unrealized appreciation (depreciation) on
investments and options written [including $466,656 net
unrealized appreciation on financial futures]-Note 4(b).... 8,584,268
_____________
NET ASSETS.................................................................. $275,517,913
=============
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED) 18,535,924
NET ASSET VALUE, offering and redemption price per share.................... $14.86
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME
INCOME: Interest................................... $22,491,770
Cash dividends............................. 711,033
____________
Total Income........................... $23,202,803
EXPENSES: Management fee-Note 3(a)................... 1,670,431
Shareholder servicing costs-Note 3(b)...... 1,002,996
Interest expense-Note 2.................... 158,422
Professional fees.......................... 65,283
Custodian fees-Note 3(b)................... 34,350
Trustees' fees and expenses-Note 3(c)...... 27,784
Prospectus and shareholders' reports....... 26,660
Registration fees.......................... 21,197
Miscellaneous.............................. 14,061
____________
Total Expenses......................... 3,021,184
____________
INVESTMENT INCOME-NET....................................................... 20,181,619
____________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments:
Long transactions (including foreign
currency transactions)............... $ 4,984,050
Short sale transactions................ 41,912
Net realized gain (loss) on financial futures (1,065,763)
____________
Net Realized Gain (Loss)............... 3,960,199
Net unrealized appreciation (depreciation) on investments
and options written [including $640,406 unrealized
appreciation on financial futures]..... 7,230,457
____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 11,190,656
____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $31,372,275
============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
October 31, 1997 October 31, 1996
________________ ________________
<S> <C> <C>
OPERATIONS:
Investment income-net.................................................... $ 20,181,619 $ 20,997,858
Net realized gain (loss) on investments.................................. 3,960,199 13,361,650
Net unrealized appreciation (depreciation) on investments................ 7,230,457 (13,110,345)
______________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations........ 31,372,275 21,249,163
______________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net.................................................... (19,655,719) (20,963,780)
______________ _____________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold............................................ 43,361,960 27,107,019
Dividends reinvested..................................................... 14,143,094 15,493,693
Cost of shares redeemed.................................................. (88,614,564) (68,320,151)
______________ _____________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions (31,109,510) (25,719,439)
______________ _____________
Total Increase (Decrease) in Net Assets.............................. (19,392,954) (25,434,056)
NET ASSETS:
Beginning of Period...................................................... 294,910,867 320,344,923
______________ _____________
End of Period............................................................ $275,517,913 $294,910,867
============== =============
UNDISTRIBUTED INVESTMENT INCOME-NET........................................ $ 559,978 $ 34,078
______________ _____________
CAPITAL SHARE TRANSACTIONS: Shares Shares
______________ _____________
Shares sold.............................................................. 2,978,218 1,909,503
Shares issued for dividends reinvested................................... 970,962 1,092,669
Shares redeemed.......................................................... (6,118,822) (4,816,766)
______________ _____________
Net Increase (Decrease) in Shares Outstanding.......................... (2,169,642) (1,814,594)
============== =============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average
net assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Year Ended October 31,
______________________________________________________
PER SHARE DATA: 1997 1996 1995 1994 1993
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $14.24 $14.22 $12.95 $15.36 $14.02
______ ______ ______ ______ ______
Investment Operations:
Investment income-net........................ 1.05 .98 .93 .95 1.01
Net realized and unrealized gain (loss)
on investments............................. .59 .02 1.27 (2.04) 1.41
______ ______ ______ ______ ______
Total from Investment Operations............. 1.64 1.00 2.20 (1.09) 2.42
______ ______ ______ ______ ______
Distributions:
Dividends from investment income-net......... (1.02) (.98) (.93) (.95) (1.01)
Dividends from net realized gain on investments - - - (.37) (.07)
______ ______ ______ ______ ______
Total Distributions.......................... (1.02) (.98) (.93) (1.32) (1.08)
______ ______ ______ ______ ______
Net asset value, end of period............... $14.86 $14.24 $14.22 $12.95 $15.36
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN.......................... 11.94% 7.27% 17.57%* (7.44%)* 17.93%*
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets 1.03% 1.04% 1.04% .94% .84%
Ratio of interest expense to average net assets .06% .02% - - -
Ratio of net investment income
to average net assets...................... 7.25% 6.89% 6.87% 6.84% 6.83%
Decrease reflected in above expense ratios
due to undertakings by the Manager......... - - - .11% .24%
Portfolio Turnover Rate...................... 347.68% 214.55% 176.59% 161.35% 118.38%
Net Assets, end of period (000's Omitted).... $275,518 $294,911 $320,345 $322,487 $375,459
* Exclusive of sales load.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Strategic Income 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 current income by
investing principally in debt securities of domestic and foreign issuers. The
Dreyfus Corporation ("Manager") serves as the Fund's investment adviser. The
Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon"). Premier
Mutual Fund Services, Inc. (the "Distributor") is the distributor of the
Fund's shares which are sold to the public without a sales load.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (excluding short-term
investments, 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) Foreign currency transactions: The Fund does not isolate that portion
of the results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in the market
prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized on securities transactions and the difference
between the amount of dividends, interest and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amount
actually received or paid. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities other than
investments in securities at fiscal year end, resulting from changes in
exchange rates. Such gains and losses are included with net realized and
unrealized gain or loss on investments.
(c) Securities transactions and investment income: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(d) Dividends to shareholders: It is the policy of the Fund to declare
dividends daily from investment income-net. Such
dividends are paid monthly. Dividends from net realized capital gain are
normally declared and paid annually, but the Fund may make distributions on a
more frequent basis to comply with the distribution requirements of the
Internal Revenue Code. To the extent that net realized capital gain can be
offset by capital loss carryovers, it is the policy of the Fund not to
distribute such gain.
(e) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
The Fund has an unused capital loss carryover of approximately $4,470,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1997. If not
applied, the carryover expires in fiscal 2003.
NOTE 2-BANK LINES OF CREDIT:
The Fund may borrow up to $20 million for leveraging purposes under a
short-term unsecured line of credit and participates with other
Dreyfus-managed funds in a $100 million unsecured line of credit primarily to
be utilized for temporary or emergency purposes, including the financing of
redemptions. Interest is charged to the Fund at rates which are related to
the Federal Funds rate in effect at the time of borrowings. At October 31,
1997, outstanding borrowings under both lines of credit amounted to $6.9
million.
The average daily amount of borrowings outstanding under both
arrangements during the period ended October 31, 1997 was approximately $2.7
million with a related weighted average annualized interest rate of 5.92%.
The maximum amount borrowed at any time during the period ended October 31,
1997, was $26.4 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
.60 of 1% of the value of the Fund's average daily net assets and is payable
monthly.
(b) Under the Shareholder Services Plan, the Fund pays the Distributor,
at an annual rate of .25 of 1% of the value of the Fund's average daily net
assets for the provision of certain services. The services provided may
include personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
The Distributor may make payments to Service Agents (a securities dealer,
financial institution or other industry professional) in respect of these
services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended October 31, 1997, the Fund was charged
$696,013 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 $226,107 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 $34,350 pursuant to the custody agreement.
(c) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $2,500 and an attendance fee of
$500 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4-SECURITIES TRANSACTIONS:
(a) The following summarizes the aggregate amount of purchases and sales
(including paydowns) of investment securities and securities sold short,
excluding short-term securities, financial futures and options transactions,
during the period ended October 31, 1997:
<TABLE>
<CAPTION>
Purchases Sales
________________ ________________
<S> <C> <C>
Long transactions....................................... $1,012,053,182 $1,019,953,342
Short sale transactions................................. 36,302,033 36,343,945
________________ ________________
Total.......................................................... $1,048,355,215 $1,056,297,287
================ ================
</TABLE>
The Fund is engaged in short-selling which obligates the Fund to replace
the security borrowed by purchasing the security at
current market value. The Fund would incur a loss if the price of the
security increases between the date of
the short sale and the date on which the Fund replaces the borrowed security.
The Fund would realize a gain if the price of the security declines between
those dates. Until the Fund replaces the borrowed security, the Fund will
maintain daily, a segregated account with a broker and custodian, of cash
and/or U.S. Government securities sufficient to cover its short position. At
October 31, 1997, there were no securities sold short outstanding.
In addition, the following table summarizes the Fund's call/put options
written for the period ended October 31, 1997:
<TABLE>
<CAPTION>
Number of Premiums
OPTIONS WRITTEN: Contracts Received
___________ ____________
<S> <C> <C>
Contracts outstanding October 31, 1996............................... - $ -
Contracts written.................................................... 100 200,000
___ ________
Contracts outstanding October 31, 1997............................... 100 $200,000
=== ========
</TABLE>
The Fund may purchase and write (sell) put and call options in order to
gain exposure to or protect against changes in the market.
As a writer of call options, the Fund receives a premium at the outset
and then bears the market risk of unfavorable changes in the price of the
financial instrument underlying the option. Generally, the Fund would incur a
gain, to the extent of the premium, if the price of the underlying financial
instrument decreases between the date the option is written and the date on
which the option is terminated. Generally, the Fund would realize a loss if
the price of the financial instrument increases between those dates.
Contracts open at October 31, 1997 are set forth in the Statement of Options
Written.
As a writer of put options, the Fund receives a premium at the outset and
then bears the market risk of unfavorable changes in the price of the
financial instrument underlying the option. Generally, the Fund would incur a
gain, to the extent of the premium, if the price of the underlying financial
instrument increases between the date the option is written and the date on
which the option is terminated. Generally, the Fund would realize a loss if
the price of the financial instrument decreases between those dates.
Contracts open at October 31, 1997 are set forth in the Statement of Options
Written.
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is exposed to
market risk as a result of changes in the value of the underlying financial
instruments (see the Statement of Financial Futures). Investments in
financial futures require the Fund to "mark to market" on a daily basis,
which reflects the change in market value of the contracts at the close of
each day's trading. Accordingly, variation margin payments are received or
made to reflect daily 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
DREYFUS STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
exchange or Board of Trade on which the contract is traded and is subject to
change. Contracts open at October 31, 1997, and their related unrealized
appreciation (depreciation) are set forth in the Statement of Financial
Futures.
(b) At October 31, 1997, accumulated net unrealized appreciation on
investments, financial futures and options written was $8,584,268, consisting
of $11,328,211 gross unrealized appreciation and $2,743,943 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).
DREYFUS STRATEGIC INCOME FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Strategic Income Fund
We have audited the accompanying statement of assets and liabilities,
including the statements of investments, options written and financial
futures, of Dreyfus Strategic Income 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 Strategic Income 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 signature logo]
New York, New York
December 17, 1997
DREYFUS STRATEGIC INCOME FUND
IMPORTANT TAX INFORMATION (UNAUDITED)
In accordance with Federal tax law, the Fund hereby designates 3.46% 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.
Registration Mark
[Dreyfus lion "d" logo]
DREYFUS STRATEGIC INCOME FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 031AR9710
Strategic Income
Fund
Annual Report
October 31, 1997
Registration Mark
[Dreyfus logo]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS STRATEGIC INCOME FUND AND THE MERRILL
LYNCH DOMESTIC MASTER INDEX
EXHIBIT A:
MERRILL LYNCH DREYFUS
DOMESTIC STRATEGIC
PERIOD MASTER INCOME
INDEX * FUND
10/31/87 10,000 10,000
10/31/88 11,142 11,671
10/31/89 12,443 13,240
10/31/90 13,235 13,415
10/31/91 15,316 15,955
10/31/92 16,872 17,972
10/31/93 18,899 21,195
10/31/94 18,216 19,617
10/31/95 21,093 23,065
10/31/96 22,299 24,741
10/31/97 24,304 27,697
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
