DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for Dreyfus Strategic Income Fund
for the 12-month period ended October 31, 1998. Your Fund produced a total
return, including share price changes and dividend income generated, of 3.74%.*
Income dividends paid from net investment income during the period amounted to
approximately $1.024 per share, representing a distribution rate per share of
7.11%.**
At the adjourned meeting of shareholders held on November 5, 1998, Fund
shareholders approved each of the proposals set forth in the proxy statement
mailed to shareholders on or about September 15, 1998. The first proposal
approved was a new investment objective for the Fund. The Fund's new investment
objective is to maximize total return, consisting of capital appreciation and
current income. The second proposal that was approved was the elimination of a
credit quality restriction, the result of which was the implementation of a
management policy providing that at least 65% of the Fund's net assets will be
invested in investment grade fixed income securities. Finally, a number of
proposals to revise the Fund's investment restrictions were approved. These are
more technical in nature, but generally improved the Fund' s investment
flexibility and conformed them with current applicable law. All of these changes
were implemented effective November 15, 1998.
Also effective November 15, 1998, the Fund was renamed "Dreyfus Core Bond
Fund."
ECONOMIC REVIEW
So far in 1998, the main regions of the world have had very different
economic fundamentals. The U.S. entered the year with a strong economy near full
employment, with unemployment only slightly above 4%. The tight labor market led
the Federal Reserve Board to contemplate a rise in interest rates early in the
year. The U.S. economy cooled enough over the months that the Fed decided to
stand pat. Evidence of economic cooling continued to accumulate and worries
about the world economy intensified. Financial stresses pushed the Fed to ease
credit in both late September and mid-October. After many years of subpar
economic growth, continental Europe moved into a sustained economic expansion.
The overall European economy benefited as interest rates in peripheral countries
such as Spain and Italy fell, approaching the lower levels established by
Germany, on the eve of currency unification. Unlike the U.S., Europe has
substantial excess capacity of productive plant and labor. In Asia, weak
economies were pervasive as a result of the Asian financial crisis. The Latin
American economies weakened as the financial stresses spread throughout that
region.
A main influence on the U.S. economy this year was the foreign financial
crisis and cooling of the world economy. The positive effects hit first. Actual
inflation and expected inflation dropped, causing a decline in long-term U.S.
Treasury bond yields and mortgage rates. This caused a boom in housing. The fall
in inflation helped the consumer sector as more of the growth in consumer income
was left over after inflation to buy goods and services. Consumers benefited
from a combination of good growth in income after inflation, a strong labor
market and past increases in the price of assets they owned.
The negative effect of Asian weakness was felt in the industrial sector more
than in the consumer sector. Corporate profits weakened, especially in sectors
affected by the Asian crisis such as world-traded commodities (oil, metals and
paper) and exports. One result of this industrial weakness was to cool off a
U.S. economy that had been growing rapidly.
<PAGE>
The major change in the economic outlook over recent months has been a
downward shift in expectations for world economic growth. A credit crunch
developed in emerging countries and former communist countries, sharply reducing
the economic outlook for Asia and Latin America as well as for
commodity-exporting countries throughout the world. The effect on Europe and the
U.S. has been to lower expectations of profit growth and drive down bond yields
Evidence of a weaker world economy accumulated as the financial stresses
continued. A worsened financial crisis occurred between the Russian default in
mid-August and the fallout from the Long-Term Capital Management (a U.S. hedge
fund) crisis through early October. However, proactive steps were taken to
stabilize the Japanese banks, design a support package for Brazil and ease
monetary policy. The prospects for world economic weakness and monetary ease in
the major countries will be powerfully influenced by whether foreign financial
stresses calm down or intensify in the coming months. There appears to be a
shift in the priorities of key policymakers from fighting potential inflation to
restimulating future world economic growth.
MARKET ENVIRONMENT AND PORTFOLIO OVERVIEW
Market interest rates have generally fallen during the past year from a high
yield on 10-year U.S. Treasuries of 5.95% in November 1997, to a low of 4.16% in
October 1998. We have maintained a portfolio duration that was at most times
longer than the benchmark Merrill Lynch Domestic Master Index.*** This generally
longer duration posture has had a positive impact on portfolio performance.
Corporate and mortgage-related securities have been even more volatile than
U.S. Treasury securities. After trading in a relatively narrow range during most
of the period, yield spreads to U.S. Treasuries began to widen dramatically
during the summer months. This spread widening (and relative price declines)
were the result of forced hedge fund liquidations, and general fear of an
economic slowdown. Falling equity prices and spreading global economic turmoil
helped create an extremely risk-averse investment environment. The level of
illiquidity in the taxable bond markets over August, September and October 1998
was unprecedented in market history and resulted in dramatic declines in most
sectors of the market with the exception of U.S. Treasuries. Unfortunately, the
Fund had few U.S. Treasury investments during this period when Treasury prices
were rising, and the Fund's corporate and mortgage exposure were significant
negatives to the Fund's performance. While this decision hurt performance during
the past four months, we continue to believe that liquidity will come back into
the markets and extreme risk aversion will yield to more rational investment
decision making.
The greatest areas of sector concentration in the Fund are commercial
mortgages, residential mortgages, and GNMA project loans. These are sectors
where credit quality is high and/or improving and that have much better
protection from prepayments than conventional agency mortgages. Our consistent
underrepresentation in the agency mortgage sector has begun to benefit fund
performance recently. These securities have begun prepaying at rapid rates as
homeowners are refinancing their mortgages in this low rate environment. Within
the corporate sector we have exposure to the utility, media and shipping
sectors. These are sectors that have performed well during the past year and we
believe the potential for further positive performance exists. We have also
benefited from investments in several convertible bonds such as Quantum, Ecostar
Communications, and Rite Aid. Investments in Yankee issues of Sumitomo Bancorp
and IBJ Preferred Capital, L.L.C. have held back performance as the weakness in
the Japanese economy has continued. We have subsequently sold our investments in
Japanese banks.
<PAGE>
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
Head of Taxable Fixed Income
November 16, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
**Distribution rate per share is based upon dividends per share paid from net
investment income during the period, divided by the net asset value per share at
the end of the period.
***The Merrill Lynch Domestic Master Index is an unmanaged performance
benchmark composed of U.S. Government, mortgage and BBB or higher-rated
corporate securities with maturities greater than or equal to one year; Treasury
securities in the Index must have par amounts outstanding greater than or equal
to $1 billion and corporate and generic mortgage-backed securities $100 million
per coupon.
<PAGE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND OCTOBER 31, 1998
- -----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS STRATEGIC INCOME
FUND AND THE MERRILL LYNCH DOMESTIC MASTER INDEX
[Exhibit A:
Dollars
$24,619
Dreyfus Strategic Income Fund
$23,886
Merrill Lynch Domestic Master Index*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.]
Average Annual Total Returns
- --------------------------------------------------------------------------------
One Year Ended Five Years Ended Ten Years Ended
October 31, 1998 October 31, 1998 October 31, 1998
<S> <C> <C> <C>
3.74% 6.27% 9.43%
- ------------------------
</TABLE>
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Strategic Income
Fund on 10/31/88 to a $10,000 investment made in the Merrill Lynch Domestic
Master 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; U.S.
Treasury securities in the Index must have par amounts outstanding greater than
or equal to $1 billion and corporate and generic mortgage-backed securities $100
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.
<PAGE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS OCTOBER 31, 1998
Principal
Bonds and Notes--82.0% Amount Value
- -----------------------------------------------------
_____________ _____________
<S> <C> <C>
Airlines--2.5% America West Airlines Pass-Through Trust,
Pass-Through Ctfs.,
Ser. 1997-1, Cl. C, 7.53%, 2004 . . . . . . . $....6,837,201 $ 7,085,700
_____________
Asset-Backed--2.0% Nomura Asset Securities,
Multiclass Pass-Through Ctfs.,
Ser. 1998-D6, Cl. A4, 7.596%, 2028 . . . . . . 6,000,000 (a) 5,705,625
_____________
Banking--3.2% Colonial Bancgroup,
Gtd. Capital Securities, 8.92%, 2027 . . . . . 9,000,000 9,214,524
_____________
Broadcasting--1.3% Scandinavian Broadcasting Systems,
Conv. Sub. Deb., 7%, 2004 . . . . . . . . . . 3,650,000 (b) 3,558,750
_____________
Building Materials--.7% ICF Kaiser International,
Sr. Sub. Notes, 13%, 2003 . . . . . . . . . . 4,750,000 1,971,250
_____________
Commercial Mortgage
Pass-Through Ctfs.--3.6% 277 Park Avenue Finance,
Ser. 1997, Cl. B1, 7.88%, 2007 . . . . . . . . 1,500,000 (b) 1,593,750
GS Mortgage Securities II,
Ser. 1998-C1, Cl. C, 6.91%, 2030 . . . . . . . 5,000,000 4,872,712
Structured Asset Securities,
REMIC, Ser. 1996-CFL, Cl. H, 7.75%, 2028 . . . 4,750,000 (b) 3,752,500
_____________
10,218,962
_____________
Energy--1.1% Dual Drilling,
Sr. Sub. Notes, 9.875%, 2004 . . . . . . . . . 3,000,000 3,120,000
_____________
Foreign--1.0% Korea Development Bank,
Floating Rate Notes, 9.802%, 2003 . . . . . . 3,000,000 (a,b) 2,902,500
_____________
Foreign/Governmental--2.2% Republic of Argentina
(BOTE), Floating Rate Notes,
Ser. 10, 5.313%, 2000 . . . . . . . . . . . . 1,173,120 (a) 1,098,351
Republic of Kazakhstan:
Notes, 9.25%, 1999 . . . . . . . . . . . . . . 3,500,000 (b) 2,931,250
Sr. Notes, 8.375%, 2002 . . . . . . . . . . . 3,000,000 (b) 2,118,750
_____________
6,148,351
_____________
Mining & Metals--.9% Inco,
Conv. Deb., 5.75%, 2004 . . . . . . . . . . . 3,000,000 2,591,250
_____________
Publishing-Newspapers--2.0% A.H. Belo,
Sr. Notes, 6.875%, 2002 . . . . . . . . . . . 5,500,000 5,673,041
_____________
Real Estate--2.7% Crescent Real Estate Equities,
Notes, 6.625%, 2002 . . . . . . . . . . . . . 8,000,000 7,543,976
_____________
Residential Mortgage
Pass-Through Ctfs.--7.7% Bear Stearns Mortgage Securities,
REMIC, Ser. 1995-1:
Cl. 1B4, 6.471%, 2010 . . . . . . . . . . . 289,959 (a,b) 258,879
Cl. 2B4, 7.40%, 2010 . . . . . . . . . . . 231,954 (b) 215,500
<PAGE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- -----------------------------------------------------
_____________ _____________
Residential Mortgage
Pass-Through Ctfs. (continued) Chase Mortgage Finance,
REMIC, Ser. 1994-E, Cl. B5, 6.25%, 2010 . . . $.......159,616 (b) $ 141,908
GE Capital Mortgage Services:
Home Equity Loan,
Ser. 1996-HE4, Cl. B3, 9.329%, 2026 . . . . 1,374,709 (a,b) 1,342,060
REMIC:
Ser. 1993-11, Cl. B4, 6%, 2008 . . . . . . 149,071 (b) 139,288
Ser. 1993-15, Cl. B3, 6%, 2008 . . . . . . 416,200 (b) 385,115
Ser. 1994-21, Cl. B4, 6.50%, 2009 . . . . . 266,775 (b) 239,514
Ser. 1994-22, Cl. B2, 6%, 2009 . . . . . . 168,132 162,878
Ser. 1996-10, Cl. B3, 6.75%, 2011 . . . . . 505,511 (b) 473,917
Ser. 1996-12, Cl. B2, 7.25%, 2011 . . . . . 789,189 (b) 801,520
Ser. 1996-12, Cl. B3, 7.25%, 2011 . . . . . 339,149 (b) 324,630
Ser. 1996-14, Cl. 2B3, 7.25%, 2011 . . . . 253,245 (b) 242,007
Ser. 1997-13, Cl. B2, 6.75%, 2012 . . . . . 969,146 871,398
Ser. 1998-1, Cl. B2, 6.75%, 2013 . . . . . 487,575 482,407
MORSERV,
Ser. 1996-1:
Cl. B2, 7%, 2011 . . . . . . . . . . . . . 787,680 792,357
Cl. B3, 7%, 2011 . . . . . . . . . . . . . 393,840 (b) 376,117
Norwest Asset Securities:
Ser. 1997-15, Cl. B3, 6.75%, 2012 . . . . . . 488,795 (b) 444,498
Ser. 1997-17, Cl. B3, 7.25%, 2027 . . . . . . 1,040,852 888,953
Ser. 1998-2, Cl. B3, 6.50%, 2028 . . . . . . . 497,266 426,561
Ser. 1998-9, Cl. B4, 6.50%, 2028 . . . . . . . 821,133 (b) 667,228
Ser. 1998-11. Cl. B3, 6.50%, 2013 . . . . . . 736,255 726,536
Ser. 1998-11, Cl. B4, 6.50%, 2013 . . . . . . 883,309 (b) 808,643
Ser. 1998-18, Cl. B4, 6.25%, 2028 . . . . . . 873,761 (b) 717,303
PNC Mortgage Securities,
REMIC, Ser. 1998-2:
Cl. III-B-4, 6.75%, 2013 . . . . . . . . . 468,646 (b) 442,870
Cl. III-B-5, 6.75%, 2013 . . . . . . . . . 371,762 (b) 321,566
Cl. IV-B-4, 6.75%, 2027 . . . . . . . . . . 264,828 (b) 257,180
Cl. IV-B-5, 6.75%, 2027 . . . . . . . . . . 264,132 (b) 203,677
Prudential Home Mortgage Securities,
REMIC, Ser. 1996-7:
Cl. B2, 6.75%, 2011 . . . . . . . . . . . . 692,400 688,073
Cl. B3, 6.75%, 2011 . . . . . . . . . . . . 1,798,346 (b) 1,683,702
Cl. B4, 6.75%, 2011 . . . . . . . . . . . . 829,317 (b) 729,540
Residential Accredit Loans,
Ser. 1997-QS6, Cl. B1, 7.50%, 2012 . . . . . . 354,398 (b) 334,463
Residential Funding Mortgage Securities I,
REMIC:
Ser. 1997-S19, Cl. B-1, 6.50%, 2012 . . . . 780,004 (b) 698,103
Ser. 1997-S19, Cl. B-2, 6.50%, 2012 . . . . 334,260 (b) 245,890
Ser. 1997-S21, Cl. B-1, 6.50%, 2012 . . . . 450,887 (b) 443,574
Ser. 1998-S14, Cl. B-1, 6.50%, 2013 . . . . 677,007 (b) 573,975
<PAGE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- -----------------------------------------------------
_____________ _____________
Residential Mortgage
Pass-Through Ctfs. (continued) Structured Asset Securities,
REMIC, Ser. Greenpoint 1996-A:
Cl. B-1, 8.371%, 2027 . . . . . . . . . . . $....1,758,667 (a) $ 1,965,310
Cl. B-2, 8.371%, 2027 . . . . . . . . . . . 703,080 (a) 813,376
Cl. B-4, 8.371%, 2027 . . . . . . . . . . . 422,041 (a,b) 433,251
_____________
21,763,767
_____________
Technology--1.1% Quantum,
Conv. Sub. Notes, 7%, 2004 . . . . . . . . . . 3,500,000 3,150,000
_____________
Transportation--.7% Golden Ocean Group,
Sr. Notes, 10%, 2001 . . . . . . . . . . . . . 5,405,000 1,918,775
_____________
Utilities--3.7% Niagara Mohawk Power:
Sr. Discount Notes, Ser. H, Zero Coupon, 2003 . 7,500,000 (c) 5,508,870
Sr. Notes, Ser. E, 7.375%, 2003 . . . . . . . 5,000,000 5,130,495
_____________
10,639,365
_____________
U.S. Government
Agencies--24.6% Federal National Mortgage Association:
9%, 8/1/2026 . . . . . . . . . . . . . . . . . 3,734,706 3,948,256
REMIC Trust (Collateralized by FNMA
Pass-Through Ctfs.)
(Interest Only Obligation):
Ser. 1993-137, Cl. PT, 7%, 6/25/2022 . . 8,410,157 (d) 1,258,895
Ser. 1996-70, PL, 7%, 2/25/2026 . . . . 15,063,119 (d) 1,663,420
Ser. 1997-56, Cl. PM, 7%, 6/18/2026 . . 3,142,293 (d) 432,977
Government National Mortgage Association I:
6.50%, 9/15/2033 . . . . . . . . . . . . . . . 9,733,000 9,868,350
7.50%, 1/15/2002-7/15/2002 . . . . . . . . . . 335,984 347,532
9%, 11/15/2017 . . . . . . . . . . . . . . . . 9,337,512 10,061,170
Construction Loan;
6.80%, 7/15/2001-5/15/2039 . . . . . . . . 12,683,100 (e) 12,958,799
Project Loan:
6.50%, 8/15/2028 . . . . . . . . . . . . . 942,448 968,950
6.54%, 7/15/2033 . . . . . . . . . . . . . 15,133,438 15,540,073
6.75%, 6/15/2033 . . . . . . . . . . . . . 12,044,520 12,593,990
_____________
69,642,412
_____________
U.S. Government--21.0% U.S. Treasury Notes:
5.50%, 2/28/2003 . . . . . . . . . . . . . . . 10,000,000 10,448,400
5.25%, 8/15/2003 . . . . . . . . . . . . . . . 47,000,000 49,053,900
_____________
59,502,300
_____________
TOTAL BONDS AND NOTES
(cost $236,301,676) . . . . . . . . . . . . . $232,350,548
_____________
<PAGE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Equity-Related Securities--11.7% Shares Value
- -----------------------------------------------------
_____________ _____________
Warrants--.5%
Broadcasting--.4% Spanish Broadcasting System. . . . . . . . . . . . 6,250 (b,f) $ 1,281,250
_____________
Telecommunications--.1% Comunicacion Celular . . . . . . . . . . . . . . . 2,500 (f) 150,312
_____________
Transportation--.0% Golden Ocean Group . . . . . . . . . . . . . . . . 5,270 (f) 27,009
_____________
Total Warrants . . . . . . . . . . . . . . . . . . 1,458,571
_____________
Preferred Stocks--11.2%
Broadcasting--3.9% Spanish Broadcasting System,
Cum., $142.50 . . . . . . . . . . . . . . . . 11,232 (b) 11,063,520
_____________
Cable Television--1.6% Echostar Communications,
Ser. C, Cum. Conv., $3.375 . . . . . . . . . . 75,000 4,537,500
_____________
Consumer--2.9% Paxson Communications,
Cum., $132.50 . . . . . . . . . . . . . . . . 9,000 8,280,000
_____________
Containers--1.4% Sealed Air,
Ser. A, Cum. Conv., $2.00 . . . . . . . . . . 99,100 3,914,450
_____________
Finance--1.4% Sanwa International Finance (Bermuda) Trust,
Cum., $293.66 . . . . . . . . . . . . . . . . 200 (b) 3,993,968
_____________
Total Preferred Stocks . . . . . . . . . . . . . . 31,789,438
_____________
TOTAL EQUITY-RELATED SECURITIES
(cost $34,105,502) . . . . . . . . . . . . . . $ 33,248,009
_____________
Principal
Short-Term Investments--9.2% Amount
- ---------------------------------------------------------------------------------------
_____________
Time Deposits--1.4% Republic National Bank of New York,
5.50%, 11/2/1998 . . . . . . . . . . . . . . . $....3,945,000 $ 3,945,000
_____________
U.S. Government
Agencies--7.1% Federal Home Loan Banks,
Discount Notes, 5.40%, 11/2/1998 . . . . . . . 20,122,000 20,118,982
_____________
U.S. Treasury Bills--.7% 4.42%, 12/24/1998. . . . . . . . . . . . . . . . . 1,715,000 (g) 1,704,830
4.20%, 12/31/1998 . . . . . . . . . . . . . . . . 110,000 (g) 109,261
4.20%, 1/7/1999 . . . . . . . . . . . . . . . . . 155,000 (g) 153,828
_____________
Total U.S. Treasury Bills . . . . . . . . . . . . 1,967,919
_____________
TOTAL SHORT-TERM INVESTMENTS
(cost $26,030,842) . . . . . . . . . . . . . . $ 26,031,901
_____________
TOTAL INVESTMENTS ($296,438,020) . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.9% $291,630,458
_______ _____________
LIABILITIES, LESS CASH AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . (2.9%) $ (8,294,333)
_______ _____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $283,336,125
_______ _____________
<PAGE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Variable rate security-interest rate subject to periodic change.
(b) 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,
1998, these securities amounted to $47,142,156 or 16.6% of net assets.
(c) Zero coupon until year shown at which time a stated coupon rate becomes
effective.
(d) Notional face amount shown.
(e) Partially purchased on a forward commitment basis.
(f) Non-income producing security.
(g) Held by the custodian in a segregated account as collateral for open
financial futures positions.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF FINANCIAL FUTURES OCTOBER 31,1998
Unrealized
Market Value Appreciation
Covered (Depreciation)
Financial Futures Long Contracts by Contracts Expiration at 10/31/98
_____________________ ____________ _______________ ______________ ______________
<S> <C> <C> <C> <C>
U.S. Treasury 2 year Notes . . . . . . . . . . . . . . . 75 $ 15,949,219 December '98 ($ 18,750)
U.S. Treasury 5 year Notes . . . . . . . . . . . . . . . 1,002 114,869,906 December '98 (246,578)
_________
($265,328)
_________
Financial Futures Short
____________________
U.S. Treasury 10 year Notes. . . . . . . . . . . . . . . 12 $ 1,444,500 December '98 ($ 42,375)
U.S. Treasury 30 year Bonds. . . . . . . . . . . . . . . 125 16,113,281 December '98 19,375
_________
($ 23,000)
_________
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998
Cost Value
_____________ _____________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $296,438,020 $291,630,458
Dividends and interest receivable . . . . . . . . . . . . 3,165,045
Receivable for investment securities sold . . . . . . . . 2,528,190
Receivable for shares of Beneficial Interest subscribed . . 35,692
_____________
297,359,385
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 171,278
Due to Distributor . . . . . . . . . . . . . . . . . . . 60,532
Payable for investment securities purchased . . . . . . . 9,191,522
Cash overdraft due to Custodian . . . . . . . . . . . . . 3,137,175
Payable for shares of Beneficial Interest redeemed . . . 746,382
Payable for futures variation margin . . . . . . . . . . 601,375
Net unrealized depreciation on forward currency exchange
contracts--Note 4(a) . . . . . . . . . . . . . . . . . 24,876
Interest payable--Note 2 . . . . . . . . . . . . . . . . 7,979
Accrued expenses . . . . . . . . . . . . . . . . . . . . 82,141
_____________
14,023,260
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $283,336,125
_____________
REPRESENTED BY: Paid--in capital . . . . . . . . . . . . . . . . . . . . $288,816,827
Accumulated undistributed investment income--net . . . . 381,781
Accumulated net realized gain (loss) on investments . . . (741,717)
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions
[including ($288,328) net unrealized (depreciation)
on financial futures]--Note 4(b) . . . . . . . . . . . (5,120,766)
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $283,336,125
_____________
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED) . . . . . . 19,676,251
NET ASSET VALUE, offering and redemption price per share . . . . . . . . . . . . . . . . . $14.40
_______
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 20,130,748
Cash dividends . . . . . . . . . . . . . . . . . . . . . 2,342,362
____________
Total Income . . . . . . . . . . . . . . . . . . . $ 22,473,110
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . 1,726,911
Shareholder servicing costs--Note 3(b) . . . . . . . . . 1,020,858
Interest expense--Note 2 . . . . . . . . . . . . . . . . 91,123
Custodian fees--Note 3(b) . . . . . . . . . . . . . . . . 44,729
Professional fees . . . . . . . . . . . . . . . . . . . . 43,889
Registration fees . . . . . . . . . . . . . . . . . . . . 32,609
Prospectus and shareholders' reports . . . . . . . . . . 31,263
Trustees' fees and expenses--Note 3(c) . . . . . . . . . 19,028
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 5,073
____________
Total Expenses . . . . . . . . . . . . . . . . . . 3,015,483
____________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,457,627
____________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments:
Long transactions (including foreign currency transactions
and options transactions) . . . . . . . . . . . . $ (971,290)
Short sale transactions . . . . . . . . . . . . . . . (722,027)
Net realized gain (loss) on forward currency
exchange contracts;
Short transactions . . . . . . . . . . . . . . . . . . (387,033)
Net realized gain (loss) on financial futures . . . . . . 6,308,706
____________
Net Realized Gain (Loss) . . . . . . . . . . . . . 4,228,356
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions [including ($754,984)
net unrealized (depreciation) on financial futures] . (13,705,034)
____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . (9,476,678)
____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . $ 9,980,949
____________
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
October 31, 1998 October 31, 1997
________________ ________________
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,457,627 $ 20,181,619
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . 4,228,356 3,960,199
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . (13,705,034) 7,230,457
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . 9,980,949 31,372,275
_____________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,635,824) (19,655,719)
_____________ _____________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 69,009,151 43,361,960
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,364,793 14,143,094
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65,900,857) (88,614,564)
_____________ _____________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions . . . . 17,473,087 (31,109,510)
_____________ _____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . 7,818,212 (19,392,954)
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,517,913 294,910,867
_____________ _____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $283,336,125 $275,517,913
_____________ _____________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . $ 381,781 $ 559,978
_____________ _____________
Shares Shares
_____________ _____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,585,726 2,978,218
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . 958,864 970,962
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,404,263) (6,118,822)
_____________ _____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . 1,140,327 (2,169,642)
_____________ _____________
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
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: 1998 1997 1996 1995 1994
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . $14.86 $14.24 $14.22 $12.95 $15.36
______ ______ ______ ______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . 1.01 1.05 .98 .93 .95
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . (.45) .59 .02 1.27 (2.04)
______ ______ ______ ______ ______
Total from Investment Operations . . . . . . . . . . . . .56 1.64 1.00 2.20 (1.09)
______ ______ ______ ______ ______
Distributions:
Dividends from investment income--net . . . . . . . . . . (1.02) (1.02) (.98) (.93) (.95)
Dividends from net realized gain on investments . . . . . .-- .-- .-- .-- (.37)
______ ______ ______ ______ ______
Total Distributions . . . . . . . . . . . . . . . . . . . (1.02) (1.02) (.98) (.93) (1.32)
______ ______ ______ ______ ______
Net asset value, end of period . . . . . . . . . . . . . $14.40 $14.86 $14.24 $14.22 $12.95
______ ______ ______ ______ ______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . . . . . 3.74% 11.94% 7.27% 17.57%* (7.44%)*
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets . . . . 1.02% 1.03% 1.04% 1.04% .94%
Ratio of interest expense to average net assets . . . . . .03% .06% .02% -- --
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . 6.76% 7.25% 6.89% 6.87% 6.84%
Decrease reflected in above expense ratios
due to undertakings by the Manager . . . . . . . . . -- -- -- -- .11%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . 313.40% 347.68% 214.55% 176.59% 161.35%
Net Assets, end of period (000's Omitted) . . . . . . . . $283,336 $275,518 $294,911 $320,345 $322,487
- -----------------------------
* Exclusive of sales load.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Strategic Income Fund (the "Fund") is a separate diversified series
of Dreyfus Debt and Equity Funds (the "Company") which is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end management
investment company and operates as a series company currently offering six
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 (the "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.
On August 5, 1998, the Company's Board of Trustees approved a change of the
Company' s name from "Dreyfus Income Funds" to "Dreyfus Debt and Equity Funds".
This change became effective on August 13, 1998.
The Company accounts separately for the assets, liabilities and operations of
each fund. Expenses directly attributable to each fund are charged to that
fund' s operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
The Fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding short-term
investments, other than U.S. Treasury Bills, and financial futures) are valued
each business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily available
and are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by the
Service based upon its evaluation of the market for such securities). Other
investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. Securities for which there are no such valuations are valued
at fair value as determined in good faith under the direction of the Board of
Trustees. Short-term investments, excluding U.S. Treasury Bills, are carried at
amortized cost, which approximates value. Financial futures are valued at the
last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market on
each business day. Investments denominated in foreign currencies are translated
to U.S. dollars at the prevailing rates of exchange.
(B) 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 amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities at fiscal year end,
resulting from changes in exchange rates. Such gains and losses are included
with net realized and unrealized gain or loss on investments.
<PAGE>
(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
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
recognized on the ex-dividend date and interest income, including, where
applicable, amortization of discount on investments, is recognized on the
accrual basis. Under the terms of the custody agreement, the Fund receives net
earnings credits based on available cash balances left on deposit.
(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 of 1986, as
amended (the "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 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 $1,064,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1998. If not
applied, the carryover expires in fiscal 2003.
NOTE 2--BANK LINES OF CREDIT:
The Fund may borrow up to $20 million for leveraging purposes under a
short-term unsecured line of credit and participates with other Dreyfus-managed
funds in a $100 million unsecured line of credit primarily to be utilized for
temporary or emergency purposes, including the financing of redemptions.
Interest is charged to the Fund at rates which are related to the Federal Funds
rate in effect at the time of borrowings.
The average daily amount of borrowings outstanding under both arrangements
during the period ended October 31, 1998 was approximately $1,716,800 with a
related weighted average annualized interest rate of 5.31%.
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, 1998, the Fund was charged $719,546 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, 1998, the Fund was charged $224,363 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended October 31, 1998, the Fund was
charged $44,729 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.
<PAGE>
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, forward currency exchange
contracts and options transactions, during the period ended October 31, 1998:
<TABLE>
Purchases Sales
_______________ _______________
<S> <C> <C>
Long transactions. . . . . . . . . . . . . . . . . . . . . . . . . . $ 939,621,013 $ 956,634,202
Short sale transactions. . . . . . . . . . . . . . . . . . . . . . . 62,180,660 61,458,633
_______________ _______________
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,001,801,673 $1,018,092,835
_______________ _______________
</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, 1998, there were no securities sold short outstanding.
In addition, the following summarizes open forward currency exchange
contracts at October 31, 1998:
<TABLE>
Foreign
Currency Unrealized
Forward Currency Exchange Contracts Amount Proceeds Value (Depreciation)
__________________________________ ____________ ___________ ___________ ____________
<S> <C> <C> <C> <C>
Sales:
_____
Japanese Yen, expiring 11/12/98. . . . . . . . . . . . . 600,000,000 $5,150,215 $5,175,091 ($24,876)
________
</TABLE>
The Fund enters into forward currency exchange contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. When executing forward currency exchange contracts, the Fund
is obligated to buy or sell a foreign currency at a specified rate on a certain
date in the future. With respect to sales of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract increases
between the date the forward contract is opened and the date the forward
contract is closed. The Fund realizes a gain if the value of the contract
decreases between those dates. With respect to purchases of forward currency
exchange contracts, the Fund would incur a loss if the value of the contract
decreases between the date the forward contract is opened and the date the
forward contract is closed. The Fund realizes a gain if the value of the
contract increases between those dates. The Fund is also exposed to credit risk
associated with counter party nonperformance on these forward currency exchange
contracts which is typically limited to the unrealized gain on each open
contract.
In addition, the following table summarizes the Fund's call/put options
written for the period ended October 31, 1998:
<TABLE>
Options Terminated
___________________________
Number of Premiums Net Realized
Contracts Received Cost Gain/(Loss)
___________ ___________ ___________ ____________
OPTIONS WRITTEN:
<S> <C> <C> <C> <C>
Contracts outstanding October 31, 1997 . . . . . . . . 100 $200,000
Contracts written . . . . . . . . . . . . . . . . . . . 500 339,844
___________ ___________
600 539,844
___________ ___________
Contracts Terminated:
Closed . . . . . . . . . . . . . . . . . . . . . . 400 450,781 $422,656 $28,125
Expired . . . . . . . . . . . . . . . . . . . . . . 200 89,063 -- 89,063
___________ ___________ ___________ ____________
Total contracts terminated . . . . . . . . . . . 600 539,844 $422,656 $117,188
___________ ___________ ___________ ____________
Contracts outstanding October 31, 1998 . . . . . . . . 0 $ 0
___________ ___________
</TABLE>
<PAGE>
DREYFUS STRATEGIC INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
The Fund may invest in financial futures contracts in order to gain exposure
to or protect against changes in the market. The Fund is exposed to market risk
as a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the Fund to "mark to market" on a daily
basis, which reflects the change in market value of the contracts at the close
of each day' s trading. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains or losses. When the contracts are closed,
the Fund recognizes a realized gain or loss. These investments require initial
margin deposits with a custodian, which consist of cash or cash equivalents, up
to approximately 10% of the contract amount. The amount of these deposits is
determined by the exchange or Board of Trade on which the contract is traded and
is subject to change. Contracts open at October 31, 1998 are set forth in the
Statement of Financial Futures.
(B) At October 31, 1998, accumulated net unrealized depreciation on
investments, financial futures and forward currency exchange contracts was
$5,120,766, consisting of $5,666,551 gross unrealized appreciation and
$10,787,317 gross unrealized depreciation.
At October 31, 1998, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
NOTE 5--SUBSEQUENT EVENT:
On November 5, 1998, shareholders of the Fund approved proposals providing
for a new investment objective for the Fund, for the elimination of a management
policy relating to the Fund's credit quality guidelines, and for changes to a
number of the Fund's investment restrictions to increase the Fund's flexibility
as provided under the Act, all as described in the proxy statement mailed to
Fund shareholders on or about September 15, 1998. These changes were implemented
effective November 15, 1998.
<PAGE>
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 and financial futures, of Dreyfus
Strategic Income Fund (one of the Funds constituting Dreyfus Debt and Equity
Funds) as of October 31, 1998 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, 1998 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, 1998, 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.
New York, New York
December 17, 1998
IMPORTANT TAX INFORMATION (UNAUDITED)
In accordance with Federal tax law, the Fund hereby designates 11.35% of the
ordinary dividends paid during the fiscal year ended October 31, 1998 as
qualifying for the corporate dividends received deduction. Shareholders will
receive notification in January 1999 of the percentage applicable to the
preparation of their 1998 income tax returns.
<PAGE>
(reg.tm)
(reg.tm)
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. 031AR9810
Strategic Income
Fund
Annual Report
October 31, 1998
<PAGE>
- ------------------------------------------------------------------------------
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Fellow Shareholder:
It is a pleasure to have this opportunity to communicate with my fellow
shareholders of the Dreyfus Equity Dividend Fund.
This letter accompanies the annual report of the Dreyfus Equity Dividend Fund
for the 12-month period ended October 31, 1998. During this period, your Fund
achieved a total return of 7.17%,* which compares with a total return of 22.01%
for the Standard & Poor's 500 Composite Stock Price Index,** and 12.40% for the
Wilshire Large Company Value Index*** over the same period.
As always, the concentrated nature of the Fund, holding approximately 50
securities, will make it more volatile than the diversified indices referred to
above, which are both composed of approximately 500 securities. During most
periods, therefore, the performance of the Fund will likely differ significantly
from these indices.
Value stocks underperformed growth stocks during the period. The margin was
among the widest in memory. Any value manager who remained true to his or her
discipline could not hope to have matched the returns of the S&P 500 Index over
the past year. Your Fund remained true to its value discipline and should be
considered a pure value fund, according to our definition of value. There will
be periods, the past year for example, when value stocks underperform the S&P
500 Index, even when our particular definition of value underperforms certain
value stock indices. Regardless, the Fund provides your investment portfolio
with the benefits of pure value stock exposure.
The performance of the S&P 500 Index was largely driven by a relatively few
so-called "mega-cap" growth stocks or the very largest domestically traded
companies. The S&P 500 Index, and many of its major security components, carry
valuations well above those of any historic period by almost any financial
measure, according to our calculations. This concentrated overvaluation, in our
opinion, is reminiscent of the early 1970s' "nifty fifty" stocks, or oil stocks
in the early 1980s. Both of those markets ended with quick and severe
corrections of the overvalued securities. No one can predict such an occurrence
today, but many market participants may conclude that the risk level of the S&P
500 Index, and many of its major security components, is high by historic
standards. Regardless, at least for the time being, positive price momentum in
this index and in many of these mega-cap stocks has continued, despite the
recent stock market correction and subsequent recovery.
As for your Fund, most of the performance shortfall relative to the Wilshire
Value Index occurred during the fourth quarter of 1997, as the portfolio was
positioned for strong worldwide economic growth when the Asian economic problems
surfaced. Several holdings during these months were among the poorest performing
securities in the Fund for the fiscal year. These securities included electronic
technology companies that have significant business in Asia, transportation
issues which suffered from the possibility of a weakening economy, and several
Latin American companies which were penalized simply because they are "emerging
markets." The portfolio was subsequently reworked and performance relative to
large company value indices on a quarter-by-quarter basis was more competitive.
Our disciplined investment process, investing only in higher dividend paying
securities, kept the Fund largely out of what we considered were overvalued
mega-cap securities. Unfortunately, many of these high-priced mega-cap
securities were the best performing stocks in the market, restraining the Fund's
relative performance. Quite often, disciplined value investment processes that
focus on dividends have underperformed when the overall stock market reaches
speculative overvaluation. There is better potential for outperformance as
security prices settle and as economic change occurs. Because of the Fund's
strict investment focus, the benchmarks detailed above should be considered
long-term in nature, as there will certainly be periods when the performance is
not comparable.
Economic Review
The U.S. entered the year with a strong economy and at near full employment,
which during the spring months led the Federal Reserve Board, our central bank,
to contemplate raising short-term interest rates in order to keep growth and
inflation in check. By mid-year, however, the impact of weak Asian economies on
U.S. economic growth had already done the job, so the Fed left rates unchanged.
More recently, financial system stresses convinced the Fed to lower interest
rates three times: at the end of September, in mid-October, and in mid-November
A significant influence on the U.S. economy this year was slower growth in the
overall world economy and the evolution of a worldwide financial crisis. Both
events caused a drop in inflation, which helped send interest rates lower. The
fall in inflation and lower interest rates benefited companies that sell to the
consumer, as more income was left over after inflation to buy goods and
services, and the cost of debt was reduced. Home mortgages were refinanced at
lower rates, for example, putting more discretionary income in consumers'
pockets.
The negative effect in the U.S. of slower global economies was directed toward
the industrial sector. Corporate profits weakened, especially in Asian-impacted
sectors such as world-traded commodities (paper producers, for example) and
exporters (computer manufacturers, for example). One result of this industrial
weakness was to cool off a U.S. economy that had been growing perhaps too
rapidly.
A financial crisis developed during the mid-summer months, primarily in Russia
and Brazil. Panic set in as lenders called in outstanding loans and were
reluctant to issue new debt, sharply reducing the economic outlook for these
areas. The effect on European and U.S. companies was to lower profit growth
expectations, given the decline in export opportunities to these geographies.
Proactive steps appear to have been recently taken in attempts to stabilize
the Japanese banks, to design a support package for Brazil, and to generally
make money less expensive to lend. Economic prospects for the major developed
countries will be powerfully impacted by whether foreign financial stresses in
the coming months calm down, as the consensus appears to be currently
concluding, or intensify, as was the fear just weeks ago.
Stock Market Overview
The 12-month period ended October 31, 1998 reflected a number of contrasting
phases in the U.S. stock market. There was strength during the early part of the
period, as stocks recovered from the Asian-induced sell-off that occurred during
the fourth quarter of 1997. By mid-summer, as large company security valuations
neared all-time highs, there was a sharp market decline sparked by the implosion
of the Russian financial markets. The U.S. stock market declined again in late
September, due to the collapse of a major U.S. hedge fund. Finally, there was a
strong rally from mid-October until the end of the fiscal year, in response to
the Federal Reserve Board' s lowering of short-term interest rates.
Over the 12-month period, investment returns for mid-sized and small companies
were significantly lower than those for large companies, with the Standard &
Poor's Midcap 400 Index returning 6.71% and the small-company Russell 2000 Index
declining -11.84%.+ The erosion of expectations for corporate profit growth over
the year contributed to an outperformance by a select few mega-cap growth
stocks. Investors had confidence in the more consistent earnings growth from
this small group of stocks that compose the bulk of the S&P 500 Index than for
the broader market. Almost every other capitalization and investment style group
lagged far behind these mega-cap growth stocks.
Value Investing and Our Investment Process
To once again summarize our investment philosophy, while there are other
investment disciplines practiced at Dreyfus, members of the Dreyfus Value Team
are passionate believers in value investing. The Dreyfus Equity Dividend Fund
represents a particular type of value fund: it strictly focuses on securities
paying high dividends. In one sense, high dividend investing can be a lower
risk, more conservative style of equity investing because the prices of high
dividend paying stocks may decline less in falling markets.
Our approach to the selection of securities begins and ends with our analysts
who are an integral part of our investment team. Our Dreyfus analysts contribute
their proprietary forecasts on corporate earnings and cash flows to our computer
models, their analysis and opinions to our decision-making process, and their
constant flow of information to our ongoing assessment of owned securities
We screen the universe of stocks by computer according to two principal methods.
The first computer screen determines value by identifying companies with a
dividend yield (current dividend divided by the current market price) that is
greater than the dividend yield of the overall Standard & Poor's 500 Index.
Being paid more than this rate for the risk inherent in equity investing is
central to our value discipline. The second computer screen looks at 19 other
factors that have historically influenced stock returns, including various
growth, valuation and leverage measures. We input into this computer model the
current economic and stock market trends and the computer calculates each
security' s exposure to this environment. The model is an idea generator and
further detailed fundamental analysis is conducted on each potential holding to
determine its suitability for the Fund. Combining all of this data with our
analysts' in-depth knowledge of the individual companies, we then construct a
portfolio of approximately 50 or so securities. We use similar disciplined
criteria and several other factors to determine when selling a security is in
our shareholders' best interest.
Examples of Our Investment Process
The detailed fundamental analysis, computer modeling and portfolio strategy
that go into the decision-making process for each security in the Fund is not
possible in this short report. Instead, provided below are several brief
summaries of some of the better and poorer performing securities within the Fund
during the annual period.
Xerox has been expanding its core copier business into the computer printer
business with great initial success. The ability to provide quality service can
be a significant competitive advantage. The security was one of the stronger
performers in the Fund, and was sold when our investment discipline indicated
that it was fully valued, relative to higher dividend paying alternatives.
American Stores, a supermarket chain, was one of the better performers in your
Fund. The company was acquired by Albertson's, another supermarket chain, which
significantly benefited the share price and resulted in our sale of the security
since it was fully valued.
RJR Nabisco Holdings and Philip Morris, both largely tobacco companies, were
poor performers during much of the period. Congress could not agree on tobacco
legislation that we believe would have significantly benefited both the public
good and these securities. The tobacco companies recently resolved many of these
same issues directly with the states, benefiting the securities. While we sold
RJR Nabisco Holdings during the Fund's fiscal year in order to reduce exposure
to the industry, we remained attracted to the unusually inexpensive valuation
and high dividend yield of Philip Morris.
Bankers Trust, a major money-center bank, was a poor-performing security in
your Fund. Almost every financial stock was punished during the summer months
when emerging markets and worldwide bond markets ran into difficulties. We
reacted quickly to reduce exposure to the industry, including the sale of this
security. Although this company was recently acquired, our sale price was above
the current market price.
In almost any Fund, there are both strong performing and poor performing
securities. Our job is to maximize the good and minimize the bad, while keeping
risk at tolerable levels. We will not be successful every quarter or every year,
but we work hard to reward our fellow investors over the long term.
Diligent management of your investment is our highest priority. Thank you for
entrusting us with your assets.
Sincerely,
[Timothy M. Ghriskey signature]
Timothy M. Ghriskey
Senior Portfolio Manager
November 16, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
**SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The Standard
& Poor's 500 Composite Stock Price Index is a widely accepted unmanaged index of
U.S. stock market performance.
*** SOURCE: WILSHIRE ASSOCIATES, INC. -- The Wilshire Large Company Value Index
is constructed by using a blend of price-to-book and forecast price-to-earnings
ratios. The largest 750 stocks in the Wilshire 5000 are ranked based on a style
score that is 75% price-to-earnings ratio and 25% forecast P/E. The universe is
divided so that companies that represent half of the total capitalization fall
into growth and the remainder are placed into value. Beginning with the fiscal
year ended October 31, 1998, this Index will be used as the Fund's primary
benchmark index.
+SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The Standard
& Poor' s MidCap 400 Index is a broad-based index of 400 companies with market
capitalizations generally ranging from $50 million to $10 billion and is a
widely accepted, unmanaged index of overall mid-cap stock market performance.
The Russell 2000 Index is an unmanaged index and a leading barometer of the
overall performance of small company stocks.
DREYFUS EQUITY DIVIDEND FUND OCTOBER 31, 1998
- -----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS EQUITY DIVIDEND
FUND WITH THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX AND THE WILSHIRE
LARGE COMPANY VALUE INDEX
Dollars
$18,797
Standard & Poor's 500 Composite Stock Price Index*
$16,441
Wilshire Large Company Value Index**
$15,654
Dreyfus Equity Dividend Fund
*Source: Lipper Analytical Services, Inc.
*Source: Wilshire Associates, Inc.
Average Annual Total Returns
- ------------------------------------------------------------------------------
One Year Ended From Inception (12/29/95)
October 31, 1998 to October 31, 1998
___________________ ________________________
7.17% 17.09%
- ---------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Equity Dividend
Fund on 12/29/95 (Inception Date) to a $10,000 investment made on that date in
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500") as well as
to the Wilshire Large Company Value Index which are described below. All
dividends and capital gain distributions are reinvested.
The Fund's performance shown in the line graph takes into account all applicable
fees and expenses. The S&P 500, which was the Fund's primary benchmark Index
since its inception, is a widely accepted, unmanaged index of overall stock
market performance. The Wilshire Large Company Value Index, composed of the
largest 750 stocks in the Wilshire 5000 Index which meet certain statistical
criteria for "value," has been selected as the new primary comparative index
because, like the Fund, it focuses on "value" stocks. It is believed that this
Wilshire Index provides a more accurate comparison with the Fund's value
investment style. Pursuant to applicable federal regulations, the performance of
the S&P 500 will be provided for this fiscal year, but will not be provided for
fiscal year ended October 31, 1999. The Indices do 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>
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS OCTOBER 31, 1998
Common Stocks--99.9% Shares Value
- ------------------------------------------------------- ____________ _____________
<S> <C> <C>
Commercial Services--2.2% Ogden . . . . . . . . . . . . . . . . . . . . . . . 3,700 $ 99,437
___________
Consumer Durables--6.0% Eastman Kodak . . . . . . . . . . . . . . . . . . . . 1,300 100,750
General Motors . . . . . . . . . . . . . . . . . . . . 1,400 88,288
Jostens . . . . . . . . . . . . . . . . . . . . . . 3,600 81,225
___________
270,263
___________
Consumer Non-Durables--12.7% Anheuser-Busch . . . . . . . . . . . . . . . . . . . . 2,100 124,819
ConAgra . . . . . . . . . . . . . . . . . . . . . . . 3,400 103,487
Gallaher Group, A.D.S. . . . . . . . . . . . . . . . . 4,200 114,450
Intimate Brands, Cl. A . . . . . . . . . . . . . . . . 4,300 96,213
Philip Morris . . . . . . . . . . . . . . . . . . . . 2,500 127,812
___________
566,781
___________
Electronic Technology--9.1% EG&G . . . . . . . . . . . . . . . . . . . . . . . 3,800 95,475
General Dynamics . . . . . . . . . . . . . . . . . . . 2,000 118,375
Harris . . . . . . . . . . . . . . . . . . . . . . 2,500 87,656
Northrop Grumman . . . . . . . . . . . . . . . . . . . 1,300 103,675
___________
405,181
___________
Energy Minerals--12.8% Atlantic Richfield . . . . . . . . . . . . . . . . . . 1,200 82,650
British Petroleum, A.D.S. . . . . . . . . . . . . . . 1,000 88,438
Conoco, Cl. A . . . . . . . . . . . . . . . . . . . . 1,400 34,825
Mobil . . . . . . . . . . . . . . . . . . . . . . . . 1,300 98,394
Sun . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 85,781
Texaco . . . . . . . . . . . . . . . . . . . . . . 1,500 88,969
USX-Marathon Group . . . . . . . . . . . . . . . . . . 2,800 91,525
___________
570,582
___________
Finance--22.1% ABN AMRO Holding, A.D.S. . . . . . . . . . . . . . . . 4,600 88,262
Banc One . . . . . . . . . . . . . . . . . . . . . . . 1,900 92,862
Bank of New York . . . . . . . . . . . . . . . . . . . 3,100 97,844
BankAmerica . . . . . . . . . . . . . . . . . . . . . 1,200 68,925
BankBoston . . . . . . . . . . . . . . . . . . . . . . 2,400 88,350
Chase Manhattan . . . . . . . . . . . . . . . . . . . 1,600 90,900
First Tennessee National . . . . . . . . . . . . . . . 3,000 95,063
KeyCorp . . . . . . . . . . . . . . . . . . . . . . . 2,900 87,906
National City . . . . . . . . . . . . . . . . . . . . 1,400 90,038
Norwest . . . . . . . . . . . . . . . . . . . . . (a) 2,600 96,687
Wachovia . . . . . . . . . . . . . . . . . . . . . . . 1,000 90,875
___________
987,712
___________
Health Technology--2.7% Pharmacia & Upjohn . . . . . . . . . . . . . . . . . . 2,300 121,756
___________
Insurance--4.4% American General . . . . . . . . . . . . . . . . . . . 1,400 95,900
EXEL, Cl. A . . . . . . . . . . . . . . . . . . . . . 1,300 99,369
___________
195,269
___________
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Common Stocks (continued) Shares Value
- ------------------------------------------------------- ____________ _____________
Process Industries--5.9% Chesapeake . . . . . . . . . . . . . . . . . . . . . . 2,300 $ 80,500
duPont (E.I.) de Nemours & Co. . . . . . . . . . . . . 1,600 92,000
Union Camp . . . . . . . . . . . . . . . . . . . . . . 2,100 90,300
___________
262,800
___________
Producer Manufacturing--2.0% Minnesota Mining & Manufacturing . . . . . . . . . . . 1,100 88,000
___________
Retail Trade--1.6% Penney (J.C.) . . . . . . . . . . . . . . . . . . . . 1,500 71,250
___________
Transportation--2.3% Union Pacific . . . . . . . . . . . . . . . . . . . . 2,200 104,775
___________
Utilities--16.1% AT&T . . . . . . . . . . . . . . . . . . . . . . . 1,600 99,600
Ameritech . . . . . . . . . . . . . . . . . . . . . . 2,200 118,663
Bell Atlantic . . . . . . . . . . . . . . . . . . . . 2,000 106,250
Central & South West . . . . . . . . . . . . . . . . . 3,300 91,781
Cinergy . . . . . . . . . . . . . . . . . . . . . . . 2,400 82,800
Texas Utilities . . . . . . . . . . . . . . . . . . . 2,400 105,000
U S West . . . . . . . . . . . . . . . . . . . . . . . 2,000 114,750
___________
718,844
___________
TOTAL INVESTMENTS (cost $3,933,636). . . . . . . . . . . . . . . . . . . . . . . . . . . . 99.9% $4,462,650
_______ ___________
CASH AND RECEIVABLES (NET) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1% $ 2,679
_______ ___________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $4,465,329
_______ ___________
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Non-income producing.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998
Cost Value
___________ __________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $3,933,636 $4,462,650
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 13,060
Receivable for investment securities sold . . . . . . . . 78,234
Dividends receivable . . . . . . . . . . . . . . . . . . 16,329
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 10,265
___________
4,580,538
___________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 1,180
Due to Distributor . . . . . . . . . . . . . . . . . . . 925
Payable for investment securities purchased . . . . . . . 86,945
Accrued expenses . . . . . . . . . . . . . . . . . . . . 25,490
___________
114,540
___________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,465,998
___________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $3,532,530
Accumulated undistributed investment income--net . . . . 5,277
Accumulated net realized gain (loss) on investments and
foreign currency transactions . . . . . . . . . . . . . 399,177
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4(b) . . . . . . . . . . . . . . . 529,014
___________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,465,998
___________
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED) . . . . . . 264,677
NET ASSET VALUE, offering and redemption price per share . . . . . . . . . . . . . . . . . $16.87
_______
_______
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME: Cash dividends (net of $1,863 foreign taxes
withheld at source) . . . . . . . . . . . . . . . $138,575
Interest . . . . . . . . . . . . . . . . . . . . 6,489
_________
Total Income . . . . . . . . . . . . . . . . . . $145,064
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . 35,187
Registration fees . . . . . . . . . . . . . . . . . 21,285
Auditing fees . . . . . . . . . . . . . . . . . . . 17,362
Shareholder servicing costs--Note 3(b) . . . . . . . 13,185
Prospectus and shareholders' reports . . . . . . . . 6,349
Custodian fees--Note 3(b) . . . . . . . . . . . . . 2,176
Trustees' fees and expenses--Note 3(c) . . . . . . . 507
Legal fees . . . . . . . . . . . . . . . . . . . . . 281
Loan commitment fees--Note 2 . . . . . . . . . . . . 38
Miscellaneous . . . . . . . . . . . . . . . . . . . 1,409
_________
Total Expenses . . . . . . . . . . . . . . . . . 97,779
Less--expense reimbursement from Manager due to
undertaking--Note 3(a) . . . . . . . . . . . . . (39,097)
_________
Net Expenses . . . . . . . . . . . . . . . . . . 58,682
_________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,382
_________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments
and foreign currency transactions . . . . . . . . $395,079
Net realized gain (loss) on forward currency
exchange contracts . . . . . . . . . . . . . . . 5,577
_________
Net Realized Gain (Loss) . . . . . . . . . . . . 400,656
Net unrealized appreciation (depreciation)
on investments . . . . . . . . . . . . . . . . (159,179)
_________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . 241,477
_________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . $327,859
_________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
October 31, 1998 October 31, 1997
_______________ _______________
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,382 $ 73,149
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . 400,656 328,523
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . (159,179) 489,186
___________ ___________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . . . 327,859 890,858
___________ ___________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (84,192) (72,235)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (329,506) (59,415)
___________ ___________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (413,698) (131,650)
___________ ___________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657,588 685,376
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,607 127,388
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (816,316) (115,946)
___________ ___________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions . . . . . . 237,879 696,818
___________ ___________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . . . 152,040 1,456,026
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,313,958 2,857,932
___________ ___________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,465,998 $4,313,958
___________ ___________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,277 $ 3,087
___________ ___________
Shares Shares
___________ ___________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,863 43,022
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . 23,937 8,374
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,766) (7,551)
___________ ___________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . . . 15,034 43,845
___________ ___________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS EQUITY DIVIDEND 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: 1998 1997 1996(1)
_______ _______ _______
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . $17.28 $13.89 $12.50
_______ _______ _______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . .32 .32 .23
Net realized and unrealized gain (loss) on investments . . . . .87 3.67 1.38
_______ _______ _______
Total from Investment Operations . . . . . . . . . . . . . 1.19 3.99 1.61
_______ _______ _______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . (.31) (.32) (.22)
Dividends from net realized gain on investments . . . . . . . . (1.29) (.28) --
_______ _______ _______
Total Distributions . . . . . . . . . . . . . . . . . . . . (1.60) (.60) (.22)
_______ _______ _______
Net asset value, end of period . . . . . . . . . . . . . . . . $16.87 $17.28 $13.89
_______ _______ _______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . . . . . . . . 7.17% 29.34% 12.93%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets . . . . . . . . . . . . 1.25% 1.27% 1.08%(2)
Ratio of net investment income to average net assets . . . . . 1.82% 1.98% 1.76%(2)
Decrease reflected in above expense ratios
due to undertakings by the Manager . . . . . . . . . . . . .84% 1.36% 1.05%(2)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . 168.02% 80.43% 98.84%(2)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . $4,465 $4,314 $2,858
- ------------
(1) From December 29, 1995 (commencement of operations) to October 31, 1996.
(2) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Equity Dividend Fund (the "Fund") is a separate diversified series of
Dreyfus Debt and Equity Funds (the "Company") which is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end management
investment company and operates as a series company currently offering six
series, including the Fund. The Fund's investment objective is current income.
The Dreyfus Corporation (the "Manager") serves as the Fund's investment adviser.
The Manager is a direct subsidiary of Mellon Bank, N.A., which is a wholly-owned
subsidiary of Mellon Bank Corporation. 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.
On August 5, 1998, the Company's Board of Trustees approved a change of the
Company' s name from "Dreyfus Income Funds" to "Dreyfus Debt and Equity Funds".
This change became effective on August 13, 1998.
The Company accounts separately for the assets, liabilities and operations of
each fund. Expenses directly attributable to each fund are charged to that
fund' s operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
As of October 31, 1998, APT Holdings Corporation, an indirect subsidiary of
Mellon Bank Corporation, held 185,587 shares of the Fund.
The Fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (including options and
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. Securities not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices, except for open
short positions, where the asked price is used for valuation purposes. Bid price
is used when no asked price is available. 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 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 amounts of
dividends, interest and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities, other than investments in securities, 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. Under the terms of the custody agreement, the Fund received net
earnings credits of $2,448 during the period ended October 31, 1998 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date.
Dividends from investment income-net are declared and paid on a quarterly basis.
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 of 1986, as
amended (the "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.
(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 Code, and to make distributions of taxable income sufficient to relieve it
from substantially all Federal income and excise taxes.
NOTE 2--BANK LINE OF CREDIT:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility (" Facility" ) to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the Fund at rates based on prevailing
market rates in effect at the time of borrowings. During the period ended
October 31, 1998, the Fund did not borrow under the Facility.
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 .75 of 1% of the value of the Fund's average
daily net assets and is payable monthly. The Manager had undertaken from
November 1, 1997 through October 31, 1998 to reduce the management fee paid by,
or reimburse such excess expenses of the Fund, to the extent that the Fund's
aggregate annual expenses (exclusive of taxes, brokerage, interest on
borrowings, commitment fees and extraordinary expenses) exceeded an annual rate
of 1.25% of the value of the Fund's average daily net assets. The expense
reimbursement pursuant to the undertaking, amounted to $39,097 during the period
ended October 31, 1998.
(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, 1998, the Fund was charged $11,729 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, 1998, the Fund was charged $1,152 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended October 31, 1998, the Fund was
charged $2,176 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 EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities and forward currency exchange contracts, during
the period ended October 31, 1998 amounted to $7,666,645 and $7,725,299,
respectively.
The Fund enters into forward currency exchange contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings. When executing forward currency exchange contracts, the Fund is
obligated to buy or sell a foreign currency at a specified rate on a certain
date in the future. With respect to sales of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract increases
between the date the forward contract is opened and the date the forward
contract is closed. The Fund realizes a gain if the value of the contract
decreases between those dates. With respect to purchases of forward currency
exchange contracts, the Fund would incur a loss if the value of the contract
decreases between the date the forward contract is opened and the date the
forward contract is closed. The Fund realizes a gain if the value of the
contract increases between those dates. The Fund is also exposed to credit risk
associated with counter party nonperformance on these forward currency exchange
contracts which is typically limited to the unrealized gain on each open
contract. At October 31, 1998, there were no open forward currency exchange
contracts.
(b) At October 31, 1998, accumulated net unrealized appreciation on
investments was $529,014, consisting of $555,522 gross unrealized appreciation
and $26,508 gross unrealized depreciation.
At October 31, 1998, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Equity Dividend Fund
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Equity Dividend Fund (one of
the Funds constituting Dreyfus Debt and Equity Funds) as of October 31, 1998,
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, 1998 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 Equity Dividend Fund at October 31, 1998, 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.
New York, New York
December 17, 1998
DREYFUS EQUITY DIVIDEND FUND
- -----------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
For Federal tax purposes, the Fund hereby designates $.324 per share as a
long-term capital gain distribution of the $1.343 per share paid on December 31,
1997.
The Fund also designates 46.67% of the ordinary dividends paid during the
fiscal year ended October 31, 1998 as qualifying for the corporate dividends
received deduction. Shareholders will receive notification in January 1999 of
the percentage applicable to the preparation of their 1998 income tax returns.
[reg.tm logo]
(reg.tm)
DREYFUS EQUITY DIVIDEND 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. 042AR9810
Equity Dividend
Fund
Annual Report
October 31, 1998
- -------------------------------------------------------------------------------
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report for the Dreyfus High Yield
Securities Fund. For the 12-month period ended October 31, 1998, your Fund
produced a total return, including share price changes and dividend income
generated, of -16.28%.* Income dividends paid from net investment income during
the period amounted to approximately $1.566 per share, representing a
distribution rate per share of 14.14%.**
ECONOMIC REVIEW
So far in 1998, the main regions of the world have had very different
economic fundamentals. The U.S. entered the year with a strong economy near full
employment, with unemployment only slightly above 4%. The tight labor market led
the Federal Reserve Board to contemplate a rise in interest rates early in the
year. The U.S. economy cooled enough over the months that the Fed decided to
stand pat. Evidence of economic cooling continued to accumulate and worries
about the world economy intensified. Financial stresses pushed the Fed to ease
credit in both late September and mid-October. After many years of subpar
economic growth, continental Europe moved into a sustained economic expansion.
The overall European economy benefited as interest rates in peripheral countries
such as Spain and Italy fell, approaching the lower levels established by
Germany, on the eve of currency unification. Unlike the U.S., Europe has
substantial excess capacity of productive plant and labor. In Asia, weak
economies were pervasive as a result of the Asian financial crisis. The Latin
American economies weakened as the financial stresses spread throughout that
region.
A main influence on the U.S. economy this year was the foreign financial
crisis and cooling of the world economy. The positive effects hit first. Actual
inflation and expected inflation dropped, causing a decline in long-term U.S.
Treasury bond yields and mortgage rates. This caused a boom in housing. The fall
in inflation helped the consumer sector as more of the growth in consumer income
was left over after inflation to buy goods and services. Consumers benefited
from a combination of good growth in income after inflation, a strong labor
market and past increases in the price of assets they owned.
The negative effect of Asian weakness was felt in the industrial sector more
than in the consumer sector. Corporate profits weakened, especially in sectors
affected by the Asian crisis such as world-traded commodities (oil, metals and
paper) and exports. One result of this industrial weakness was to cool off a
U.S. economy that had been growing rapidly.
The major change in the economic outlook over recent months has been a
downward shift in expectations for world economic growth. A credit crunch
developed in emerging countries and former communist countries, sharply reducing
the economic outlook for Asia and Latin America as well as for
commodity-exporting countries throughout the world. The effect on Europe and the
U.S. has been to lower expectations of profit growth and drive down bond yields
Evidence of a weaker world economy accumulated as the financial stresses
continued. A worsened financial crisis occurred between the Russian default in
mid-August and the fallout from the Long-Term Capital Management (a U.S. hedge
fund) crisis through early October. However, proactive steps were taken to
stabilize the Japanese banks, design a support package for Brazil, and ease
monetary policy. The prospects for world economic weakness and monetary ease in
the major countries will be powerfully influenced by whether foreign financial
stresses calm down or intensify in the coming months. There appears to be a
shift in the priorities of key policymakers from fighting potential inflation to
restimulating future world economic growth.
MARKET OVERVIEW
<PAGE>
After a strong rally following the Asian crisis-induced selloff in October
1997, this past summer saw the high-yield market drop to depths not seen since
1990. Spreads to U.S. Treasuries for the major high-yield indices widened to
over 700 basis points. Liquidity in the high-yield market dried up as distressed
sellers of high-yield bonds found few bidders, even at increasingly lower
prices. The level of illiquidity in the high yield bond markets over August,
September, and October 1998 was unprecedented in market history, and resulted in
a dramatic across-the-board drop in high yield bond prices.
The principal cause of this was an acute case of risk aversion among
investors, brought about by negative developments in the global economy. It
manifested itself in a "flight to quality" as U.S. Treasuries rallied, and most
other kinds of credit risk-related securities declined in price and lost their
liquidity. Among the hardest hit were small-cap and foreign equities and
emerging market, high yield, and mortgage-related fixed income securities. Among
high-yield, the relatively lower quality bonds (those with a "B" and "CCC"
credit quality) , significantly underperformed higher quality high yield bonds
("BB" credit quality).
The primary catalyst for the market swoon was the collapse of the Russian
financial system, but its roots were deep in the Asian economic crisis. Domestic
recessions and currency devaluations in key Asian countries were expected to
cause lower demand for capital goods and lower worldwide price levels for
manufacturing-related items ranging from raw commodities to high-end consumer
items. Fears of resulting deflation were a key ingredient of a global credit
crunch that developed this past summer. It is this credit crunch that hit the
high-yield market the hardest.
Fundamentally, very little was wrong as far as "credit quality" issues with
the high-yield market as bankruptcy rates continued at the relatively low levels
of recent years. In fact, many high-yield issuers are meeting or exceeding their
business plans. What became overwhelmingly bearish this past summer were
technical factors primarily centered around the credit crunch. Many high-yield
companies are growing, especially in telecommunications, and require ready
access to harder-to-get credit. On the trading side, the credit crunch caused
the major broker dealers to reduce their commitments to trading capital, as well
as their financing of leveraged investment vehicles, hedge funds in particular.
Concurrently, bond and stock mutual funds were facing significant redemptions,
especially beginning in August 1998. The result of all this was an acute
imbalance of selling over a short period of time this past summer. Prices for
high-yield bonds dropped in a vacuum as hedge funds, broker-dealers and mutual
funds all tried to sell simultaneously. Those investors with cash sat on the
sidelines expecting bond prices to fall further.
As with most technical perturbations, there historically has been a
corresponding snap back to the mean. In times of financial stress, the
high-yield market tends to behave in line with the equity markets, but over a
longer time horizon the U.S. Treasury market is generally considered to have an
equal influence. Unlike equities, high-yield bonds offer big coupons for
investors and the cash flow from those coupons has some value, regardless of
changes in credit assumptions. In fact, the high-yield market has begun to
rebound:
1) Money has begun flowing back into high-yield mutual funds; 2) liquidity is
returning, albeit not yet at the levels seen earlier this year; 3) fears of
worldwide economic troubles have waned; and 4) issuers are able to get new deals
priced. Factors influencing this new level of liquidity are the rebound in the
equity markets and the general perception that the domestic economy is still
strong despite a slowdown in the manufacturing sector. However, in this
situation, the time horizon for a potentially complete snapback will take
significantly longer than the historically dramatic price drops that occurred.
Key foreign markets appear to have pulled out of their nosedives and have
reached some sort of bottom. The recent IMF package for Brazil and actions by
the Japanese government to shore up its banking system have positively
influenced investor sentiment.
However, the U.S. economy is not an island in a sea of global economic
uncertainty. It is too early to tell if the world economic picture has reached
the bottom. Commodities have dropped to the lowest levels in recent history.
Deflation remains a worrisome risk. We must continue to monitor events in Brazil
and Japan. The world has a long way to go to get back to where it was earlier
this year.
<PAGE>
PORTFOLIO OVERVIEW
The High Yield Securities Fund seriously underperformed the high-yield market
for both the six months and year ended October 31, 1998. The four main reasons
were:
1) the risk profile centered in the lower end of the high-yield credit
spectrum (bonds with a "CCC" and "B" credit quality); 2) significant holdings in
telecommunications issues; 3) issue selection; and 4) heavy redemptions that
forced selling off portfolio securities in a historically illiquid and depressed
market. The kinds of portfolio holdings that contributed to the Fund's high
total returns earlier in 1998 performed very poorly in the market selloff during
the summer of 1998. The high-yield market has begun to snap back, and the
higher-quality issues are rallying first. The Fund's actual returns will depend
on the length of the high yield market' s recovery, and whether our issue
selection can take advantage of any such rebound.
Risk Profile. Since inception, the Fund has focused on special situations.
These are credits where the market has overlooked certain positive or
potentially positive changes in a particular credit, and they usually trade
infrequently at a discount to par value. This style of investing was the prime
driver of the Fund' s positive returns over earlier periods since the Fund's
inception. Unfortunately, it also was the prime driver of the Fund's relatively
poor recent performance as the market sold off risky securities. During
high-yield market recoveries, the lower rated (" B" and "CCC") sector is
historically the last to recover, and that currently is the case as well.
Industry Concentration. The Fund has been, and continues to be, heavily
invested in the telecommunications sector. The telecommunications industry is
undergoing rapid change as access to customers is beginning to open up.
Currently, alternative communications providers have very little market share
but are increasingly taking a larger percent of the business from the regional
Bell operating companies. When the long distance market opened up, AT&T lost
over half its market share in a similar market liberalization. Additionally, the
market for data transmission is exploding, thanks in part to growing Internet
usage, as well as demand for wireless communications. On one hand, I consider
this to be a defensive industry since the domestic changes taking place are
somewhat independent of worldwide economic events. However, the market for
high-yield telecommunications bonds is quite volatile. In most cases these
companies are still in the developmental stage and positive cash flow from
operations is still some time off. It is this type of operational risk and
ongoing funding risk that performed so poorly in the high-yield meltdown. This
sector is showing signs of bouncing back, but the type of lower rated securities
that the Fund predominantly holds have not yet responded to the market rally.
Issue Selection. Several issues in the Fund performed poorly, to the point of
enhancing relative losses. Ionica, Discovery Zone, and USN either had poor
business plans or executed them poorly. Alpha Shipping and Global Ocean are
international transportation companies hurt by the slump in worldwide trade. ICF
Kaiser was caught in the credit crunch. Of this group, Global Ocean and ICF
Kaiser are expected to bounce back significantly, while the others will continue
to suffer some degree of impairment. The illiquidity of the market this summer
made it very difficult for the Fund to sell underperforming assets.
<PAGE>
Redemptions. The Fund lost almost half its assets during the last three
months, partly due to lower prices on the bond holdings but also due to heavy
redemptions. I normally try to keep at least 25% of the Fund in fairly liquid
issues, but the level of redemptions was too much for this reserve. It became
increasingly difficult to sell assets in a very illiquid market, and those
securities which I did sell off to meet redemptions significantly hurt the
Fund's net asset value. The high-yield market has begun to rally, first with the
more liquid and higher-quality issues. If this rally continues, we look for the
lower rated securities to participate. Of course, there is no guarantee how the
high yield market will perform in the future. In the short run, the technicals
are positive. The economy has proven resilient, and investors have found the
yields offered by high yield assets to be attractive. Looking forward, I will
still focus on special situations, but with renewed emphasis on defensive
industries. With the global situation so uncertain, it makes sense to take some
risk off the table. I apologize sincerely for not doing it earlier.
Very truly yours,
[Roger King signature logo]
Roger King
Portfolio Manager
November 16, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
**Distribution rate per share is based upon dividends per share paid from net
investment income during the period, divided by the net asset value per share at
the end of the period, adjusted for capital gain distributions.
***SOURCE: MERRILL LYNCH, PIERCE, FENNER AND SMITH INC. -- 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.
<PAGE>
DREYFUS HIGH YIELD SECURITIES FUND OCTOBER 31, 1998
- -----------------------------------------------------------------------------
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:
Dollars
$12,167
Merrill Lynch High Yield Master II Index*
$11,685
Dreyfus High Yield Securities Fund
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.]
Average Annual Total Returns
- -------------------------------------------------------------------------------
One Year Ended From Inception (3/25/96)
October 31, 1998 to October 31, 1998
(16.28)% 6.17%
- ---------
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>
<TABLE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS OCTOBER 31, 1998
Principal
Bonds and Notes--74.5% Amount Value
- -------------------------------------------------------
______________ ______________
<S> <C> <C>
Aircraft & Aerospace--.7% Aircraft Lease Portfolio Securitisation 96-1
Pass Through Trust, Ctfs.,
Cl. D, 12.75%, 2006 . . . . . . . . . . . . . . . $.......950,088 $ 902,584
_____________
Broadcasting--3.1% ACME Intermediate Holdings/Finance,
Sr. Discount Notes, Ser.B, Zero Coupon, 2002 . . . 1,200,000 (a) 702,000
ACME Television/Finance,
Sr. Discount Notes, Ser. B, Zero Coupon, 2000 . . 1,100,000 (a) 841,500
Scandinavian Broadcasting System,
Conv. Sub. Notes., 7%, 2004 . . . . . . . . . . . 2,500,000 2,437,500
_____________
3,981,000
_____________
Building Materials--5.1% FWT,
Sr. Sub. Notes, 9.875%, 2007 . . . . . . . . . . . 5,000,000 2,937,500
ICF Kaiser International:
Sr. Sub. Notes, 13%, 2003 . . . . . . . . . . . . 6,585,000 2,732,775
Sr. Sub. Notes, 13%, 2003 (Units) . . . . . . . . 2,438,000 (b) 1,011,770
_____________
6,682,045
_____________
Cable Television--2.2% OnePoint Communications,
Sr. Notes, 14.50%, 2008 (Units) . . . . . . . . . 3,000,000 (b,c) 1,365,000
Star Choice Communications,
Sr. Secured Notes, 13%, 2005 (Units) . . . . . . . 500,000 (b) 472,500
Supercanal Holdings,
Sr. Notes, 11.50%, 2005 . . . . . . . . . . . . . 2,000,000 (c) 960,000
_____________
2,797,500
_____________
Commercial Mortgage
Pass-Through Ctfs.--1.3% Structured Asset Securities,
REMIC:
Ser. Greenpoint 1996-A, Cl. B5, 8.371%, 2027 . 281,039 (c,d) 227,049
Ser. Greenpoint 1996-A, Cl. B6, 8.371%, 2027 . 351,842 (c,d) 87,961
Ser. 1996-CFL, Cl. H, 7.75%, 2028 . . . . . . . 1,750,000 (c) 1,382,500
_____________
1,697,510
_____________
Consumer--3.9% Northeast Optic Network,
Sr. Notes, 12.75%, 2008 . . . . . . . . . . . . . 3,000,000 2,655,000
Packaging Resources,
Sr. Secured Notes, 13%, 2003 . . . . . . . . . . . 2,268,450 1,640,102
Syratech,
Sr. Notes, 11%, 2007 . . . . . . . . . . . . . . . 1,000,000 785,000
_____________
5,080,102
_____________
Energy--5.8% Belden & Blake,
Sr. Sub. Notes, 9.875%, 2007 . . . . . . . . . . . 3,000,000 2,385,000
Petsec Energy,
Sr. Sub. Notes, 9.50%, 2007 . . . . . . . . . . . 2,600,000 2,093,000
Seven Seas Petroleum,
Sr. Notes, Ser. B, 12.50%, 2005 . . . . . . . . . 3,000,000 2,265,000
<PAGE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------
______________ ______________
Energy (continued) Sitel,
Notes, 9.25%, 2006 . . . . . . . . . . . . . . . . $....1,000,000 $ 855,000
_____________
7,598,000
_____________
Entertainment--2.2% Booth Creek Ski Holdings,
Sr. Notes, Ser. B, 12.50%, 2007 . . . . . . . . . 3,000,000 2,805,000
_____________
Foods and Beverages--1.2% Cuddy International,
Sr. Notes, 10.75%, 2007 . . . . . . . . . . . . . 2,000,000 1,610,000
_____________
Publishing--.7% WAM ! NET,
Sr. Discount Notes, Zero Coupon, 2002 (Units) . . 1,750,000 (a,b,c) 883,750
_____________
Residential Mortgage
Pass-Through Ctfs.--2.3% Chase Mortgage Finance,
Ser. 1994-E, Cl. B6, 6.25%, 2010 . . . . . . . . . 400,682 (c) 112,191
Citicorp Mortgage Securities,
REMIC, Ser. 1994-9, Cl. B2, 5.75%, 2009 . . . . . 468,190 (c) 131,093
GE Capital Mortgage Services:
Home Equity Loan Pass-Through Ctfs.,
Ser. 1994-HE4, Cl. B5, 9.323%, 2026 . . . . . . 1,519,160 (c,d) 349,407
REMIC:
Ser. 1993-13, Cl. B5, 6%, 2008 . . . . . . . . 453,743 (c) 127,048
Ser. 1994-15, Cl. B5, 6%, 2009 . . . . . . . . 713,230 (c) 199,704
Ser. 1994-21, Cl. B5, 6.50%, 2009 . . . . . . . 937,623 (c) 262,534
Ser. 1996-10, Cl. B5, 6.75%, 2011 . . . . . . . 337,536 (c) 94,510
Ser. 1996-12, Cl. B5, 7.25%, 2011 . . . . . . . 395,386 (c) 110,708
Ser. 1996-14, Cl. 2B5, 7.25%, 2011 . . . . . . 405,870 (c) 113,644
MORSERV,
Ser. 1996-1, Cl. B5, 7%, 2011 . . . . . . . . . . 472,684 (c) 132,351
Norwest Asset Securities:
Ser. 1996-8, Cl. B4, 7.50%, 2026 . . . . . . . . . 123,857 (c) 108,452
Ser. 1996-8, Cl. B5, 7.50%, 2026 . . . . . . . . . 184,590 (c) 51,685
Ser. 1997-11. Cl. B4, 7%, 2027 . . . . . . . . . . 247,102 (c) 200,693
Ser. 1997-11, Cl. B5, 7%, 2027 . . . . . . . . . . 370,653 (c) 103,783
Ser. 1997-15, Cl. B4, 6.75%, 2012 . . . . . . . . 408,288 (c) 340,027
Ser. 1997-15, Cl. B5, 6.75%, 2012 . . . . . . . . 244,747 (c) 68,529
Ser. 1997-16, Cl. B5, 6.75%, 2027 . . . . . . . . 298,040 (c) 83,451
Prudential Home Mortgage Securities,
REMIC, Ser. 1996-7, Cl. B5, 6.75%, 2011 . . . . . 830,821 (c) 232,630
Residential Accredit Loans,
REMIC, Ser. 1997-QS6:
Cl. B2, 7.50%, 2012 . . . . . . . . . . . . . . 151,926 (c) 131,558
Cl. B3, 7.50%, 2012 . . . . . . . . . . . . . . 355,205 (c) 99,457
_____________
3,053,455
_____________
<PAGE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------
______________ ______________
Retail--2.4% Discovery Zone:
Sr. Secured Notes, 13.50%, 2002 . . . . . . . . . $....4,500,000 $ 2,632,500
Sr. Secured Notes, 13.50%, 2002 (Units) . . . . . 500,000 (b) 502,500
_____________
3,135,000
_____________
Shipping--4.8% Alpha Shipping,
Sr. Notes, Ser. A, 9.50%, 2008 . . . . . . . . . . 5,000,000 2,675,000
American President Lines,
Sr. Notes, 7.125%, 2003 . . . . . . . . . . . . . 3,185,000 2,582,927
Holt Group,
Sr. Notes, 9.75%, 2006 . . . . . . . . . . . . . . 1,500,000 982,500
_____________
6,240,427
_____________
Steel--.1% NSM Steel,
Sr. Sub. Mortgage Notes,
Ser. B, 12.25%, 2008 (Units) . . . . . . . . . . . 1,750,000 (b,c) 96,250
_____________
Telecommunications/
Carriers--24.9% Bell Technology Group,
Sr. Notes, 13%, 2005 (Units) . . . . . . . . . . . 3,000,000 (b) 2,475,000
Bestel,
Sr. Discount Notes, Zero Coupon, 2001 (Units) . . 5,000,000 (a,b) 2,843,750
Concentric Network,
Sr. Notes, 12.75%, 2007 . . . . . . . . . . . . . 2,747,000 (c) 2,431,095
DTI Holdings:
Sr. Discount Notes, Zero Coupon, 2003 . . . . . . 3,000,000 (a) 1,005,000
Sr. Discount Notes, Zero Coupon, 2003 (Units) . . 1,750,000 (a,b) 603,750
FirstWorld Communications,
Sr. Discount Notes, Zero Coupon, 2003 (Units) . . 5,500,000 (a,b) 1,677,500
Focal Communications,
Sr. Discount Notes, Zero Coupon, 2003 . . . . . . 3,000,000 (a) 1,500,000
MGC Communications:
Sr. Secured Notes, Ser. B, 13%, 2004 . . . . . . . 4,500,000 3,172,500
Sr. Secured Notes, 13%, 2004 (Units) . . . . . . . 3,000,000 (b) 2,325,000
Poland Telecom Finance,
Gtd. Sr. Notes, 14%, 2007 (Units) . . . . . . . . 6,750,000 (b) 6,648,750
RSL Communications,
Gtd. Sr. Notes, 12.25%, 2006 . . . . . . . . . . . 196,000 199,430
Rhythms NetConnections,
Sr. Discount Notes, Zero Coupon, 2003 (Units) . . 5,000,000 (b,c) 1,625,000
USN Communications,
Sr. Discount Notes, Ser. B, Zero Coupon, 2000 . . 9,900,000 (a) 4,009,500
Versatel Telecom,
Sr. Notes, 13.25%, 2008 (Units) . . . . . . . . . 2,000,000 (b,c) 1,870,000
_____________
32,386,275
_____________
<PAGE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------
______________ ______________
Transportation--7.7% Fine Air Services,
Sr. Notes, 9.875%, 2008 . . . . . . . . . . . . . $....5,000,000 (c) $ 4,462,500
Golden Ocean Group,
Sr. Notes, 10%, 2001 . . . . . . . . . . . . . . . 6,000,000 2,130,000
Park N View,
Sr. Notes, 13%, 2008 (Units) . . . . . . . . . . . 1,000,000 (b) 835,000
Teletrac,
Sr. Notes, 14%, 2007 (Units) . . . . . . . . . . . 750,000 (b) 491,250
Terminal R.R. Association,
First Mortgage, 4%, 2019 . . . . . . . . . . . . . 57,000 42,800
ValuJet,
Sr. Notes, 10.25%, 2001 . . . . . . . . . . . . . 3,000,000 2,085,000
_____________
10,046,550
_____________
Wireless
Communications--6.1% American Mobile Satellite/AMSC Acquisition:
Sr. Notes, 12.25%, 2008 . . . . . . . . . . . . . 2,500,000 1,162,500
Sr. Notes, 12.25%, 2008 (Units) . . . . . . . . . 500,000 (b) 237,500
Comunicacion Celular:
Bonds, Zero Coupon, 2000 . . . . . . . . . . . . . 1,000,000 (a) 657,500
Sr. Discount Notes, Zero Coupon, 2003 . . . . . . 2,750,000 (a) 1,808,125
Conecel Holdings,
Secured Notes, 14%, 2000 (Units) . . . . . . . . . 2,000,000 (b,c) 755,000
Consorcio Ecuatoriano,
Notes, 14%, 2002 . . . . . . . . . . . . . . . . . 1,000,000 377,500
Ionica,
Sr. Discount Notes, Zero Coupon, 2002 . . . . . . 2,000,000 (a,e) 70,000
Occidente y Caribe Celular,
Sr. Discount Notes, Zero Coupon, 2001 . . . . . . 2,910,000 (a) 2,007,900
OrbCommunications Global/Capital,
Sr. Notes, 14%, 2004 . . . . . . . . . . . . . . . 1,000,000 895,000
_____________
7,971,025
_____________
TOTAL BONDS AND NOTES
(cost $135,962,639) . . . . . . . . . . . . . . . $ 96,966,473
_____________
Equity-Related Securities--28.6% Shares
- ---------------------------------------------------------
______________
Preferred Stocks--26.9%
Broadcasting--3.6% Pegasus Media & Communications,
Ser. A, Cum., $127.50 . . . . . . . . . . . . . . 4,777 $ 4,681,460
_____________
Cable Television--4.2% Echostar Communications,
Ser. C, Cum. Conv., $3.375 . . . . . . . . . . . . 90,000 (c) 5,445,000
_____________
Consumer--.5% Paxson Communications,
Cum., $125.00 . . . . . . . . . . . . . . . . . . 664 610,880
_____________
<PAGE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Equity Related Securities (continued) Shares Value
- -------------------------------------------------------
______________ ______________
Preferred Stocks (continued)
Energy--1.6% Clark USA,
Sr. Cum., $115.00 . . . . . . . . . . . . . . . . 2,643 $ 2,061,540
_____________
Entertainment--5.7% Paxson Communications,
Cum., $132.50 . . . . . . . . . . . . . . . . . . 5,750 (c) 5,290,000
Paxson Communications,
Cum. Conv., $975 . . . . . . . . . . . . . . . . . 206 (c) 2,059,000
_____________
7,349,000
_____________
Packaging--.5% SF Holdings Group,
Cum., $137.50 (Units) . . . . . . . . . . . . . . 1,067 (b,c) 688,215
_____________
Publishing--3.8% Day International Group,
Cum., $122.50 . . . . . . . . . . . . . . . . . . 5,310 (c) 4,964,850
_____________
Supermarkets--2.1% Supermarkets General,
Cum., $3.52 . . . . . . . . . . . . . . . . . . . 96,000 2,748,000
_____________
Telecommunications--4.9% Concentric Network,
Cum. Conv., $135 . . . . . . . . . . . . . . . . . 3,103 2,327,250
Hyperion Telecommunications,
Ser. B, Cum., $128.75 . . . . . . . . . . . . . . 1,136 710,000
WinStar Communications,
Cum., Ser. C, $142.50 . . . . . . . . . . . . . . 5,000 3,400,000
_____________
6,437,250
_____________
TOTAL PREFERRED STOCKS . . . . . . . . . . . . . . . . 34,986,195
_____________
Warrants--1.7%
Automotive--.0% Glasstech . . . . . . . . . . . . . . . . . . . . . . 2,000 (f) 2,500
_____________
Broadcasting--.5% Spanish Broadcasting System . . . . . . . . . . . . . 3,000 (c,f) 615,000
_____________
Cable--.1% Pegasus Media & Communications . . . . . . . . . . . . 5,000 (f) 162,500
_____________
Consumer-.0% Discovery Zone . . . . . . . . . . . . . . . . . . . . 4,500 (f) 45
_____________
Supermarkets--.0% Electronic Retailing Systems . . . . . . . . . . . . . 1,250 (f) 6,250
_____________
Telecommunications--.6% Advanced Radio Telecom . . . . . . . . . . . . . . . . 30,000 (f) 199,800
Concentric Network . . . . . . . . . . . . . . . . . . 5,850 (f) 410,231
Hyperion Telecommunications . . . . . . . . . . . . . 1,000 (f) 53,496
MGC Communications . . . . . . . . . . . . . . . . . . 3,000 (f) 131,190
RSL Communications . . . . . . . . . . . . . . . . . . 880 (f) 88,110
_____________
882,827
_____________
Transportation--.0% Golden Ocean Group . . . . . . . . . . . . . . . . . . 3,000 (f) 15,375
HighwayMaster Communications . . . . . . . . . . . . . 4,000 (f) 140
_____________
15,515
_____________
<PAGE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Equity Related Securities (continued) Shares Value
- -------------------------------------------------------
______________ ______________
Warrants (continued)
Wireless
Communications--.5% American Mobile Satellite . . . . . . . . . . . . . . 2,500 (f) $ 12,088
Comunicacion Celular . . . . . . . . . . . . . . . . . 1,000 (f) 60,125
Iridium . . . . . . . . . . . . . . . . . . . . . . 1,000 (f) 140,125
Microcell Telecommunications . . . . . . . . . . . . . 16,000 (f) 290,000
Occidente y Caribe Celular . . . . . . . . . . . . . . 7,640 (f) 130,835
_____________
633,173
_____________
TOTAL WARRANTS . . . . . . . . . . . . . . . . . . . . 2,317,810
_____________
TOTAL EQUITY-RELATED SECURITIES
(cost $40,473,677) . . . . . . . . . . . . . . . . $ 37,304,005
_____________
TOTAL INVESTMENTS (cost $176,436,316). . . . . . . . . . . . . . . . . . . . . . . . . . . 103.1% $134,270,478
_______ _____________
LIABILITIES, LESS CASH AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . (3.1)% $ (4,046,421)
_______ _____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $130,224,057
_______ _____________
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Zero coupon until year shown at which time a stated coupon rate becomes
effective.
(b) With warrants to purchase common stock.
(c) 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,
1998, these securities amounted to $38,261,625 or 29.4% of net assets.
(d) Variable rate security--interest rate subject to periodic change.
(e) Non-income producing--security in default.
(f) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998
Cost Value
_____________ _____________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $176,436,316 $134,270,478
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 536,408
Dividends and interest receivable . . . . . . . . . . . . 3,914,298
Receivable for investment securities sold . . . . . . . . 506,425
Receivable for shares of Beneficial Interest subscribed . . 116,652
Prepaid expenses and other assets . . . . . . . . . . . . 18,154
_____________
139,362,415
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 84,877
Due to Distributor . . . . . . . . . . . . . . . . . . . 30,150
Bank loans payable--Note 2 . . . . . . . . . . . . . . . 8,500,000
Payable for shares of Beneficial Interest redeemed . . . 387,832
Interest payable--Note 2 . . . . . . . . . . . . . . . . 80,652
Accrued expenses . . . . . . . . . . . . . . . . . . . . 54,847
_____________
9,138,358
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $130,224,057
_____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $177,028,083
Accumulated undistributed investment income--net . . . . 2,662,442
Accumulated net realized gain (loss) on investments . . . (7,300,630)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4(b) . . . . . . . . . . . . . . . (42,165,838)
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $130,224,057
_____________
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED) . . . . . . 11,769,174
NET ASSET VALUE, offering and redemption price per share--Note 3(d). . . . . . . . . . . . $11.06
_______
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 19,189,873
Cash dividends . . . . . . . . . . . . . . . . . . . . . 2,883,312
____________
Total Income . . . . . . . . . . . . . . . . . . . . . $22,073,185
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . 1,188,069
Shareholder servicing costs--Note 3(b) . . . . . . . . . 556,821
Interest expense--Note 2 . . . . . . . . . . . . . . . . 276,166
Registration fees . . . . . . . . . . . . . . . . . . . . 64,628
Professional fees . . . . . . . . . . . . . . . . . . . . 44,754
Prospectus and shareholders' reports . . . . . . . . . . 35,190
Custodian fees--Note 3(b) . . . . . . . . . . . . . . . . 14,662
Trustees' fees and expenses--Note 3(c) . . . . . . . . . 10,962
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 13,696
____________
Total Expenses . . . . . . . . . . . . . . . . . . . . 2,204,948
____________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,868,237
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments . . . . . . . . . $ (7,282,385)
Net unrealized appreciation (depreciation) on investments . . (46,390,352)
____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . (53,672,737)
____________
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . $(33,804,500)
____________
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
October 31, 1998 October 31, 1997*
________________ ________________
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,868,237 $ 7,668,676
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . (7,282,385) 64,049
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . (46,390,352) 3,314,766
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . (33,804,500) 11,047,491
_____________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,328,799) (6,607,356)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (141,121) (539,351)
_____________ _____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,469,920) (7,146,707)
_____________ _____________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . 190,636,895 157,007,092
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,452,641 5,302,674
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . (141,818,296) (70,647,404)
Redemption fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,632 397,609
_____________ _____________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions . . 62,680,872 92,059,971
_____________ _____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . 9,406,452 95,960,755
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,817,605 24,856,850
_____________ _____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $130,224,057 $120,817,605
_____________ _____________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . $ 2,662,442 $ 1,315,763
_____________ _____________
Shares Shares
_____________ _____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,746,280 10,939,518
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . 957,437 378, 089
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,120,402) (4,928,619)
_____________ _____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . 3,583,315 6,388,988
_____________ _____________
- ------------------------
* Restated to conform to current year presentation.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
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.
Year Ended October 31,
________________________
PER SHARE DATA: 1998 1997(1) 1996(2)
______ ______ ______
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . $14.76 $13.83 $12.50
______ ______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.55 1.58 .69
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.69) 1.05 1.19
______ ______ ______
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . (2.14) 2.63 1.88
______ ______ ______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . . . . . . . . . . . (1.57) (1.56) (.55)
Dividends from net realized gain on investments . . . . . . . . . . . . . . . . . . (.02) (.23) --
______ ______ ______
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.59) (1.79) (.55)
______ ______ ______
Redemption fees added to paid-in capital . . . . . . . . . . . . . . . . . . . . . .03(3) .09(3) --
______ ______ ______
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $11.06 $14.76 $13.83
______ ______ ______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16.28%) 21.13% 25.14%
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets . . . . . . . . . . . . . . . . . 1.06% .71% .02%(4)
Ratio of interest expense to average net assets . . . . . . . . . . . . . . . . . . .15% .34% .27%(4)
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.87% 11.72% 11.33%(4)
Decrease reflected in above expense ratios
due to undertakings by the Manager . . . . . . . . . . . . . . . . . . . . . . -- .43% 1.55%(4)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117.34% 252.50% 233.62%(5)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . . . . . . . . . . . $130,224 $120,818 $24,857
- -----------------------------
(1) Restated to conform to current year presentation.
(2) From March 25, 1996 (commencement of operations) to October 31, 1996.
(3) Based on average shares outstanding at each month end.
(4) Annualized.
(5) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus High Yield Securities Fund (the "Fund") is a separate diversified
series of Dreyfus Debt and Equity Funds (the "Company") which is registered
under the Investment Company Act of 1940, as amended (the "Act") as an open-end
management investment company and operates as a series company currently
offering six series, including the Fund. The Fund's investment objective is to
maximize total return, consisting of capital appreciation and current
income. The Dreyfus Corporation (the "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.
On August 5, 1998, the Company's Board of Trustees approved a change of the
Company' s name from "Dreyfus Income Funds" to "Dreyfus Debt and Equity Funds".
This change became effective on August 13, 1998.
The Company accounts separately for the assets, liabilities and operations of
each fund. Expenses directly attributable to each fund are charged to that
fund' s operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
The Fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding short-term
investments, other than U.S. Treasury Bills) are valued each business day by an
independent pricing service (" Service" ) approved by the Board of Trustees.
Investments for which quoted bid prices are readily available and are
representative of the bid side of the market in the judgment of the Service are
valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Other investments
(which constitute a majority of the portfolio securities) are carried at fair
value as determined by the Service, based on methods which include consideration
of: yields or prices of securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions.
Securities for which there are no such valuations are valued at fair value as
determined in good faith under the direction of the Board of Trustees.
Short-term investments, excluding U.S. Treasury Bills, are carried at amortized
cost, which approximates value.
(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. Under the terms of the custody agreement, the Fund received net
earnings credits of $10,517 during the period ended October 31, 1998 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
(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 of 1986, as amended (the "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 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)
The Fund has an unused capital loss carryover of approximately $7,297,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1998. If not
applied, the carryover expires in fiscal 2006.
During the period ended October 31, 1998, the Fund reclassified $807,241 from
paid-in capital to accumulated investment income. Net assets were not affected
by this reclassification.
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.
The average daily amount of borrowings outstanding under both arrangements
during the period ended
October 31, 1998 was approximately $4,668,900, with a related weighted average
annualized interest rate of 5.91%.
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.
(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, 1998, the Fund was charged $456,950 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, 1998, the Fund was charged $50,112 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended October 31, 1998, the Fund was
charged $14,662 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.
<PAGE>
DREYFUS HIGH YIELD SECURITIES FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the period ended
October 31, 1998, amounted to $272,838,389 and $211,818,436, respectively.
At October 31, 1998, accumulated net unrealized depreciation on investments
was $42,165,838, consisting of $3,162,067 gross unrealized appreciation and
$45,327,905 gross unrealized depreciation.
At October 31, 1998, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
<PAGE>
DREYFUS 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 Debt and Equity Funds) as of October 31,
1998, 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, 1998 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, 1998, 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.
New York, New York
December 17, 1998
IMPORTANT TAX INFORMATION (UNAUDITED)
For Federal tax purposes, the Fund hereby designates $.008 per share as a
long-term capital gain distribution of the $.4555 per share paid on December 19,
1997.
The Fund also designates 13.49% of the ordinary dividends paid during the
fiscal year ended October 31, 1998 as qualifying for the corporate dividends
received deduction. Shareholders will receive notification in January 1999 of
the percentage applicable to the preparation of their 1998 income tax returns.
<PAGE>
(reg.tm)
(reg.tm)
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. 043AR9810
High Yield
Securities Fund
Annual Report
October 31, 1998
<PAGE>
- ------------------------------------------------------------------------------
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report for Dreyfus Short Term High
Yield Fund for the 12-month period ended October 31, 1998. During this period,
your Fund produced a total return, including share price changes and dividend
income generated, of -2.18%.* Income dividends paid from net investment income
during the period amounted to approximately $1.215 per share, representing a
distribution rate per share of 10.52%.**
ECONOMIC REVIEW
So far in 1998, the main regions of the world have had very different
economic fundamentals. The U.S. entered the year with a strong economy near full
employment, with unemployment only slightly above 4%. The tight labor market led
the Federal Reserve Board to contemplate a rise in interest rates early in the
year. The U.S. economy cooled enough over the months that the Fed decided to
stand pat. Evidence of economic cooling continued to accumulate and worries
about the world economy intensified. Financial stresses pushed the Fed to ease
credit in both late September and mid-October. After many years of subpar
economic growth, continental Europe moved into a sustained economic expansion.
The overall European economy benefited as interest rates in peripheral countries
such as Spain and Italy fell, approaching the lower levels established by
Germany, on the eve of currency unification. Unlike the U.S., Europe has
substantial excess capacity of productive plant and labor. In Asia, weak
economies were pervasive as a result of the Asian financial crisis. The Latin
American economies weakened as the financial stresses spread throughout that
region.
A main influence on the U.S. economy this year was the foreign financial
crisis and cooling of the world economy. The positive effects hit first. Actual
inflation and expected inflation dropped, causing a decline in long-term U.S.
Treasury bond yields and mortgage rates. This caused a boom in housing. The fall
in inflation helped the consumer sector as more of the growth in consumer income
was left over after inflation to buy goods and services. Consumers benefited
from a combination of good growth in income after inflation, a strong labor
market and past increases in the price of assets they owned.
The negative effect of Asian weakness was felt in the industrial sector more
than in the consumer sector. Corporate profits weakened, especially in sectors
affected by the Asian crisis such as world-traded commodities (oil, metals and
paper) and exports. One result of this industrial weakness was to cool off a
U.S. economy that had been growing rapidly.
The major change in the economic outlook over recent months has been a
downward shift in expectations for world economic growth. A credit crunch
developed in emerging countries and former communist countries, sharply reducing
the economic outlook for Asia and Latin America as well as for
commodity-exporting countries throughout the world. The effect on Europe and the
U.S. has been to lower expectations of profit growth and drive down bond yields
Evidence of a weaker world economy accumulated as the financial stresses
continued. A worsened financial crisis occurred between the Russian default in
mid-August and the fallout from the Long-Term Capital Management (a U.S. hedge
fund) crisis through early October. However, proactive steps were taken to
stabilize the Japanese banks, design a support package for Brazil, and ease
monetary policy. The prospects for world economic weakness and monetary ease in
the major countries will be powerfully influenced by whether foreign financial
stresses calm down or intensify in the coming months. There appears to be a
shift in the priorities of key policymakers from fighting potential inflation to
restimulating future world economic growth.
MARKET OVERVIEW
<PAGE>
After a strong rally following the Asian crisis induced selloff in October
1997, this past summer saw the high-yield market drop to depths not seen since
1990. Spreads to U.S. Treasuries for the major high-yield indices widened to
over 700 basis points. Liquidity in the high-yield market dried up as distressed
sellers of high-yield bonds found few bidders, even at increasingly lower
prices. The level of illiquidity in the high yield bond markets over August,
September and October 1998 was unprecedented in market history, and resulted in
a dramatic across-the-board drop in high yield bond prices.
The principal cause of this was an acute case of risk aversion among
investors, brought about by negative developments in the global economy. It
manifested itself in a "flight to quality" as U.S. Treasuries rallied, and most
other kinds of credit risk-related securities declined in price and lost their
liquidity. Among the hardest hit were small-cap and foreign equities, and
emerging market, high yield, and mortgage-related fixed income securities. Among
high yield, the relatively lower quality bonds (those with "B" and "CCC" credit
quality) , significantly underperformed higher quality high yield bonds ("BB"
credit rating).
The primary catalyst for the market swoon was the collapse of the Russian
financial system, but its roots were deep in the Asian economic crisis. Domestic
recessions and currency devaluations in key Asian countries were expected to
cause lower demand for capital goods and lower world wide price levels for
manufacturing-related items ranging from raw commodities to high-end consumer
items. Fears of resulting deflation were a key ingredient of a global credit
crunch that developed this past summer. It is this credit crunch that hit the
high-yield market the hardest.
Fundamentally, very little was wrong as far as "credit quality" issues with
the high-yield market as bankruptcy rates continued at the relatively low levels
of recent years. In fact, many high-yield issuers are meeting or exceeding their
business plans. What became overwhelmingly bearish this past summer were
technical factors primarily centered around the credit crunch. Many high-yield
companies are growing, especially in telecommunications, and require ready
access to harder-to-get credit. On the trading side, the credit crunch caused
the major broker-dealers to reduce their commitments to trading capital, as well
as their financing of leveraged investment vehicles, hedge funds in particular.
Concurrently, bond and stock mutual funds were facing significant redemptions,
especially beginning in August 1998. The result of all this was an acute
imbalance of selling over a short period of time this past summer. Prices for
high yield bonds dropped in a vacuum as hedge funds, broker-dealers and mutual
funds all tried to sell simultaneously. Those investors with cash sat on the
sidelines expecting bond prices to fall further.
With most technical perturbations there historically has been usually a
corresponding snap back to the mean. In times of financial stress, the
high-yield market tends to behave in line with the equity markets, but over a
longer time horizon the Treasury market is generally considered to have an equal
influence. Unlike equities, high yield bonds offer big coupons for investors,
and the cash flow from those coupons has some value regardless of changes in
credit assumptions. In fact, the high-yield market has begun to rebound: 1)
money has begun flowing back into high-yield mutual funds; 2) liquidity is
returning, albeit not yet at the levels seen earlier this year; 3) fears of
worldwide economic troubles have waned; and 4) issuers are able to get new deals
priced. Factors influencing this new level of liquidity are the rebound in the
equity markets and the general perception that the domestic economy is still
strong despite a slowdown in the manufacturing sector. However, in this
situation, the time horizon for a potentially complete snapback will take
significantly longer than the historically dramatic price drops that occurred.
Key foreign markets appear to have pulled out of their nosedives and reached
some sort of bottom. The recent IMF package for Brazil and actions by the
Japanese government to shore up its banking system have positively influenced
investor sentiment. However, the U.S. economy is not an island in a sea of
global economic uncertainty. It is too early to tell if the world economic
picture has reached bottom. Commodities have dropped to the lowest levels in
recent history. Deflation remains a worrisome risk. We must continue to monitor
events in Brazil and Japan. The world has a long way to go to get back to where
it was earlier this year.
<PAGE>
PORTFOLIO FOCUS
The Dreyfus Short Term High Yield Fund performed better than the average
high-yield fund for the year ended October 31, 1998. *** (Because of the
relatively unique nature of the Fund, the major reporting agencies (e.g.,
Lipper) report the Fund in a category with "long-term" high yield bond funds).
The main reason is that its limits on effective maturity and duration made the
Fund less vulnerable to the recent meltdown in the high-yield market. In fact,
the results would have been better if not for a few poor issue selections.
The average effective maturity and duration of the Fund must be three years
or less. The primary goal of the Fund is to produce high current income with the
lower interest rate and credit risk theoretically afforded by a shorter time
horizon on the investments. This concept is designed with an aim to lower
volatility in total return induced by changes in interest rates or major market
movements.
During the high-yield upheaval experienced during the third quarter and
October of 1998, U.S. Treasuries rallied during this period as risk-related
securities suffered price declines. Since the risk selloff was almost universal,
essentially all high-yield securities, regardless of maturity, suffered to some
degree. This negatively affected the Fund's NAV (net asset value) during the
period. In addition, several issues held by the Fund performed worse than
expected. These include Discovery Zone, ICF Kaiser International, Texfi
Industries and ValuJet. Of this group, Discovery Zone is expected to have the
most significant long-term impairment.
Overall, the Fund is well positioned to benefit from the current snapback of
the high-yield market. The easing of the credit crunch combined with the rally
in the equity market have allowed high-yield issuers to again consider
refinancing their high coupon debt to the extent possible. This more favorable
refinancing climate and the fact that its investments tend to be in more liquid
high-yield issues bode well for the Fund in the current high-yield market rally.
Of course, the Fund's actual results will depend on the length of the high yield
market' s recovery, and whether our issue selection can take advantage of any
such rebound.
The worldwide economic picture remains uncertain. Fears of deflation remain
one of the worst threats facing the high-yield market. The Dreyfus Short Term
High Yield Fund is managed in an effort to provide high current income with less
exposure to market-moving events.
Very truly yours,
[Roger King signature logo]
Roger King
Portfolio Manager
November 16, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
**Distribution rate per share is based upon dividends per share declared 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.
***The Dreyfus Short Term High Yield Fund produced a total return of -2.18%
for the 1-year period ending October 31, 1998, and the average total return for
the Lipper high current yield category was -3.40% for the same period.
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND OCTOBER 31, 1998
- -----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS SHORT TERM HIGH
YIELD FUND WITH THE MERRILL LYNCH HIGH YIELD MASTER II INDEX AND A CUSTOMIZED
LIMITED TERM HIGH YIELD INDEX
[Exhibit A:
Dollars
$11,790
Merrill Lynch High Yield Master II Index*
$11,716
Customized Limited Term High Yield Index*
$11,488
Dreyfus Short Term High Yield Fund
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.]
Average Annual Total Returns
- --------------------------------------------------------------------------------
One Year Ended From Inception (8/16/96)
October 31, 1998 to October 31, 1998
(2.18)% 6.48%
- ---------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Short Term High
Yield Fund on 8/16/96 (Inception Date) to a $10,000 investment made on that date
in the Merrill Lynch High Yield Master II Index (the "Merrill Index"), as well
as to a customized "Limited Term High Yield Index" which has been constructed by
The Dreyfus Corporation, each of which is described below. The Customized
Limited Term High Yield Index has been used by the Fund's portfolio manager
since the Fund's inception as a benchmark in managing the Fund, because of the
unique nature of the Fund and the lack of a representative broad-based
shorter-term high yield securities index. For comparative purposes, the value of
each Index on 8/31/96 is used as the beginning value on 8/16/96. All dividends
and capital gain distributions are reinvested. The Customized Limited Term High
Yield Index is calculated on a year-to-year basis.
The Fund seeks to achieve its objective by investing in high yield securities,
and by maintaining an average effective portfolio maturity and average duration
of three years or less. The Fund's performance shown in the line graph takes
into account all applicable fees and expenses. The Merrill 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 are calculated daily based
on an accrued schedule and trader pricing. The Customized Limited Term High
Yield Index is composed of four subindices of the Merrill Index. These
subindices, blended and market weighted, are (i) BB-rated, 1-3 years, (ii)
B-rated 1-3 years, (iii) BB-rated 3-5 years, and (iv) B-rated 3-5 years. Unlike
the Customized Limited Term High Yield Index, which is composed of bonds rated
no lower than "B," the Fund can invest in bonds with lower credit ratings than
"B" and as low as "D". The Merrill Index includes "C"-rated bonds. Neither Index
takes 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>
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS OCTOBER 31, 1998
Principal
Bonds and Notes--97.8% Amount Value
- ------------------------------------------------------
_____________ _____________
<S> <C> <C>
Aircraft & Aerospace--2.7% AM General,
Sr. Notes, Ser. B, 12.875%, 2002 . . . . . . . . $ 2,000,000 $ 1,810,000
Aircraft Lease Portfolio Securitisation 96-1,
Pass Through Trust, Ctfs.,
Cl. D, 12.75%, 2006 . . . . . . . . . . . . . . 570,053 541,550
America West Airlines Pass Through Trust,
Pass Through Ctfs., Ser. 1996-1,
Cl. D, 8.16%, 2002 . . . . . . . . . . . . . . . 443,680 448,142
Burke Industries,
Sr. Notes, 9.719%, 2007 . . . . . . . . . . . . 2,000,000 (a) 1,895,000
_____________
4,694,692
_____________
Automotive--1.7% Aetna Industries,
Sr. Notes, 11.875%, 2006 . . . . . . . . . . . . 3,000,000 3,045,000
_____________
Broadcasting--4.2% Azteca Holdings, S.A. de C.V.,
Sr. Secured Notes, 11%, 2002 . . . . . . . . . . 2,500,000 1,762,500
Paxson Communications,
Sr. Sub. Notes, 11.625%, 2002 . . . . . . . . . 4,000,000 3,940,000
Univision Network Holding,
Sub. Notes, 7%, 2002 . . . . . . . . . . . . . . 2,550,575 1,725,000
_____________
7,427,500
_____________
Building Materials--.7% ICF Kaiser International,
Sr. Sub. Notes, 13%, 2003 . . . . . . . . . . . 3,000,000 1,245,000
_____________
Cable Television--10.3% Adelphia Communications,
Sr. Notes, Ser. B, 10.25%, 2000 . . . . . . . . 600,000 615,000
Diamond Cable Communications,
Sr. Discount Notes:
Zero Coupon, 1999 . . . . . . . . . . . . . . 4,500,000 (b) 4,185,000
Zero Coupon, 2000 . . . . . . . . . . . . . . 2,000,000 (b) 1,510,000
Digital Television Service/Capital,
Secured Sr. Sub. Notes, 12.50%, 2007 . . . . . . 2,000,000 2,095,000
Echostar Satellite Broadcast,
Sr. Discount Notes, Zero Coupon, 2000 . . . . . 2,000,000 (b) 1,730,000
Galaxy Telecom,
Sr. Sub. Notes, 12.375%, 2005 . . . . . . . . . 1,000,000 1,075,000
Kabelmedia Holdings GMBH,
Sr. Discount Notes, Zero Coupon, 2001 . . . . . 2,000,000 (b) 1,530,000
Marcus Cable,
Sr. Notes, 11.875%, 2005 . . . . . . . . . . . . 2,000,000 2,130,000
Net Sat Servicos,
Sr. Secured Notes, 12.75%, 2001 . . . . . . . . 500,000 (c) 310,000
Pegasus Media & Communications,
Sr. Sub. Notes, Ser. B, 12.50%, 2005 . . . . . . 2,775,000 2,983,125
_____________
18,163,125
_____________
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------
_____________ _____________
Commercial Mortgage
Pass-Through Ctfs.--1.0% Nomura Depositor Trust ST IA,
Ser. 1998 ST I, Cl. B-2, 9.84%, 2003 . . . . . . $....2,000,000 (a,d) $ 1,733,438
_____________
Consumer--3.3% BPC Holding,
Sr. Secured Notes, 12.50%, 2006 . . . . . . . . 350,000 350,875
Hosiery Corp. of America,
Sr. Sub. Exchange Notes, 13.75%, 2002 . . . . . 2,500,000 2,587,500
Sharp Do Brazil,
Medium-Term Notes, 9.625%, 2000 . . . . . . . . 1,000,000 (e) 662,500
Signature Brands,
Gtd. Sr. Sub. Notes, 13%, 2002 (Units) . . . . . 750,000 (f) 843,750
Sweetheart Cup,
Gtd. Sr. Notes, 9.625%, 2000 . . . . . . . . . . 1,500,000 1,372,500
_____________
5,817,125
_____________
Energy--7.9% Clark USA,
Sr. Notes, Ser. B, 10.875%, 2005 . . . . . . . . 2,000,000 1,810,000
DeepTech International,
Sr. Secured Notes, 11%, 2000 . . . . . . . . . . 4,500,000 (d) 4,556,250
Gerrity Oil & Gas,
Sr. Sub. Notes, 11.75%, 2004 . . . . . . . . . . 544,000 546,720
Kelly Oil & Gas:
Conv. Deb., 8.50%, 2000 . . . . . . . . . . . . 2,370,000 2,002,650
Conv. Sub. Notes, 7.875%, 1999 . . . . . . . . . 1,699,000 1,662,896
Reading & Bates,
Conv. Deb., 4.878%, 1998 . . . . . . . . . . . . 98,400 97,200
Rutherford-Moran Oil,
Sr. Sub. Notes, 10.75%, 2004 . . . . . . . . . . 3,825,000 3,299,062
_____________
13,974,778
_____________
Entertainment--5.7% American Skiing,
Sr. Sub. Notes, 12%, 2006 . . . . . . . . . . . 4,000,000 4,100,000
Intermedia Communications,
Sr. Discount Notes, Zero Coupon, 2001 . . . . . 1,500,000 (b) 1,147,500
Premier Parks,
Gtd. Sr. Notes, Ser. A, 12%, 2003 . . . . . . . 1,160,000 1,247,000
United Artists Theatres,
Floating Rate Sr. Sub. Notes, 9.75%, 2007 . . . 4,000,000 (a) 3,650,000
_____________
10,144,500
_____________
Financial/Asset-Backed--1.3% Commercial Loan Funding Trust I,
Floating Rate Sub. Notes, Cl. D1, 18%, 2005
(Interest Only Obligation) . . . . . . . . . . . 1,500,000 (a,g,h) 450,000
Imperial Credit Capital Trust I,
Remarketed Par Securities, Ser. A, 10.25%, 2002 . 2,000,000 1,892,094
_____________
2,342,094
_____________
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------
_____________ _____________
Foods and Beverages--3.0% Envirodyne Industries:
First Priority Sr. Secured Notes, Ser. B, 12%, 2000 . $.683,000 $ 681,292
Sr. Notes, 10.25%, 2001 . . . . . . . . . . . . 2,000,000 1,870,000
RC/Arbys,
Gtd. Sr. Notes, 9.75%, 2000 . . . . . . . . . . 2,686,000 2,645,710
_____________
5,197,002
_____________
Forest Products--3.5% Maxxam Group Holdings,
Sr. Secured Notes, 12%, 2003 . . . . . . . . . . 6,110,000 6,201,650
_____________
Gaming--2.7% Hollywood Casino,
Sr. Notes, 12.75%, 2003 . . . . . . . . . . . . 3,235,000 3,251,175
Waterford Gaming, L.L.C./Finance,
Sr. Notes, 12.75%, 2003 . . . . . . . . . . . . 1,419,000 1,511,235
_____________
4,762,410
_____________
Healthcare--.7% Eye Care Centers of America,
Floating Interest Rate Sub. Term Securities,
9.73%, 2008 . . . . . . . . . . . . . . . . . . 1,500,000 (a,d) 1,237,500
_____________
Homebuilding--.6% KHE Finance
(Gtd. by Hovnanian Enterprises),
Sr. Sub. Notes, 11.25%, 2002 . . . . . . . . . . 1,000,000 1,000,000
_____________
Industrial--5.7% Applied Extrusion Technology,
Sr. Notes, Ser. B, 11.50%, 2002 . . . . . . . . 3,500,000 3,473,750
HCC Industries,
Sr. Sub. Notes, 10.75%, 2007 . . . . . . . . . . 1,250,000 1,181,250
Interlake,
Sr. Notes, 12%, 2001 . . . . . . . . . . . . . . 1,000,000 1,005,000
Stone Container:
Sr. Notes, 11.875%, 1998 . . . . . . . . . . . . 1,000,000 1,005,000
Sr. Sub. Deb., 12.25%, 2002 . . . . . . . . . . 2,000,000 1,830,000
Sr. Sub. Notes, 11%, 1999 . . . . . . . . . . . 350,000 349,125
Vicap, S.A. de C.V.,
Gtd. Sr. Notes, 10.25%, 2002 . . . . . . . . . . 1,500,000 (d) 1,207,500
_____________
10,051,625
_____________
Leisure Time--.5% Discovery Zone:
Sr. Secured Notes, 13.50%, 2002 . . . . . . . . 1,000,000 585,000
Sr. Secured Notes, 13.50%, 2002 (Units) . . . . 300,000 (f) 301,500
_____________
886,500
_____________
Metals--6.2% Doe Run Resources,
Sr. Sub. Notes, 11.696%, 2003 . . . . . . . . . 2,000,000 (a) 1,510,000
Kaiser Aluminum & Chemical,
Gtd. Sr. Notes, 9.875%, 2002 . . . . . . . . . . 3,000,000 2,910,000
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------
_____________ _____________
Metals (continued) Renco Metals,
Sr. Notes, 11.50%, 2003 . . . . . . . . . . . . $....4,500,000 $ 4,455,000
Republic Engineered Steels,
First Mortgage Notes, 9.875%, 2001 . . . . . . . 2,175,000 2,120,625
_____________
10,995,625
_____________
Publishing--1.2% American Media Operations,
Sr. Sub. Notes, 11.625%, 2004 . . . . . . . . . 2,000,000 2,050,000
_____________
Real Estate--1.7% Rockefeller Center Properties,
Conv. Deb., Zero Coupon, 2000 . . . . . . . . . 4,000,000 3,020,000
_____________
Retail--2.7% Cafeteria Operators,
(Gtd. by Furrs/Bishops Specialty Group),
Sr. Secured Notes, 12%, 2001 . . . . . . . . . . 1,000,000 947,500
Corporate Express,
Conv. Notes, 4.50%, 2000 . . . . . . . . . . . . 4,185,000 3,714,188
_____________
4,661,688
_____________
Technology--2.3% Lam Research,
Conv. Sub. Notes, 5%, 2002 . . . . . . . . . . . 1,500,000 1,181,250
The Learning Company,
Conv. Sr. Notes, 5.50%, 2000 . . . . . . . . . . 3,000,000 2,876,250
_____________
4,057,500
_____________
Telecommunications--2.0% Call-Net Enterprises,
Sr. Discount Notes, Zero Coupon, 1999 . . . . . 3,000,000 (b) 2,805,000
GST USA,
Sr. Discount Notes, Zero Coupon, 2000 . . . . . 1,000,000 (b) 645,000
_____________
3,450,000
_____________
Textiles--2.8% Sassco Fashions,
Notes, 12.75%, 2004 . . . . . . . . . . . . . . 3,317,519 3,284,344
Texfi Industries,
Sr. Sub. Deb., 8.75%, 1999 . . . . . . . . . . . 2,500,000 1,637,500
_____________
4,921,844
_____________
Transportation--9.4% Eletson Holdings,
First Preferred Ship Mortgage Notes, 9.25%, 2003 . . 850,000 811,750
MTL,
Floating Interest Rate Sub. Term Securities,
10.50%, 2006 . . . . . . . . . . . . . . . . . . 3,000,000 (a,d) 2,910,000
Moran Transportation,
First Preferred Ship Mortgage Notes, 11.75%, 2004 . 3,350,000 3,542,625
OMI,
Sr. Notes, 10.25%, 2003 . . . . . . . . . . . . 2,000,000 2,025,000
Petro Stopping Centers/Financial,
Sr. Notes, 10.50%, 2007 . . . . . . . . . . . . 2,000,000 1,970,000
Union Pacific,
Sub. Deb., 5.50%, 2033 . . . . . . . . . . . . . 3,068,000 2,648,314
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------
_____________ _____________
Transportation (continued) ValuJet,
Sr. Notes, 10.25%, 2001 . . . . . . . . . . . . $....3,950,000 $ 2,745,250
_____________
16,652,939
_____________
Utilities--.2% Hidroelectric Piedra Aguila,
Medium-Term Notes, 10.625%, 2001 . . . . . . . . 500,000 423,750
_____________
Wireless Communications--13.8% Clearnet Communications,
Sr. Discount Notes, Zero Coupon, 2000 . . . . . 2,000,000 (b) 1,600,000
Comunicacion Celular,
Sr. Discount Notes, Zero Coupon, 2000 . . . . . 2,500,000 (b) 1,643,750
Dial Call Communications,
Sr. Discount Notes, Zero Coupon, 1998 . . . . . 2,000,000 (b) 1,925,000
Microcell Telecommunications,
Sr. Discount Notes, Zero Coupon, 2001 . . . . . 5,000,000 (b) 3,225,000
Occidente y Caribe Celular,
Sr. Discount Notes, Zero Coupon, 2001 . . . . . 5,000,000 (b) 3,450,000
Orion Network Systems,
Sr. Discount Notes, Zero Coupon, 2002 . . . . . 7,000,000 (b) 4,165,000
Pagemart Nationwide,
Sr. Discount Notes, Zero Coupon, 2000 . . . . . 2,495,000 (b) 2,158,175
WinStar Communications,
Sr. Discount Notes, Zero Coupon, 2000 . . . . . 8,600,000 (b) 6,278,000
_____________
24,444,925
_____________
TOTAL BONDS AND NOTES
(cost $194,568,047) . . . . . . . . . . . . . . $172,602,210
_____________
Equity-Related Securities--1.0% Shares
- ------------------------------------------------------------------------------------
_____________
Common Stocks--0.0%
Consumer; Sun International Hotels . . . . . . . . . . . . . . 198 (i) $ 7,920
_____________
Preferred Stocks--1.0%
Broadcasting--.7% Spanish Broadcasting System,
Cum., $142.50 . . . . . . . . . . . . . . . . . 1,147 (d) 1,129,795
_____________
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Equity Related Securities (continued) Shares Value
- ------------------------------------------------------
_____________ _____________
Cable Television--.1% Time Warner,
Cum., Ser. K, $102.50 . . . . . . . . . . . . . 156 173,550
_____________
Energy--.2% Kelly Oil & Gas,
Conv. Cum., $2.625 . . . . . . . . . . . . . . . 34,700 433,750
_____________
TOTAL PREFERRED STOCKS . . . . . . . . . . . . . . . 1,737,095
_____________
Warrants--.0%
Leisure Time--.0% Discovery Zone . . . . . . . . . . . . . . . . . . . 1,000 (i) $ 10
Telecommunications--.0% Comunicacion Celular . . . . . . . . . . . . . . . . 1,500 (i) 90,188
_____________
TOTAL WARRANTS . . . . . . . . . . . . . . . . . . . 90,198
_____________
TOTAL EQUITY-RELATED SECURITIES
(cost $2,446,234) . . . . . . . . . . $ 1,835,213
_____________
TOTAL INVESTMENTS (cost $197,014,281). . . . . . . . . . . . . . . . . . . . . . . . . . 98.8% $174,437,423
_______ _____________
CASH AND RECEIVABLES (NET) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2% $ 2,040,472
_______ _____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $176,477,895
_______ _____________
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Variable rate security--interest rate subject to periodic change.
(b) Zero coupon until year shown at which time a stated coupon rate becomes
effective.
(c) Reflects date security can be redeemed at holders' option; the stated
maturity date is 8/5/2004.
(d) 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,
1998, these securities amounted to $12,774,483 or 7.2% of net assets.
(e) Reflects date security can be redeemed at holders' option; the stated
maturity date is 10/30/2005.
(f) With warrants to purchase common stock.
(g) Notional face amount shown.
(h) Non-income producing--security in default.
(i) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998
Cost Value
_____________ _____________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $197,014,281 $174,437,423
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 260,244
Interest receivable . . . . . . . . . . . . . . . . . . . 3,865,359
Receivable for investment securities sold . . . . . . . . 3,648,722
Receivable for shares of Beneficial Interest subscribed . . 131,251
Prepaid expenses and other assets . . . . . . . . . . . . 22,718
_____________
182,365,717
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 106,089
Due to Distributor . . . . . . . . . . . . . . . . . . . 37,303
Bank loan payable--Note 2 . . . . . . . . . . . . . . . . 3,665,000
Payable for investment securities purchased . . . . . . . 1,671,753
Payable for shares of Beneficial Interest redeemed . . . 298,739
Interest payable--Note 2 . . . . . . . . . . . . . . . . 64,672
Accrued expenses . . . . . . . . . . . . . . . . . . . . 44,266
_____________
5,887,822
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $176,477,895
_____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $200,854,898
Accumulated undistributed investment income--net . . . . 165,817
Accumulated net realized gain (loss) on investments . . . (1,965,962)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 . . . . . . . . . . . . . . . . (22,576,858)
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $176,477,895
_____________
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED) . . . . . . 15,440,740
NET ASSET VALUE, offering and redemption price per share . . . . . . . . . . . . . . . . . $11.43
_______
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 20,941,879
Cash dividends . . . . . . . . . . . . . . . . . . . . . 409,481
____________
Total Income . . . . . . . . . . . . . . . . . . . . . $21,351,360
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . 1,289,838
Shareholder servicing costs--Note 3(b) . . . . . . . . . 628,165
Interest expense--Note 2 . . . . . . . . . . . . . . . . 246,142
Registration fees . . . . . . . . . . . . . . . . . . . . 57,069
Professional fees . . . . . . . . . . . . . . . . . . . . 41,446
Prospectus and shareholders' reports . . . . . . . . . . 28,966
Custodian fees--Note 3(b) . . . . . . . . . . . . . . . . 20,611
Trustees' fees and expenses--Note 3(c) . . . . . . . . . 12,986
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 18,933
____________
Total Expenses . . . . . . . . . . . . . . . . . . . . 2,344,156
____________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,007,204
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments . . . . . . . . . $ (1,959,796)
Net unrealized appreciation (depreciation) on investments . . (22,833,877)
____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . (24,793,673)
____________
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . $ (5,786,469)
____________
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
October 31, 1998 October 31, 1997
________________ ________________
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,007,204 $ 8,137,508
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . (1,959,796) 1,397,716
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . (22,833,877) 133,680
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . (5,786,469) 9,668,904
_____________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,947,207) (8,031,688)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (1,405,597) (105,272)
_____________ _____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,352,804) (8,136,960)
_____________ _____________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 248,552,018 297,929,536
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,395,569 5,823,917
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (207,057,502) (177,337,269)
_____________ _____________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions . . . . 55,890,085 126,416,184
_____________ _____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . 29,750,812 127,948,128
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,727,083 18,778,955
_____________ _____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $176,477,895 $146,727,083
_____________ _____________
UNDISTRIBUTED INVESTMENT INCOME --NET. . . . . . . . . . . . . . . . . . . . . . . . $ 165,817 $ 105,820
_____________ _____________
Shares Shares
_____________ _____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,465,771 23,168,626
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . 1,140,837 450,821
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,472,534) (13,792,318)
_____________ _____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . 4,134,074 9,827,129
_____________ _____________
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This information
has been derived from the Fund's financial statements.
Year Ended October 31,
______________________________
PER SHARE DATA: 1998 1997 1996(1)
______ ______ ______
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . $12.98 $12.69 $12.50
______ ______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.22 1.29 .26
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.44) .34 .19
______ ______ ______
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . (.22) 1.63 .45
______ ______ ______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . . . . . . . . . . . (1.21) (1.29) (.26)
Dividends from net realized gain on investments . . . . . . . . . . . . . . . . . . (.12) (.05) --
______ ______ ______
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.33) (1.34) (.26)
______ ______ ______
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $11.43 $12.98 $12.69
______ ______ ______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.18%) 13.38% 17.02%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets . . . . . . . . . . . . . . . . . 1.06% 1.09% .92%(2)
Ratio of interest expense to average net assets . . . . . . . . . . . . . . . . . . .12% .22% --
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.58% 10.02% 9.76%(2)
Decrease reflected in above expense ratios
due to undertakings by the Manager . . . . . . . . . . . . . . . . . . . . . . -- .02% 1.62%(2)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.00% 102.59% 77.79%(3)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . . . . . . . . . . . $176,478 $146,727 $18,779
- -----------------------------
(1) From August 16, 1996 (commencement of operations) to October 31, 1996.
(2) Annualized.
(3) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Short Term High Yield Fund (the "Fund") is a separate diversified
series of Dreyfus Debt and Equity Funds (the "Company") which is registered
under the Investment Company Act of 1940, as amended (the "Act") as an open-end
management investment company and operates as a series company currently
offering six series, including the Fund. The Fund's investment objective is to
provide high current income. The Dreyfus Corporation (the "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.
On August 5, 1998, the Company's Board of Trustees approved a change of the
Company' s name from "Dreyfus Income Funds" to "Dreyfus Debt and Equity Funds".
This change became effective on August 13, 1998
The Company accounts separately for the assets, liabilities and operations of
each fund. Expenses directly attributable to each fund are charged to that
fund' s operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
The Fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding short-term
investments, other than U.S. Treasury Bills, and financial futures) are valued
each business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily available
and are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by the
Service based upon its evaluation of the market for such securities). Other
investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. Securities for which there are no such valuations are valued
at fair value as determined in good faith under the direction of the Board of
Trustees. Short-term investments, excluding U.S. Treasury Bills, are carried at
amortized cost, which approximates value. Financial futures are valued at the
last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market on
each business day. Investments denominated in foreign currencies are translated
into U.S. dollars at the prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions
are recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income, including, where
applicable, amortization of discount on investments, is recognized on the
accrual basis. Under the terms of the custody agreement, the Fund received net
earnings credits of $23,677 during the period ended October 31, 1998 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code of 1986, as
amended (the "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.
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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 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 $1,960,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1998. If not
applied, the carryover expires in fiscal 2006.
NOTE 2--BANK LINE OF CREDIT:
The Fund may borrow up to $10 million for leveraging purposes under a
short-term unsecured line of credit and participates with other Dreyfus-managed
funds in a $100 million unsecured line of credit primarily to be utilized for
temporary or emergency purposes, including the financing of redemptions.
Interest is charged to the Fund at rates which are related to the Federal Funds
rate in effect at the time of borrowings.
The average daily amount of borrowings outstanding under both arrangements
during the period ended October 31, 1998 was approximately $4,168,000, with a
related weighted average annualized interest rate of 5.91%.
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.
(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, 1998, the Fund was charged $496,092 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, 1998, the Fund was charged $91,875 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended October 31, 1998, the Fund was
charged $20,611 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.
NOTE 4--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the period ended
October 31, 1998 amounted to $182,961,839 and $139,493,520, respectively.
At October 31, 1998, accumulated net unrealized depreciation on investments
was $22,576,858, consisting of $272,878 gross unrealized appreciation and
$22,849,736 gross unrealized depreciation.
At October 31, 1998, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS SHORT TERM HIGH YIELD FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments,
of Dreyfus Short Term High Yield Fund (one of the Funds constituting Dreyfus
Debt and Equity Funds) as of October 31, 1998, 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, 1998 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 Short Term High Yield Fund at October 31, 1998, 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.
New York, New York
December 17, 1998
<PAGE>
DREYFUS SHORT TERM HIGH YIELD FUND
- -----------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
For Federal tax purposes, the Fund hereby designates $.0018 per share as a
long-term capital gain distribution of the $.1158 per share paid on December 19,
1997. The Fund also designates 1.95% of the ordinary dividends paid during the
fiscal year ended October 31, 1998 as qualifying for the corporate dividends
received deduction. Shareholders will receive notification in January 1999 of
the percentage applicable to the preparation of their 1998 income tax returns.
<PAGE>
(reg.tm)
(reg.tm)
DREYFUS SHORT TERM HIGH YIELD FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 044AR9810
Short Term
High Yield
Fund
Annual Report
October 31, 1998
<PAGE>
- ------------------------------------------------------------------------------
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for Dreyfus Real Estate Mortgage
Fund. For the 12-month reporting period ended October 31, 1998, your Fund
achieved a total return, including share price changes and dividend income
generated, of 3.82% *. Income dividends paid from net investment income during
the period amounted to $0.958 per share, representing a distribution rate per
share of 7.83%.** During this 12-month period ended October 31, 1998, the return
for the Salomon Smith Barney Broad Investment-Grade (BIG) Bond Index was 9.39%
*** and the return for the Standard & Poor's Real Estate Investment Trust
Composite Index (S&P REIT) was -15.69%. (+)
ECONOMIC REVIEW
So far in 1998, the main regions of the world have had very different
economic fundamentals. The U.S. entered the year with a strong economy near full
employment, with unemployment only slightly above 4%. The tight labor market led
the Federal Reserve Board (the "Fed") to contemplate a rise in interest rates
early in the year. The U.S. economy cooled enough over the months that the Fed
decided to stand pat. Evidence of economic cooling continued to accumulate and
worries about the world economy intensified. Financial stresses pushed the Fed
to ease credit three times through early November, 1998. After many years of
sub-par economic growth, continental Europe moved into a sustained economic
expansion. The overall European economy benefited as interest rates in
peripheral countries such as Spain and Italy fell, approaching the lower levels
established by Germany, on the eve of currency unification. Unlike the U.S.,
Europe has substantial excess capacity of productive plant and labor. In Asia,
weak economies were pervasive as a result of the Asian financial crisis. The
Latin American economies weakened as the financial stresses spread throughout
that region.
A main influence on the U.S. economy this year was the foreign financial
crisis and cooling of the world economy. The positive effects hit first. Actual
inflation and expected inflation dropped, causing a decline in long-term U.S.
Treasury bond yields and mortgage rates. This caused a boom in housing. The fall
in inflation helped the consumer sector as more of the growth in consumer income
was left over after inflation to buy goods and services. Consumers benefited
from a combination of good growth in income after inflation, a strong labor
market and past increases in the price of assets they owned.
The negative effect of Asian weakness was felt in the industrial sector more
than in the consumer sector. Corporate profits weakened, especially in sectors
affected by the Asian crisis sectors such as world-traded commodities (oil,
metals and paper) and exports. One result of this industrial weakness was to
cool off an U.S. economy that had been growing rapidly.
The major change in the economic outlook over recent months has been a
downward shift in expectations for world economic growth. A credit crunch
developed in emerging countries and former communist countries, sharply reducing
the economic outlook for Asia and Latin America as well as for
commodity-exporting countries throughout the world. The effect on Europe and the
U.S. has been to lower expectations of profit growth and drive down bond yields
Evidence of a weaker world economy accumulated as the financial stresses
continued. A worsened financial crisis occurred between the Russian default in
mid-August and the fallout from the Long-Term Capital Management hedge fund
crisis through early October. However, proactive steps were taken to stabilize
the Japanese banks, design a support package for Brazil and ease monetary
policy. The prospects for world economic weakness and monetary ease in the major
countries will be powerfully influenced by whether foreign financial stresses
calm down or intensify in the coming months. There appears to be a shift in the
priorities of key policymakers from fighting potential inflation to
restimulating future world economic growth.
MARKET ENVIRONMENT
FIXED INCOME MARKET
U.S. interest rates have reached new lows over the last few months. This can
be attributed mostly to the flight to quality, or maybe more appropriately, a
financial panic, that has occurred in the worldwide bond markets. With several
Japanese banks having filed bankruptcies and Russia defaulting on debt,
worldwide liquidity has reached dangerously low levels. This has led to
widespread demand for U.S. Treasuries and mass liquidations of many types of
fixed-income securities.
As one might expect, the mortgage-backed securities market faced a very
difficult time in September and October. As shown by the Mortgage Bankers
Association Index, homeowner-refinancing activity reached an all-time high
during the month of October. This is the primary contributor of actual
prepayments of mortgage-backed securities that are subject to prepayments; hence
agency and non-agency mortgage-backed securities prepayment rates also reached
some of the highest levels in history. All this has contributed generally to the
underperformance of mortgage-backed securities when compared to U.S. Treasuries
The flight-to-quality frenzy that occurred in September also had an impact on
other areas of the mortgage-backed securities market. Most notable was the
liquidation of large holdings of the huge hedge fund Long Term Capital. Their
holdings included large quantities of high-quality residential and commercial
mortgage backed securities. Their forced liquidation of billions of dollars of
commercial mortgage-backed securities overwhelmed the market, causing an
imbalance of supply and demand for these investments. This imbalance resulted in
the sudden widening of the yield spread by over 100 basis points on AAA
commercial mortgage-backed securities.
With the Fed likely to continue cutting the Fed Funds rate, our market
outlook is for lower long-term U.S. interest rates. Our expectations are for the
market to test new lows in interest rates, and for mortgage refinancing to
continue at a high level. It is also our expectation for liquidity to improve as
investors return to the marketplace at the start of 1999 looking for
high-yielding securities. Therefore, it is our conviction that call-protected
assets with relatively high yield will be in strong demand. These securities
would include corporate bonds (investment grade as well as high yield); GNMA
project loans, commercial mortgage-backed securities, and discount dollar priced
residential mortgage-backed securities.
REAL ESTATE MARKET
For the last six months of the fiscal year, stocks issued by real estate
investment trusts (REITs) continued to perform poorly relative to serial
equities, tumbling a startling -15.25% in the six months ending October 31,
1998--one of the sharpest falls in the history of the S&P REIT Index. What is
more amazing is that this event occurred while fundamentals in the U.S. real
estate market remained relatively strong. Both building occupancies and real
estate loan delinquencies remained near the economically healthiest levels seen
in the last 25 years.
This has left most investors asking, "Why the large fall in REITs?" There is
really only one answer to this question: REIT stock prices had run up to
irrational levels, spurred by an imbalance between the limited available supply
of REIT stock and an enormous investor demand. Once this imbalance reached
equilibrium, a massive correction took place, forcing REIT stock prices back to
fundamental fair value. At today's valuations, we think REIT stocks look fairly
priced relative to their fundamental real estate value. Most companies are now
priced within plus or minus 5% of their real estate net asset value
The sudden fall of the commercial mortgage-backed securities market in
October was a healthy stopper put on the U.S. real estate market. We were very
worried back in April that new construction was getting out of control, but the
liquidity crisis has caused new construction to slow. As the commercial mortgage
market repriced the cost of borrowing, capital available for mortgage loans
became scarce. In the long run, this slowing of available capital has acted as a
braking mechanism for new building development. Hence, it is unlikely that any
sector of the commercial real estate market will run into a situation of excess
supply like that of the early 1990s.
PORTFOLIO OVERVIEW
Given this somewhat volatile marketplace, during the last six months there
have been several significant changes to the fund holdings. Most significant was
our liquidation of all our holdings in the more aggressive REIT stocks. Their
aggressive growth strategies have proven to be ineffective at generating
superior earnings, higher earnings multiples, or a significantly diverse
shareholder base. These stocks have suffered the most during this recent REIT
stock market fall. Hence, we sold our positions of Vornado Realty Trust, Equity
Residential Properties Trust, and FelCore Suite Hotels. We have re-invested this
money in more conservative multifamily and industrial REIT stocks, which were
trading closer to their fair value. In the multifamily sector these purchases
included Archstone Communities Trust, AvalonBay Communities, and Irvine
Apartment Communities. In the industrial sector, we purchased more of Cabot
Industrial Trust and added a position in First Industrial Realty Trust. Going
forward, we believe these companies offer a more prudent management style and an
overall more stable investment vehicle. This shift out of REIT stocks benefited
the Fund's performance compared to other real-estate related funds.
On the fixed-income side of the Fund, we have also made a few changes to our
previous strategy. We increased our holdings of discount residential
mortgage-backed securities, and within the last six months, decreased our
overall allocation to commercial mortgage-backed securities. Within these
sectors, our most notable shift was from low-quality (high yield) commercials
into AAA and agency-guaranteed GNMA commercial mortgage-backed securities. Last,
we also added a small position of U.S. Treasuries to increase the Fund's overall
duration.
Going forward, we think the real estate markets look well positioned to avoid
any major crashes in 1999. As we start the new year, it is my expectation that
liquidity will improve in the mortgage credit markets. We intend to continue to
look for attractively priced opportunities. The portfolio's increased credit
quality should continue to provide a liquid asset base to take advantage of any
profitable situations which may occur. As always, we will continue to focus on
maintaining a diversified portfolio and to provide our shareholders with a
unique investment instrument for high-quality asset allocation.
Very truly yours,
[signature logo Michael Hoeh]
Michael Hoeh
Portfolio Manager
November 16, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
**Distribution rate per share is based upon dividends per share paid from net
investment income during the period, divided by the net asset value per share at
the end of the period, adjusted for capital gain distributions.
***SOURCE: SALOMON SMITH BARNEY. Salomon Smith Barney Broad Investment-Grade
(BIG) Bond Index(SM) is market-capitalization weighted and includes Treasury,
Government-sponsored, mortgage and investment-grade (BBB-/Baa3) fixed-rate
corporate issues with a maturity of one year or longer and a minimum amount
outstanding of US$1 billion for Treasuries and mortgages and US$100 million for
corporate and Government-sponsored issues. A corporate or Government-sponsored
bond is removed if its amount falls below US$75 million.
(+)The Standard & Poor' s Real Estate Investment Trust Composite Index is a
capitalization weighted index of 100 stocks designed to measure the performance
of real estate investment trusts, commonly known as REITs, with a base value of
100 as of December 31, 1996. The Index includes reinvested dividends.
DREYFUS REAL ESTATE MORTGAGE FUND OCTOBER 31, 1998
- -----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS REAL ESTATE
MORTGAGE FUND WITH THE LEHMAN BROTHERS AGGREGATE BOND INDEX AND THE STANDARD &
POOR'S REAL ESTATE INVESTMENT TRUST COMPOSITE INDEX
Dollars
$11,092
Lehman Brothers Aggregate Bond Index*
$10,540
Dreyfus Real Estate Mortgage Fund
$8,198
Standard & Poor's Real Estate Investment Trust Composite Index**
* Source: Lehman Brothers
** Source: Standard & Poor's
Average Annual Total Returns
- --------------------------------------------------------------------------------
One Year Ended From Inception (9/30/97)
October 31, 1998 to October 31, 1998
____________________ ____________________
3.82% 4.94%
- ---------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Real Estate
Mortgage Fund on 9/30/97 (Inception Date) to a $10,000 investment made on that
date in the Lehman Brothers Aggregate Bond Index as well as to the Standard &
Poor's Real Estate Investment Trust Composite Index (the "REIT Index") which are
described below. All dividends and capital gain distributions are reinvested.
The Fund's performance shown in the line graph takes into account all applicable
fees and expenses. The Lehman Brothers Aggregate Bond Index, the Fund's primary
benchmark Index, is a widely accepted, unmanaged index of corporate, U.S.
Government and U.S. Government Agency debt instruments, mortgage-backed
securities and asset-backed securities. The REIT Index is a
capitalization-weighted index of 100 stocks designed to measure the performance
of real estate investment trusts, commonly known as REITs (base value of 100 as
of December 31, 1996). The Index includes reinvested dividends. The REIT Index
also is being used because of the Fund's investment in REITs. The Indices do 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>
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS OCTOBER 31, 1998
Principal
Bonds and Notes--118.1% Amount Value
- -------------------------------------------------------
____________ ___________
<S> <C> <C>
Asset-Backed Securities--3.4% Nomura Depositor Trust,
Ser. 1998-ST1, Cl. B-2, 9.84%, 2003 . . . . . . . $.....500,000 (a,b) $ 433,359
____________
Commercial Mortgage-
Backeds--39.8% Asset Securitization,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1997-D5, Cl. A-1, 6.85%, 2041 . . . . . . . . 750,000 778,828
DLJ Commercial Mortgage,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1998-STFA, Cl. B-3, 7.438%, 2000 . . . . . . 1,000,000 (a,b) 983,125
DLJ Mortgage Acceptance,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1997-CF2, Cl. B-3TB, 6.99%, 2009 . . . . . . 1,000,000 (a) 946,875
GS Mortgage Securities II,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1998-GS1, Cl. D, 6.39%, 2000 . . . . . . . . 250,000 (a,b) 246,641
Library Tower Trust I,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1998-I, Cl. B, 6.66%, 2029 . . . . . . . . . 500,000 (a) 485,937
Merrill Lynch Mortgage Investors,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1997-SD1, Cl. E., 6.687%, 2010 . . . . . . . 775,000 (a,b) 744,484
Nomura Asset Securities,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1998-D6, Cl. A-4, 7.595%, 2028 . . . . . . . 1,000,000 (b) 950,938
____________
5,136,828
____________
Real Estate Investment
Trusts--7.0% Crescent Real Estate Equities,
Notes, 71_2%, 2007 . . . . . . . . . . . . . . . . 500,000 (a) 445,359
Tanger Properties,
Unsecured Notes
(Gtd. by Tanger Factory Outlet Centers),
77_8%, 2004 . . . . . . . . . . . . . . . . . . . 500,000 (c) 455,550
____________
900,909
____________
Residential Mortgage-
Backeds--40.3% Chase Mortgage Finance,
Mortgage Pass-Through Ctfs.,
Ser. 1998-S3:
Cl. B-4, 61_2%, 2013 . . . . . . . . . . . . . 333,143 (a) 268,284
Cl. B-5, 61_2%, 2013 . . . . . . . . . . . . . 444,379 (a) 142,201
Ser. 1998-S5, Cl. B-5, 61_2%, 2013 . . . . . . . . 315,003 (a) 100,801
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------
____________ ___________
Residential Mortgage-
Backeds (continued) GE Capital Mortgage Services,
Mortgage Pass-Through Ctfs.,
Ser. 1998-16:
Cl. B-4, 61_2%, 2013 . . . . . . . . . . . . . $.....372,893 (a) $ 298,897
Cl. B-5, 61_2%, 2013 . . . . . . . . . . . . . 372,897 (a) 119,327
Norwest Asset Securities,
Mortgage Pass-Through Ctfs.:
Ser. 1997-10, Cl. B-2, 75_8%, 2027 . . . . . . . . 494,786 526,061
Ser. 1997-17, Cl. B-5, 71_4%, 2027 . . . . . . . . 1,041,429 (a) 315,032
Ser. 1997-20, Cl. B-4, 63_4%, 2012 . . . . . . . . 245,981 (a) 200,720
Ser. 1998-2:
Cl. B-4, 61_2%, 2028 . . . . . . . . . . . . . 373,198 282,288
Cl. B-5, 61_2%, 2028 . . . . . . . . . . . . . 373,740 127,072
Ser. 1998-9:
Cl. B-5, 61_2%, 2028 . . . . . . . . . . . . . 273,380 (a) 190,351
Cl. B-6, 61_2%, 2028 . . . . . . . . . . . . . 411,117 (a) 143,891
Ser. 1998-18:
Cl. B-5, 61_4%, 2028 . . . . . . . . . . . . . 349,504 (a) 242,032
Cl. B-6, 61_4%, 2028 . . . . . . . . . . . . . 524,277 (a) 120,584
Ser. 1998-19, Cl. B-6, 61_2%, 2028 . . . . . . . . 335,699 93,996
PNC Mortgage Securities,
Mortgage Pass-Through Ctfs.:
Ser. 1997-8:
Cl. 3B-4, 63_4%, 2012 . . . . . . . . . . . . . 251,716 (a) 236,928
Cl. 3B-5, 63_4%, 2012 . . . . . . . . . . . . . 201,373 (a) 165,126
Cl. 3B-6, 63_4%, 2012 . . . . . . . . . . . . . 201,370 (a) 64,438
Ser. 1998-2: . . . . . . . . . . . . . . . . . . .
Cl. 3B-6, 63_4%, 2013 . . . . . . . . . . . . . 378,202 (a) 121,025
Cl. 4B-6, 63_4%, 2027 . . . . . . . . . . . . . 266,322 (a) 71,907
Residential Funding Mortgage Securities I,
Mortgage Pass-Through Ctfs.:
Ser. 1997-S18:
Cl. B-2, 63_4%, 2012 . . . . . . . . . . . . . 224,245 (a) 167,693
Cl. B-3, 63_4%, 2012 . . . . . . . . . . . . . 299,113 (a) 96,670
Ser. 1997-S21:
Cl. B-2, 61_2%, 2012 . . . . . . . . . . . . . 193,223 (a) 167,965
Cl. B-3, 61_2%, 2012 . . . . . . . . . . . . . 257,730 (a) 82,474
Ser. 1998-NS1:
Cl. B-2, 63_8%, 2009 . . . . . . . . . . . . . 77,709 (a) 59,253
Cl. B-3, 63_8%, 2009 . . . . . . . . . . . . . 233,058 (a) 66,422
Ser. 1998-S14:
Cl. B-2, 61_2%, 2013 . . . . . . . . . . . . . 507,829 (a) 360,559
Cl. B-3, 61_2%, 2013 . . . . . . . . . . . . . 507,766 (a) 142,174
Ser. 1998-S16:
Cl. B-2, 61_2%, 2013 . . . . . . . . . . . . . 228,178 (a) 160,402
Cl. B-3, 61_2%, 2013 . . . . . . . . . . . . . 228,182 (a) 63,891
____________
5,198,464
____________
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) OCTOBER 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- -------------------------------------------------------
____________ ___________
U.S. Government Agencies/
Mortgage-Backeds--25.3% Federal Home Loan Mortgage Corp.,
Real Estate Mortgage Investment Conduit,
Stripped Securities, Interest Only Class:
Ser. 1499, Cl. E, 7%, 2023 . . . . . . . . . . . . $.....864,285 (d) $ 260,997
Federal National Mortgage Association,
Ser. 1542, Cl. QC, 7%, 2020 . . . . . . . . . . . 750,000 (c,d) 91,868
Ser. 1995, Cl. PY, 7%, 2027 . . . . . . . . . . . 875,000 (c,d) 376,934
Real Estate Mortgage Investment Conduit,
Stripped Securities, Interest Only Class:
Ser. 1993-119, Cl. JA, 7%, 2019 . . . . . . . . . 1,399,050 (d) 64,216
Ser. 1998-17, Cl. PL, 7%, 2019 . . . . . . . . . . 1,250,000 (d) 155,050
Government National Mortgage Association I,
6% . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000 (e) 1,284,556
Government National Mortgage Association I,
Project Notes:
6.45%, 11/15/2033 . . . . . . . . . . . . . . . . 500,000 515,625
65_8%, 8/15/2028 . . . . . . . . . . . . . . . . . 500,000 520,155
____________
3,269,401
____________
U.S. Governments--2.3% U.S. Treasury Bonds,
5%, 11/15/2028 . . . . . . . . . . . . . . . . . . 300,000 (e) 300,000
____________
TOTAL BONDS AND NOTES
(cost $16,036,009) . . . . . . . . . . . . . . . . $15,238,961
============
Equity-Related Securities--22.6% Shares
- -------------------------------------------------------------------------------------------
____________
Common Stocks
Real Estate Investment
Trusts: Archstone Communities Trust. . . . . . . . . . . . . . 10,000 $ 201,250
AvalonBay Communities . . . . . . . . . . . . . . . . 10,304 331,016
Cabot Industrial Trust . . . . . . . . . . . . . . . . 20,100 402,000
First Industrial Realty Trust. . . . . . . . . . . . . 6,000 153,750
Irvine Apartment Communities . . . . . . . . . . . . . 20,000 525,000
Kilroy Realty. . . . . . . . . . . . . . . . . . . . . 10,000 221,875
SL Green Realty . . . . . . . . . . . . . . . . . . . 7,000 132,563
Shurgard Storage Centers . . . . . . . . . . . . . . . 10,000 269,375
Spieker Properties . . . . . . . . . . . . . . . . . . 5,000 172,500
Tower Realty Trust. . . . . . . . . . . . . . . . . . 25,000 506,250
____________
TOTAL EQUITY-RELATED SECURITIES
(cost $3,065,723) . . . . . . . . . . . . . . . . $ 2,915,579
============
TOTAL INVESTMENTS (cost $19,101,732) . . . . . . . . . . . . . . . . . . . . . . . . . . . 140.7% $18,154,540
======= ============
LIABILITIES, LESS CASH AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . (40.7%) $(5,247,384)
======= ============
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $12,907,156
======= ============
DREYFUS REAL ESTATE MORTGAGE 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,
1998, these securities amounted to $8,454,827 or 65.5% of net assets.
(b) Variable rate security-interest rate subject to change periodically.
(c) Held by the custodian in a segregated account as collateral for securities
purchased on a forward commitment basis.
(d) Reflects notional face.
(e) Purchased on a forward commitment basis.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998
Cost Value
____________ ___________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $19,101,732 $18,154,540
Receivable for investment securities sold . . . . . . . . 332,030
Dividends and interest receivable . . . . . . . . . . . . 177,612
Paydowns receivable . . . . . . . . . . . . . . . . . . . 20,698
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 56,456
Due from The Dreyfus Corporation and affliliates . . . . 444
____________
18,741,780
____________
LIABILITIES: Due to Distributor . . . . . . . . . . . . . . . . . . . 2,761
Bank loan payable--Note 2 . . . . . . . . . . . . . . . . 3,482,000
Payable for investment securities purchased . . . . . . . 2,081,802
Cash overdraft due to Custodian . . . . . . . . . . . . . 222,395
Interest payable--Note 2 . . . . . . . . . . . . . . . . 23,490
Accrued expenses . . . . . . . . . . . . . . . . . . . . 22,176
____________
5,834,624
____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,907,156
============
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $13,503,682
Accumulated undistributed investment income--net . . . . 144,634
Accumulated net realized gain (loss) on investments . . . 206,032
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 . . . . . . . . . . . . . . . . (947,192)
____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,907,156
============
SHARES OUTSTANDING
(unlimited number of $.001 par value shares of Beneficial Interest authorized) . . . . . . 1,067,900
NET ASSET VALUE, offering and redemption price per share--Note 3(d). . . . . . . . . . . . $12.09
======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $1,177,933
Cash dividends . . . . . . . . . . . . . . . . . . . . . 183,377
___________
$1,361,310
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . 82,802
Interest expense--Note 2 . . . . . . . . . . . . . . . . 211,046
Registration fees . . . . . . . . . . . . . . . . . . . . 46,399
Shareholder servicing costs--Note 3(b) . . . . . . . . . 34,013
Professional fees . . . . . . . . . . . . . . . . . . . . 13,052
Organization expense . . . . . . . . . . . . . . . . . . 11,141
Prospectus and shareholders' reports . . . . . . . . . . 10,709
Custodian fees--Note 3(b) . . . . . . . . . . . . . . . . 3,355
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 3,039
___________
Total Expenses . . . . . . . . . . . . . . . . . . . . 415,556
Less--expense reimbursement from the Manager due to
undertakings--Note 3(a) . . . . . . . . . . . . . . . (89,861)
___________
Net Expenses . . . . . . . . . . . . . . . . . . . . . 325,695
___________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035,615
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments . . . . . . . . . $ 205,391
Net unrealized appreciation (depreciation) on investments . . (928,840)
___________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . (723,449)
___________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . $ 312,166
===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
STATEMENT OF CASH FLOWS YEAR ENDED OCTOBER 31, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends and interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,290,024
Interest and loan commitment fees paid . . . . . . . . . . . . . . . . . . . . . . . . (187,556)
Operating expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (154,370) $ 948,098
_____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of portfolio securities . . . . . . . . . . . . . . . . . . . . . . . . . . . (138,537,144)
Proceeds from sales of portfolio securities . . . . . . . . . . . . . . . . . . . . . . 132,149,137 (6,388,007)
_____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,563,424
Payments for Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,320,983)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,572)
Net proceeds from bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,482,000 5,700,869
_____________ ___________
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,960
Cash overdraft at beginning of period . . . . . . . . . . . . . . . . . . . . . . . (483,355)
___________
Cash overdraft at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $ (222,395)
===========
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Increase in Net Assets Resulting From Operations . . . . . . . . . . . . . . . . . $ 312,166
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Increase in dividends and interest receivable . . . . . . . . . . . . . . . . . (71,152)
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . 23,490
Decrease in accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (85,176)
Decrease in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 27,023
Decrease in due from The Dreyfus Corporation and affiliates . . . . . . . . . . 17,827
Increase in due to distributor . . . . . . . . . . . . . . . . . . . . . . . . . 605
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . (205,391)
Net unrealized depreciation on investments . . . . . . . . . . . . . . . . . . . 928,840
Net amortization of discount on investments . . . . . . . . . . . . . . . . . . (134)
___________
Net Cash Provided by Operating Activities. . . . . . . . . . . . . . . . . . . . . . . . . $ 948,098
===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
October 31, 1998 October 31, 1997*
________________ _________________
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,035,615 $ 47,994
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . 205,391 124,382
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . (928,840) (18,352)
____________ ____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . . . 312,166 154,024
____________ ____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (938,975) --
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (123,741) --
____________ ____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,062,716) --
____________ ____________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,543,424 10,243,097
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,039,144 --
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,320,983) (1,000)
____________ ____________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions . . . . . . 3,261,585 10,242,097
____________ ____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . . 2,511,035 10,396,121
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,396,121 --
____________ ____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,907,156 $10,396,121
============ ============
Undistributed investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,634 $ 47,994
____________ ____________
Shares Shares
____________ ____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,699 819,457
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . 79,840 --
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (103,016) (80)
____________ ____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . . . 248,523 819,377
============ ============
- -----------------------------
* From September 30, 1997 (commencement of operations) to October 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS REAL ESTATE MORTGAGE 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: 1998 1997(1)
______ ______
<S> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . $12.69 $12.50
______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.03 .06
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.52) .13
______ ______
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 .19
______ ______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . (.96) --
Dividends from net realized gain on investments . . . . . . . . . . . . . . . . . . . . (.15) --
______ ______
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.11) --
______ ______
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.09 $12.69
====== ======
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.82% 17.34%(2,3)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets . . . . . . . . . . . . . . . . . . . .90% .90%(3)
Ratio of interest expense to average net assets . . . . . . . . . . . . . . . . . . . . 1.66% --
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.13% 5.39%(3)
Decrease reflected in above expense ratios due to
undertakings by the Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71% 2.77%(3)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752.42% 244.61%(4)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . . . . . . . . . . . . . $12,907 $10,396
- -----------------------------
(1) From September 30, 1997 (commencement of operations) to October 31, 1997.
(2) Exclusive of redemption fee.
(3) Annualized.
(4) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Real Estate Mortgage Fund (the "Fund") is a separate non-diversified
series of Dreyfus Debt and Equity Funds (the "Company") which is registered
under the Investment Company Act of 1940, as amended (the "Act") as an open-end
management investment company and operates as a series company currently
offering six series, including the Fund. The Fund's investment objective is to
maximize total return, consisting of capital appreciation and current income.
The Dreyfus Corporation (the "Manager") serves as the Fund's investment adviser.
The Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon"), which is a
wholly-owned subsidiary of Mellon Bank Corporation. 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.
On August 5, 1998, the Company's Board of Trustees approved a change of the
Company' s name from "Dreyfus Income Funds" to "Dreyfus Debt and Equity Funds".
This change became effective on August 13, 1998.
As of October 31, 1998, MBC Investments Corp., an indirect subsidiary of
Mellon Bank Corporation, held 870,337 shares of the Fund.
The Company accounts separately for the assets, liabilities and operations of
each fund. Expenses directly attributable to each fund are charged to that
fund' s operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
The Fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding short-term
investments, other than U.S. Treasury Bills, and financial futures) are valued
each business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily available
and are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by the
Service based upon its evaluation of the market for such securities). Other
investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. Securities for which there are no such valuations are valued
at fair value as determined in good faith under the direction of the Board of
Trustees. Short-term investments, excluding U.S. Treasury Bills, are carried at
amortized cost, which approximates value. Financial futures are valued at the
last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market on
each business day.
(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. Under the terms of the custody agreement, the Fund receives net
earnings credits based on available cash balances left on deposit.
(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 of 1986, as amended (the "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.
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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 Code, and to make distributions of taxable income sufficient to relieve it
from substantially all Federal income and excise taxes.
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.
The average daily amount of borrowings outstanding under both arrangements
during the period ended October 31, 1998 was approximately $3,511,000, with a
related weighted average annualized interest rate of 5.92%.
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, 1997 through October 31, 1998, to reduce the management fee paid by,
or reimburse such excess expenses of the Fund to the extent that the Fund's
aggregate annual expenses, exclusive of taxes, brokerage, interest on borrowings
and extraordinary expenses, exceeded an annual rate of .90 of 1% of the value of
the Fund's average daily net assets. The expense reimbursement, pursuant to the
undertaking, amounted to $89,861 during the period ended October 31, 1998.
(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, 1998, the Fund was charged $31,847 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, 1998, the Fund was charged $533 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, 1998, the Fund was
charged $3,355 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.
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, during the period ended
October 31, 1998, amounted to $137,964,202 and $130,163,311, respectively.
At October 31, 1998, accumulated net unrealized depreciation on investments
was $947,192, consisting of $99,116 gross unrealized appreciation and $1,046,308
gross unrealized depreciation.
At October 31, 1998, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
NOTE 5--SUBSEQUENT EVENT:
On November 4, 1998, the Board approved a multiple-class structure for the
Fund. Effective December 24, 1998, the Fund will offer five classes of shares;
namely, Class A, B, C, R, and T shares each with different sales load and
distribution expense structures. Currently issued and outstanding shares of the
Fund as of December 24, 1998 will be reclassified as Class A shares.
Shareholders of record prior to December 24, 1998 who become Class A
shareholders will continue to be eligible to purchase Fund shares at net asset
value, and not be subject to the applicable front-end sales load. In addition,
effective December 24, 1998, the Fund will be named "Dreyfus Premier Real Estate
Mortgage Fund."
DREYFUS REAL ESTATE MORTGAGE FUND
- -----------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS REAL ESTATE MORTGAGE FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Real Estate Mortgage Fund
(one of the Funds constituting Dreyfus Debt and Equity Funds) as of October 31,
1998, and the related statements of operations and cash flows for the year then
ended and the statement of changes in net assets and financial highlights for
each of the two years in the period then ended. 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, 1998 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 Real Estate Mortgage Fund at October 31, 1998, the results of its
operations and its cash flows for the year then ended and the changes in its net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.
New York, New York
December 17, 1998
[dreyfus lion "d" logo] (reg.tm)
[dreyfus logo] (reg.tm)
DREYFUS REAL ESTATE MORTGAGE 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. 045AR9810
Real Estate
Mortgage Fund
Annual Report
October 31, 1998
- ------------------------------------------------------------------------------
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report for the Dreyfus Premier High
Yield Debt Plus Equity Fund, for the period since the Fund's inception on June
29, 1998 through October 31, 1998. Your Fund's performance for each share class
is shown below:
<TABLE>
Annualized Distribution
Total Return* Income Dividends Rate Per Share**
___________ _____________________ _____________________
<S> <C> <C>
Class A Shares -16.38 $0.185 4.96%
Class B Shares -16.64 $0.162 4.61%
Class C Shares -16.64 $0.173 4.93%
Class T Shares -16.44 $0.178 4.83%
</TABLE>
INTRODUCTION
As this is the first letter of the Fund, it seems appropriate to articulate
the Fund's goals. In the simplest terms, the Fund seeks to maximize total return
by investing in both the debt and equity of companies that have high yield debt
outstanding. Having said that, we would like to explain further the opportunity
we believe exists by focusing on the high yield universe of companies.
Much has been written about how high yield debt is a hybrid security, having
traditional characteristics sometimes of debt and sometimes of equity
instruments. Like a traditional debt instrument, a high yield bond is a legal
contract with a company, entitling its holder to interest payments, the return
of principal and the maintenance of certain covenants by the company. Because a
company issuing high yield bonds is generally less established, or more highly
leveraged, a purchaser of high yield bonds cannot simply rely on a rating
agency' s evaluation of the company, but must conduct the type of fundamental
analysis typical of an equity investment to decide whether the investment is
satisfactory from a credit quality standpoint. For this extra work, as well as
the initial presumption of higher risk, an investor is paid a higher coupon.
Over time, if the company has used the bond proceeds wisely, the company
should have increased its earnings, and the high yield bond will have added
ability in its interest coverage. This may lead to a credit upgrade, or even an
early call at a premium to par, two outcomes that provide upside potential for
the investor. Both possibilities suggest that a high yield bond can trade above
par, affording the potential of some capital appreciation, beside the desired
high current income. We at Dreyfus focus on finding investments in the high
yield universe that maximize total return, which means price appreciation in
addition to interest income.
Industry observers estimate that there are now about 2,000 companies that have
at one time or another issued high yield debt securities. At one time, almost
all of these companies were private. However, as high yield companies
successfully finance their businesses through debt offerings, it becomes
appropriate at some point for them to raise equity either to finance additional
growth, or to provide liquidity to the original equity sponsor. For whatever
reason, about one third of the high yield companies now have a public equity
security, as well as their high yield debt securities.
As a class, we feel these securities are not followed as efficiently as the
general equity market. First, by their nature, the companies are more highly
leveraged than a typical company, and an equity analyst may dismiss them from
his perusal because they lack clean balance sheets, and have more volatile
prices. Second, the typical equity market capitalization of a high yield company
is small by equity standards: generally no more than $300 million. These biases,
we believe, are short- sighted. In regard to the leverage issue, something that
we are comfortable with in investing for the Fund, we note that the increased
leverage may enhance the company' s return on equity if the company performs
well. As to size, given the use of leverage, the actual total value of the
enterprise (equity market capitalization plus debt) is generally larger than the
equity analyst realizes, and hence the company is not as small as it appears.
More often than not, we expect to invest in a company that is private, and
just starting its growth phase. By the time it has matured and issued equity, we
may know the company quite well, and fully understand its rosy future. It is at
that time, however, that the company's high yield debt securities probably will
have realized most of their total return. The Fund was introduced partly to
extend our ability to access opportunities in the high yield universe by
allowing us to buy equity in companies that we know from our fundamental debt
analysis.
In general, we will prefer to buy a debt security (with its coupon) more often
than an equity security. We will buy an equity security of a high yield debt
issuer when we believe that there is significant return potential in excess of
the alternative high yield debt instrument of the same company. Equity
investments are in general thought to be more risky than debt instruments; we
will have to have significantly more return potential in order to invest in such
an equity.
In short, the Fund is a total return player in the universe of high yield
issuers. We believe this formula, given the inefficiencies of the high yield
equity market, may be richly rewarding for the long-term diversified investor.
Below follows a short interpretation of the current economic situation,
composed by Dreyfus's economists. We find this summary useful, but want to make
two general comments. First, the portfolio managers are analysts of specific
companies. Because the economic scenario is what it is, there is not a great
exposure to foreign investments and industrial cyclicals. But we will always buy
a specific investment if we believe it potentially can provide a handsome return
for the risk taken on, even if the larger picture might cast a shadow on such an
endeavor. (Another way of saying this is that every investment makes sense at a
price.) Second, on balance, your Fund managers have a bearish perspective on the
equity markets. That' s why we toil in the debt markets, where one invests in
legal obligations.
ECONOMIC REVIEW
So far in 1998, the main regions of the world have had very different economic
fundamentals. The U.S. entered the year with a strong economy near full
employment, with unemployment only slightly above 4%. The tight labor market led
the Federal Reserve Board (the "Fed") to contemplate a rise in interest rates
early in the year. The U.S. economy cooled enough over the months that the Fed
decided to stand pat. Evidence of economic cooling continued to accumulate and
worries about the world economy intensified. Financial stresses pushed the Fed
to ease credit in both late September and mid-October. After many years of
subpar economic growth, continental Europe moved into a sustained economic
expansion. The overall European economy benefited as interest rates in
peripheral countries such as Spain and Italy fell, approaching the lower levels
established by Germany, on the eve of currency unification. Unlike the U.S.,
Europe has substantial excess capacity of productive plant and labor. In Asia,
weak economies were pervasive as a result of the Asian financial crisis. The
Latin American economies weakened as the financial stresses spread throughout
that region.
A main influence on the U.S. economy this year was the foreign financial
crisis and cooling of the world economy. The positive effects hit first. Actual
inflation and expected inflation dropped, causing a decline in long-term
Treasury bond yields and mortgage rates. This caused a boom in housing. The fall
in inflation helped the consumer sector as more of the growth in consumer income
was left over the inflation to buy goods and services. Consumers benefited from
a combination of good growth in income after inflation, a strong labor market
and past increases in the price of assets they owned.
The negative effect of Asian weakness was felt in the industrial sector more
than in the consumer sector. Corporate profits weakened, especially in sectors
affected by the Asian crisis such as world-traded commodities (oil, metals and
paper) and exports. One result of this industrial weakness was to cool off a
U.S. economy that had been growing rapidly.
The major change in the economic outlook over recent months has been a
downward shift in expectations for world economic growth. A credit crunch
developed in emerging countries and former communist countries, sharply reducing
the economic outlook for Asia and Latin America as well as for
commodity-exporting countries throughout the world. The effect on Europe and the
U.S. has been to lower expectations of profit growth and drive down bond yields
Evidence of a weaker world economy accumulated as the financial stresses
continued. A worsened financial crisis occurred between the Russian default in
mid-August and the fallout from the Long-Term Capital Management hedge fund
crisis through early October. However, proactive steps were taken to stabilize
the Japanese banks, design a support package for Brazil and ease monetary
policy. The prospects for world economic weakness and monetary ease in the major
countries will be powerfully influenced by whether foreign financial stresses
calm down or intensify in the coming months. There appears to be a shift in the
priorities of key policymakers from fighting potential inflation to
restimulating future world economic growth.
MARKET ENVIRONMENT
In the period from June 29, 1998 to October 31, 1998, we saw a significant
correction in the global markets that were bracketed by two events: the collapse
of the Russian financial system in mid-August, and the move by Alan Greenspan,
head of the U.S. Federal Reserve, on October 8 to lower the Fed Funds rate,
signaling the Fed's intention to deal with the developing crisis of confidence
in the global monetary system. The first event, perhaps in an unprecedented
fashion, demonstrated in a quite short period of time how linked all financial
markets have become as we approach the Millennium. Hedge funds, the aggressive,
highly leveraged marginal players in many diverse high risk/high return markets,
as an asset class could not sustain losses suffered in the Russian debt and
currency markets and were required to sell other holdings in other financial
markets. Such undisciplined selling begot a flight to quality, with repricing of
all risk in all markets. The sole beneficiary of this market activity was the
U.S. Treasury market. Markets that were especially hard hit were emerging
markets (both debt and equity), domestic small caps and domestic high yield.
Coincident, or as a separate part of this market activity, was the role of the
financial intermediaries during this process. The major U.S. financial
intermediaries (whether traditional securities brokerage firms or the capital
market operations of the major money center commercial banks) are all highly
leveraged. And whether they have adequate risk controls in place (rumors of
insolvency about one securities firm and one money center during the period
implied inadequate controls; the continuing solvency of all such firms at this
time indicates that risk controls are now in place), the managements of all such
firms essentially issued the same edict to all trading desks: rid yourself of
all inventory. In other words, the liquidity of the risk/return asset classes
evaporated.
We have mentioned two ingredients of the general market correction -- hedge
fund selling and dealer illiquidity. A third must also be named. Mutual funds,
in particular high yield mutual funds, experienced net redemptions. The weekly
AMG data (AMG tracks inflows and outflows of mutual fund money) ran negative
throughout August and into September, and did not turn absolutely positive until
mid-October. Thus, without dealers willing to take on new inventory, the prices
of all high yield instruments fell as the holders of the asset class, mutual
fund portfolio managers, were forced to sell assets to meet investor
redemptions. (It should be noted that the Fund did not experience net
redemptions, so forced selling did not occur.)
To get a measure of the magnitude of the repricing that occurred in the high
yield market, we will quote the Donaldson Lufkin Jenrette High Yield (HY) Index.
At June 30, the HY Index spread was 409 basis points over the relevant U.S.
Treasury security; on October 31, it was 735 basis points (a spread not seen
since the end of 1991). While this measures the absolute spread-widening in the
asset class, a relative measure (HY spread over reference Treasury/reference
Treasury rate) indicated that on October 31 the high yield market was priced at
an all-time high since the early 1980s, when records were first kept.
Fed Chairman Greenspan's rate move in early October calmed many markets, most
notably the equity markets of the U.S., which began a rally immediately after
his action. The high yield marketplace, as of October 31, had lagged in its own
rebound, although the financial press had begun to note the attractive spread
inherent in this asset class. Since October 31 a recovery has begun, although
its duration and strength are not yet known.
This market discussion has been almost purely technical, explaining the inner
workings of the market' s liquidity, which we feel accounts for a substantial
amount of the market' s price action. It should be noted that bonds are legal
contracts, and if held to maturity, a company is required to pay interest and
principal as the contract requires (though they can fail, and not make timely
interest and principal payments, which is the risk high yield investors take).
Thus, interim price fluctuations (while stomach-churning) do not affect the
company' s contractual obligations (though they may affect actual payments to
bondholders on a periodic basis). It is default rates in the high yield market
that should dictate a widening of the spread. Default rates in 1998 have not
increased so dramatically as to account for the spread widening. Indeed, market
observers do not believe that even a severe recession would theoretically
trigger sufficient defaults to account for the magnitude of the price fall that
occurred from June 29 to October 31, 1998.
PORTFOLIO OVERVIEW
The Fund' s initial four-month return is highly unsatisfactory, and the Fund
underperformed the Merrill Lynch High Yield Master II Index. That this happened
at the very onset of the Fund' s life is disconcerting, and no amount of
explanation or rationalization should be construed as an attempt to hide that
sorry fact.
A portion of the underperformance can be explained by the fact that, as of
October 31, the Fund had invested 33.9% of its portfolio in equities. But the
performance of the Russell 2000, which measures equities, was also less
satisfactory than the HY Index during this period, and thus the equity portion
was in some respects a drag on relative performance to debt-only high yield
funds. As noted in the introductory remarks, equities are viewed as more
volatile than debt instruments, and this was apparent in the period we are
discussing.
In commenting on the Fund's performance, it should also be noted that industry
weighting can be faulted. The fund had a slight overweighting in telecom issues
(both on the debt and equity) , and this sector has been a significant
underperformer in the high yield market of late.
From a portfolio perspective, perhaps the single comment worth making is that
as the market experienced its turmoil, your Fund's managers decided to leave the
capital that had yet to be invested in cash. As of October 31, 18.5% of the
portfolio was in cash and equivalents. It has already been noted that the Fund
had 33.9% of its portfolio in equities. Additionally, about 46% of the Fund was
invested in pure yield instruments (both debt and preferred), while 15.7% of the
Fund was invested in convertible securities (again, debt and preferred).
Apart from the cash, the Fund's three largest initial investments (Echostar
Communications, Paxson Communications, and Scandinavian Broadcasting System SA)
are all convertible securities. All three companies have high growth potential
and are innovative deliverers of broadcasting products. It seemed that the
ability to invest in securities with some inherent yield attached, but with
potential equity upside, fulfilled the concept to which the Fund is dedicated.
We cannot stress enough the deep disappointment with the results Dreyfus
Premier High Yield Debt Plus Equity Fund has posted during its initial four
months. We will strive to bring a more reassuring message when we address you
six months hence.
Very truly yours,
[John V. Koerber signature] {Roger King signature]
John V. Koerber Roger King
Portfolio Managers
November 16, 1998
New York, N.Y.
*Total return includes reinvestment of dividends and any capital gains paid,
and does not take into consideration the maximum initial sales charge in the
case of Class A and Class T shares, or the applicable contingent deferred sales
charge imposed on redemptions in the case of Class B and Class C shares.
**Annualized distribution rate per share is based on dividends per share paid
from net investment income during the period, annualized, divided by the maximum
offering price per share in the case of Class A and Class T shares and the net
asset value per share in the case of Class B and Class C shares at the end of
the period.
<TABLE>
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
Principal
Bonds and Notes--47.6% Amount Value
- ------------------------------------------------------- ___________ ___________
<S> <C> <C>
Broadcasting--4.6% Scandinavian Broadcasting System,
Conv. Sub. Deb., 7%, 2004 . . . . . . . . . . . . $...400,000 $ 390,000
___________
Building Materials--5.5% FWT,
Sr. Sub. Notes, 9.875%, 2007 . . . . . . . . . . . 300,000 176,250
ICF Kaiser International,
Sr. Sub. Notes, 13%, 2003 . . . . . . . . . . . . 710,000 294,650
___________
470,900
___________
Consumer--5.2% Carson,
Gtd. Sr. Sub. Notes, Ser. B, 10.375%, 2007 . . . . 500,000 202,500
E & S Holdings,
Sr. Sub. Notes, Ser. B, 10.375%, 2006 . . . . . . 239,000 123,085
Syratech,
Sr. Notes, 11%, 2007 . . . . . . . . . . . . . . . 150,000 117,750
___________
443,335
___________
Energy--1.9% Petsec Energy,
Sr. Sub. Notes, 9.50%, 2007 . . . . . . . . . . . 200,000 161,000
___________
Entertainment--4.5% Discovery Zone,
Sr. Secured Notes, 13.50%, 2002 (Units) . . . . . 125,000 (a) 125,625
Livent,
Sr. Notes, 9.375%, 2004 . . . . . . . . . . . . . 400,000 262,000
___________
387,625
___________
Financial--3.5% Penncorp Financial,
Sr. Sub. Notes, 9.25%, 2003 . . . . . . . . . . . 500,000 300,000
___________
Forest Products--3.0% Maxxam Group Holdings,
Sr. Secured Notes, 12%, 2003 . . . . . . . . . . . 250,000 253,750
___________
Gaming--2.3% Trump Castle Funding,
First Mortgage Bond, 11.75%, 2003 . . . . . . . . 250,000 196,250
___________
Restaurants--.8% Planet Hollywood,
Sr. Sub. Notes, 12%, 2005 . . . . . . . . . . . . 150,000 71,250
___________
Retail--1.5% J. Crew Group,
Sr. Discount Notes, Ser. B, Zero Coupon, 2002 . . 350,000 (b) 129,500
___________
Steel--2.2% Recycling Industries,
Sr. Sub. Notes, 13%, 2005 . . . . . . . . . . . . 200,000 191,500
___________
Telecommunications--5.6% Phonetel Technologies,
Gtd. Sr. Notes, 12%, 2006 . . . . . . . . . . . . 500,000 130,000
Poland Telecom Finance,
Gtd. Sr. Notes, 14%, 2007 (Units) . . . . . . . . 250,000 (a) 246,250
USN Communications,
Sr. Discount Notes, Ser. B, Zero Coupon, 2000 . . 247,000 (b) 100,035
___________
476,285
___________
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------- ___________ ___________
Textiles--2.3% Sassco Fashions,
Notes, 12.75%, 2004 . . . . . . . . . . . . . . . $...200,000 $ 198,000
___________
Transportation--1.6% ValuJet,
Sr. Notes, 10.25%, 2001 . . . . . . . . . . . . . 200,000 139,000
___________
Wireless Communications--3.1% Comunicacion Celular,
Sr. Discount Notes, Zero Coupon, 2000 . . . . . . 250,000 (b) 164,375
Globalstar/Capital,
Sr. Notes, 10.75%, 2004 . . . . . . . . . . . . . 150,000 98,250
___________
262,625
___________
TOTAL BONDS AND NOTES
(cost $5,025,836) . . . . . . . . . . . . . . . . $4,071,020
___________
Equity-Related Securities--33.9% Shares
- ------------------------------------------------------------------------------------------- ___________
Common Stocks--17.4%
Building Materials--1.9% Associated Materials . . . . . . . . . . . . . . . . . 15,000 (d) $ 165,000
___________
Casinos--1.0% Players International. . . . . . . . . . . . . . . . . 20,000 (d) 86,250
___________
Consumer--2.7% Coinmach Laundry . . . . . . . . . . . . . . . . . . . 16,000 (d) 161,000
Shop at Home . . . . . . . . . . . . . . . . . . . . . 30,000 (d) 73,125
___________
234,125
___________
Employment Services--.9% Employee Solutions . . . . . . . . . . . . . . . . . . 40,000 (d) 80,000
___________
Energy--2.0% Tokheim. . . . . . . . . . . . . . . . . . . . . . . . 20,000 (d) 175,000
___________
Entertainment--.8% Isle of Capri Casinos. . . . . . . . . . . . . . . . . 25,000 (d) 65,625
___________
Metals--1.6% Recycling Industries . . . . . . . . . . . . . . . . . 32,000 (d) 60,000
Republic Group . . . . . . . . . . . . . . . . . . . . 5,000 74,063
___________
134,063
___________
Technology--2.3% The Learning Company . . . . . . . . . . . . . . . . . 7,500 (d) 193,594
___________
Telecommunications--2.1% MGC Communications . . . . . . . . . . . . . . . . . . 17,000 (d) 170,000
USN Communications . . . . . . . . . . . . . . . . . . 15,000 (d) 7,031
___________
177,031
___________
Wireless Communications--2.1% Clearnet Communications. . . . . . . . . . . . . . . . 24,500 (d) 179,156
___________
Total Common Stocks . . . . . . . . . . . . . . . . . 1,489,844
___________
Preferred Stocks--15.1%
Broadcasting--2.3% Spanish Broadcasting System,
Cum., $142.50 . . . . . . . . . . . . . . . . . . 200 197,000
___________
Cable Television--5.9% Echostar Communications,
Ser. C, Cum. Conv., $3.375 . . . . . . . . . . . . 8,300 502,150
___________
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
Equity-Related Securities (continued) Shares Value
- ------------------------------------------------------- __________ __________
Preferred Stocks (continued)
Entertainment--5.3% Paxson Communications,
Cum. Conv., $975 . . . . . . . . . . . . . . . . . 45 (c) $ 450,000
___________
Telecommunications--1.6% WinStar Communications,
Cum., Ser. C, $142.50 . . . . . . . . . . . . . . 200 136,000
___________
Total Preferred Stocks . . . . . . . . . . . . . . . . 1,285,150
___________
Warrants--1.4%
Aircraft & Aerospace; America West Airlines. . . . . . . . . . . . . . . . . 20,000 (d) 120,000
___________
TOTAL EQUITY- RELATED SECURITIES
(cost $3,776,867) . . . . . . . . . . . . . . . . $2,894,994
___________
Principal
Short-Term Investments--14.0% Amount Value
- ------------------------------------------------------------------------------------------- __________ __________
U.S. Government Agencies; Federal Home Loan Banks
Discount Notes, 5.40%, 11/2/1998
(cost $1,191,821) . . . . . . . . . . . . . . . . $1,192,000 $1,191,821
___________
TOTAL INVESTMENTS (cost $9,994,524). . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.5% $8,157,835
_______ ___________
CASH AND RECEIVABLES (NET) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5% $ 388,569
_______ ___________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $8,546,404
_______ ___________
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) With warrants to purchase common stock.
(b) Zero coupon until year shown at which time a stated coupon rate becomes
effective.
(c) 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,
1998, these securities amounted to $450,000 or 5.3% of net assets.
(d) Non-income producing.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1998
Cost Value
____________ ___________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $ 9,994,524 $ 8,157,835
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 22,954
Receivable for investment securities sold . . . . . . . . 367,723
Dividends and interest receivable . . . . . . . . . . . . 204,231
Receivable for shares of Beneficial Interest subscribed . . 44,003
Prepaid expenses and other assets . . . . . . . . . . . . 62,271
Due from The Dreyfus Corporation . . . . . . . . . . . . 50,121
____________
8,909,138
____________
LIABILITIES: Due to Distributor . . . . . . . . . . . . . . . . . . . 4,527
Payable for investment securities purchased . . . . . . . 320,357
Accrued expenses and other liabilities . . . . . . . . . 37,850
____________
362,734
____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,546,404
____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $10,369,312
Accumulated undistributed investment income--net . . . . 67,201
Accumulated net realized gain (loss) on investments . . . (53,420)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 3 . . . . . . . . . . . . . . . . (1,836,689)
____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,546,404
____________
NET ASSET VALUE PER SHARE
________________________________________________________
Class A Class B Class C Class T
____________ ____________ ____________ ____________
Net Assets . . . . . . . . . . . . . . . . . . . . $ 3,364,125 $ 3,502,823 $ 844,319 $ 835,137
Shares Outstanding . . . . . . . . . . . . . . . . 327,707 341,356 82,371 81,368
NET ASSET VALUE PER SHARE. . . . . . . . . . . . . $10.27 $10.26 $10.25 $10.26
_______ _______ _______ _______
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 234,626
Cash dividends . . . . . . . . . . . . . . . . . . . . . 17,058
___________
Total Income . . . . . . . . . . . . . . . . . . . $ 251,684
EXPENSES: Management fee--Note 2(a) . . . . . . . . . . . . . . . . 23,351
Legal fees . . . . . . . . . . . . . . . . . . . . . . . 29,726
Auditing fees . . . . . . . . . . . . . . . . . . . . . . 15,000
Registration fees . . . . . . . . . . . . . . . . . . . . 13,787
Distribution fees--Note 2(b) . . . . . . . . . . . . . . 12,560
Shareholder servicing costs--Note 2(c) . . . . . . . . . 8,066
Prospectus and shareholders' reports . . . . . . . . . . 7,507
Custodian fees--Note 2(c) . . . . . . . . . . . . . . . . 2,800
Trustees' fees and expenses--Note 2(d) . . . . . . . . . 197
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 957
___________
Total Expenses . . . . . . . . . . . . . . . . . . 113,951
Less--expense reimbursement from the Manager due to
undertaking--Note 2(a) . . . . . . . . . . . . . . . . (70,257)
___________
Net Expenses . . . . . . . . . . . . . . . . . . . 43,694
___________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,990
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 3:
Net realized gain (loss) on investments . . . . . . . . . (53,420)
Net unrealized appreciation (depreciation)
on investments . . . . . . . . . . . . . . . . . . . . (1,836,689)
___________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . (1,890,109)
___________
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS. . . . . . . . . . . . . . $(1,682,119)
___________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 207,990
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53,420)
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . . . . . . . . . . (1,836,689)
____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . . . . . . . . . . . (1,682,119)
____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Class A shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59,567)
Class B shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52,961)
Class C shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,021)
Class T shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,240)
____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140,789)
____________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold:
Class A shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,024,588
Class B shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,180,616
Class C shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,088,000
Class T shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
Dividends reinvested:
Class A shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,567
Class B shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,961
Class C shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,840
Class T shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,240
Cost of shares redeemed:
Class C shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,500)
____________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions . . . . . . . . . . . . . . . . 10,369,312
____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,546,404
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ----
____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,546,404
____________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,201
____________
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
CAPITAL SHARE TRANSACTIONS:
Class A
________
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321,985
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,722
_________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . 327,707
_________
Class B
________
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336,268
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,088
_________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . 341,356
_________
Class C
________
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,040
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,331
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,000)
_________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . 82,371
_________
Class T
________
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,368
_________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . 81,368
_________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for the period from June 29, 1998
(commencement of operations) to October 31, 1998. This information has been
derived from the Fund's financial statements.
Class A Shares
_____________
PER SHARE DATA:
<S> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.50
______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.31)
______
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.04)
______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.19)
______
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.27
______
TOTAL INVESTMENT RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16.38%)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%(3)
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07%(3)
Decrease reflected in above expense ratio
due to undertaking by the Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.26%(3)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.54%(2)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,364
- -----------------------------
(1) Exclusive of sales load.
(2) Not annualized.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for the period from June 29, 1998
(commencement of operations) to October 31, 1998. This information has been
derived from the Fund's financial statements.
Class B Shares
_____________
PER SHARE DATA:
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.50
______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.32)
______
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.08)
______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.16)
______
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.26
______
TOTAL INVESTMENT RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16.64%)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.75%(3)
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.32%(3)
Decrease reflected in above expense ratio
due to undertaking by the Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.26%(3)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.54%(2)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,503
- -----------------------------
(1) Exclusive of sales load.
(2) Not annualized.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for the period from June 29, 1998
(commencement of operations) to October 31, 1998. This information has been
derived from the Fund's financial statements.
Class C Shares
_____________
PER SHARE DATA:
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.50
______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.33)
______
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.08)
______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.17)
______
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.25
______
TOTAL INVESTMENT RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16.64%)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.75%(3)
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.29%(3)
Decrease reflected in above expense ratio
due to undertaking by the Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.26%(3)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.54%(2)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $844
- -----------------------------
(1) Exclusive of sales load.
(2) Not annualized.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for the period from June 29, 1998
(commencement of operations) to October 31, 1998. This information has been
derived from the Fund's financial statements.
Class T Shares
_____________
PER SHARE DATA:
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.50
______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.32)
______
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.06)
______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.18)
______
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.26
______
TOTAL INVESTMENT RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16.44%)(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25%(3)
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.82%(3)
Decrease reflected in above expense ratio
due to undertaking by the Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.26%(3)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.54%(2)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $835
- -----------------------------
((1) Exclusive of sales load.
(2) Not annualized.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Premier High Yield Debt Plus Equity Fund (the "Fund") is a separate
non-diversified series of Dreyfus Debt and Equity Funds (the "Company") which is
registered under the Investment Company Act of 1940, as amended (the "Act") as
an open-end management investment company and operates as a series company
currently offering six series, including the Fund. The Fund's investment
objective is to maximize total return, consisting of capital appreciation and
current income. The Dreyfus Corporation (the "Manager") serves as the Fund's
investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A.
("Mellon") which is a wholly-owned subsidiary of Mellon Bank Corporation.
Premier Mutual Fund Services, Inc. (the "Distributor") is the distributor of
the Fund's shares. The Fund is authorized to issue an unlimited number of $.001
par value shares in the following classes of shares: Class A, Class B, Class C
and Class T shares. Class A and Class T shares are subject to a sales charge
imposed at the time of purchase, Class B shares are subject to a contingent
deferred sales charge ("CDSC") imposed on Class B share redemptions made within
six years of purchase and Class C shares are subject to a CDSC imposed on Class
C shares redeemed within one year of purchase. Other differences between the
classes include the services offered to and the expenses borne by each class and
certain voting rights.
On August 5, 1998, the Company's Board of Trustees approved a change of the
Company' s name from "Dreyfus Income Funds" to "Dreyfus Debt and Equity Funds".
This change became effective on August 13, 1998.
As of October 31, 1998, MBC Investment Corp., an indirect subsidiary of
Mellon Bank Corporation, held the following shares of the Fund:
Class A .................. 325,687 Class C. ................ 81,331
Class B .................. .324,980 Class T ................ 81,368
The Company accounts separately for the assets, liabilities and operations of
each fund. Expenses directly attributable to each fund are charged to that
fund' s operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
The Fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding short-term
investments, other than U.S. Treasury Bills) are valued each business day by an
independent pricing service (" Service" ) approved by the Board of Trustees.
Investments for which quoted bid prices are readily available and are
representative of the bid side of the market in the judgment of the Service are
valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Other investments
(which constitute a majority of the portfolio securities) are carried at fair
value as determined by the Service, based on methods which include consideration
of: yields or prices of securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions.
Securities for which there are no such valuations are valued at fair value as
determined in good faith under the direction of the Board of Trustees.
Short-term investments, excluding U.S. Treasury Bills, are carried at amortized
cost, which approximates value.
(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. Under the terms of the custody agreement, the Fund received net
earnings credits of $2,964 during the period ended October 31, 1998 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare and
pay dividends from investment income-net quarterly. Dividends from net realized
capital gain, if any, 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 of 1986, as amended (the "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 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 $53,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1998. If not
applied, the carryover expires in fiscal 2006.
NOTE 2--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 .75 of 1% of the value of the Fund's average
daily net assets and is payable monthly. The Manager had undertaken from June
29, 1998 through October 31, 1998 to reduce the management fee paid by, or
reimburse such excess expenses of the Fund, to the extent that the Fund's
aggregate annual expenses (exclusive of taxes, brokerage, interest on
borrowings, commitment fees, Rule 12b-1 distribution fees and expenses and
extraordinary expenses) exceeded an annual rate of 1.00% of the value of the
Fund' s average daily net assets. The expense reimbursement pursuant to the
undertaking, amounted to $70,257 during the period ended October 31, 1998.
(B) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act,
Class B and Class C shares pay the Distributor for distributing their shares at
an annual rate of .75 of 1% of the value of the average daily net assets of
Class B and Class C shares, and Class T shares pay the Distributor at the annual
rate of .25 of 1% of the value of the average daily net assets of Class T
shares. During the period ended October 31, 1998, Class B, Class C and Class T
shares were charged $9,368, $2,425 and $767, respectively, pursuant to the
Distribution Plan.
(C) Under the Shareholder Services Plan, Class A, Class B, Class C and Class
T shares each pay the Distributor at an annual rate of .25 of 1% of the value of
their 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, 1998, Class A, Class B,
Class C and Class T shares were charged $3,085, $3,123, $809 and $767,
respectively, 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, 1998, the Fund was charged $99 pursuant to the transfer agency
agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended October 31, 1998, the Fund was
charged $2,800 pursuant to the custody agreement.
(D) 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 PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended October 31, 1998,
amounted to $10,896,039 and $2,090,679, respectively.
At October 31, 1998, accumulated net unrealized depreciation on investments
was $1,836,689, consisting of $108,202 gross unrealized appreciation and
$1,944,891 gross unrealized depreciation.
At October 31, 1998, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Premier High Yield Debt Plus
Equity Fund (one of the Funds constituting Dreyfus Debt and Equity Funds) as of
October 31, 1998, and the related statements of operations and changes in net
assets and financial highlights for the period from June 29, 1998 (commencement
of operations) to October 31, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held by the custodian as of October 31, 1998 and
confirmation of securities not held by the custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus Premier High Yield Debt Plus Equity Fund at October 31, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for the period from June 29, 1998 to October 31, 1998, in conformity
with generally accepted accounting principles.
New York, New York
December 17, 1998
DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY FUND
- -----------------------------------------------------------------------------
IMPORTANT TAX INFORMATION (UNAUDITED)
In accordance with Federal tax law, the Fund hereby designates 8.20% of the
ordinary dividends paid during the fiscal year ended October 31, 1998 as
qualifying for the corporate dividends received deduction. Shareholders will
receive notification in January 1999 of the percentage applicable to the
preparation of their 1998 income tax returns.
DREYFUS PREMIER HIGH YIELD
DEBT PLUS EQUITY 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. 046/246AR9810
ANNUAL REPORT
- -------------------------------------------------------------------------------
DREYFUS PREMIER
HIGH YIELD
DEBT PLUS EQUITY FUND
- -------------------------------------------------------------------------------
OCTOBER 31, 1998
[dreyfus lion logo reg.tm]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS STRATEGIC INCOME FUND AND THE MERRILL LYNCH
DOMESTIC MASTER INDEX
EXHIBIT A:
MERRILL LYN DREYFUS
DOMESTIC STRATEGIC
PERIOD MASTER INCOME
INDEX * FUND
10/31/88 10,000 10,000
10/31/89 11,167 11,344
10/31/90 11,878 11,494
10/31/91 13,746 13,671
10/31/92 15,142 15,399
10/31/93 16,962 18,160
10/31/94 16,348 16,809
10/31/95 18,931 19,762
10/31/96 20,013 21,199
10/31/97 21,812 23,731
10/31/98 23,886 24,619
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS
EQUITY DIVIDEND FUND WITH THE STANDARD AND POOR'S 500 COMPOSITE
STOCK PRICE INDEX AND THE WILSHIRE LARGE COMPANY VALUE INDEX
EXHIBIT A:
DREYFUS STANDARD & POOR'S
EQUITY WILSHIRE 500 COMPOSITE
PERIOD DIVIDEND LARGE COMPANY STOCK PRICE
FUND VALUE INDEX** INDEX*
12/29/95 10,000 10,000 10,000
10/31/96 11,293 11,378 11,662
10/31/97 14,607 14,628 15,406
10/31/98 15,654 16,441 18,797
*Source: Lipper Analytical Services, Inc.
**Source: Wilshire Associates, Inc.
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 LYNC DREYFUS
HIGH YIELD HIGH YIELD
PERIOD MASTER II SECURITIES
INDEX * FUND
3/25/96 10,000 10,000
10/31/96 10,651 11,522
10/31/97 12,177 13,956
10/31/98 12,167 11,685
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS SHORT TERM HIGH YIELD FUND WITH THE MERRILL
LYNCH HIGH YIELD MASTER II INDEX AND THE DREYFUS
CUSTOMIZED LIMITED TERM HIGH YIELD INDEX
EXHIBIT A:
DREYFUS
DREYFUS MERRILL LYNCH CUSTOMIZED
SHORT TERM HIGH YIELD LIMITED TERM
PERIOD HIGH YIELD MASTER II HIGH YIELD
FUND INDEX * INDEX *
8/16/96 10,000 10,000 10,000
10/31/96 10,359 10,322 10,270
10/31/97 11,745 11,800 11,411
10/31/98 11,488 11,790 11,716
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
DREYFUS REAL ESTATE MORTGAGE FUND WITH THE LEHMAN
BROTHERS AGGREGATE BOND INDEX AND THE STANDARD &
POOR'S REAL ESTATE INVESTMENT TRUST COMPOSITE INDEX
EXHIBIT A:
STANDARD
& POOR'S
REAL ESTATE
DREYFUS LEHMAN INVESTMENT
REAL ESTATE BROTHERS TRUST
PERIOD MORTGAGE AGGREGATE COMPOSITE
FUND BOND INDEX* INDEX**
9/30/97 10,000 10,000 10,000
10/31/97 10,152 10,145 9,723
1/31/98 10,635 10,427 10,010
4/30/98 10,885 10,509 9,672
7/31/98 11,153 10,722 8,821
10/31/98 10,540 11,092 8,198
*Source: Lehman Brothers
**Source: Standard & Poor's
