Dreyfus
Core Bond Fund
ANNUAL REPORT October 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments Year 2000 Issues (Unaudited)
and its share price.
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
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2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
14 Statement of Financial Futures
15 Statement of Assets and Liabilities
16 Statement of Operations
17 Statement of Changes in Net Assets
18 Financial Highlights
19 Notes to Financial Statements
25 Report of Independent Auditors
26 Important Tax Informstion
FOR MORE INFORMATION
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Back Cover
The Fund
Dreyfus
Core Bond Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Core Bond Fund,
covering the 12-month period from November 1, 1998 through October 31, 1999.
Inside, you' ll find valuable information about how the fund was managed during
the reporting period, including a discussion with Michael Hoeh, a member of the
Dreyfus Taxable Fixed Income Team that manages the fund.
The past 12 months have been highly volatile for most bonds. Although U.S.
Treasury securities began the reporting period in the wake of a rally caused
primarily by a "flight to quality" amid the spread of the global financial
crisis in overseas markets, most higher yielding sectors of the bond market had
declined sharply. The Federal Reserve Board responded to the global financial
crisis last fall by reducing short-term interest rates. Its strategy apparently
was effective, and the U.S. economy remained strong through the remainder of the
reporting period.
Because inflation is more likely to rise in a strong economy, the overall bond
market -- including U.S. Treasury securities -- declined during the first 10
months of 1999. To help forestall a rise of inflation, the Federal Reserve Board
raised short-term interest rates twice during the summer of 1999, effectively
reversing most of last fall's interest-rate cuts. Higher interest rates led to
some erosion of bond prices, especially among the higher yielding market
sectors. In this environment, however, the yields of many higher yielding bonds
- -- including corporate bonds and U.S. government agency securities -- have
recently been quite attractive compared to the yields of U.S. Treasury
securities of comparable maturity.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Core Bond Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
November 15, 1999
DISCUSSION OF FUND PERFORMANCE
Michael Hoeh, Portfolio Manager Dreyfus Taxable Fixed Income Team
How did Dreyfus Core Bond Fund perform relative to its benchmark?
For the 12-month period ended October 31, 1999, the fund produced a 6.38% total
return.(1) This performance compares very favorably with the 0.34% return
provided by the fund's benchmark, the Merrill Lynch Domestic Master Index.(2)
We attribute the fund's good relative performance to our sector allocation and
security selection strategies. Simply put, we owned the right securities in the
right bond market sectors over the past year.
What is the fund's investment approach?
The fund seeks a high total return, which includes both capital appreciation and
current income. At least 65% of the fund must be invested in investment-grade
fixed-income securities, which include U.S. Treasury securities, U.S. government
agency securities, corporate bonds, and mortgage- and asset-backed securities.
The fund also invests in convertible securities and preferred stocks. The
remaining 35% may be invested in bonds of below investment-grade credit quality,
also known as "high yield" securities.
Our investment approach emphasizes:
*FUNDAMENTAL ECONOMIC ANALYSIS. Our review of U.S. economic conditions helps
us establish the portfolio's average duration, which is a measure of sensitivity
to interest-rate changes. If interest rates appear to be rising, we will
generally reduce the fund' s average duration to keep cash available for the
purchase of higher yielding securities as they become available. If interest
rates appear to be declining, we may increase the fund's average duration to
lock in prevailing yields.
*SECTOR ALLOCATION. We allocate assets among the various sectors of the
fixed-income marketplace according to their relative attractiveness under
prevailing and expected economic conditions.
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
* SECURITY SELECTION. We choose individual securities according to factors that
include their yields, prices, liquidity and the financial health of the issuer.
What other factors influenced the fund's performance?
When the annual reporting period began, the U.S. bond market had just completed
a period of heightened turmoil. The spread of the global credit and currency
crisis from Asia to Russia and the concurrent failure of a large U.S. hedge fund
caused domestic and overseas investors to shift assets away from the higher
yielding sectors of the bond market. Sellers of these bonds found few buyers,
causing their prices to decline sharply. Credit-sensitive securities --
including corporate, mortgage-backed and asset-backed securities -- were hard
hit, causing their yields to widen dramatically relative to U.S. Treasury
securities. The Federal Reserve Board and many other nations' central banks
responded by reducing key short-term interest rates in an effort to restore
liquidity to the financial markets.
The central bankers' strategy evidently worked, because it became apparent early
in 1999 that the credit and currency crisis was easing. Faced with a robust U.S.
economy and the prospect of recovery overseas, investors once again became
comfortable with U.S. non-government-guaranteed assets. As a result, prices of
U.S. Treasury securities declined and the yield differences narrowed between
Treasuries and U.S. government agency bonds. During the summer of 1999, the
Federal Reserve reversed course by raising short-term interest rates twice,
effectively offsetting most of last fall's rate cuts.
While these rising interest rates had an adverse effect on the prices of
fixed-income markets in general, the fund prospered because it took advantage of
depressed valuations of the corporate and mortgage-backed securities sectors
after last year's financial crisis and held those securities while their markets
recovered in 1999. Those securities that we held participated in this market
environment.
What is the fund's current strategy?
Early in the reporting period, we responded to the changing economic environment
by lowering the fund's average duration, effectively reduc
ing the portfolio's sensitivity to rising interest rates. Our asset allocation
strategy focused primarily on investment-grade corporate securities, high yield
corporate bonds, mortgage-backed securities and asset-backed securities, all of
which significantly outperformed U.S. Treasury securities in 1999. Among the
fund' s most impressive performers were our holdings in Niagara Mohawk Power,
Korea Development Bank and GNMA Adjustable Rate Mortgage securities (ARMs),
which all significantly outperformed the U.S. Treasury market.
We also sought to maximize total return in the rising interest-rate environment
by adding more floating-rate securities to the portfolio. Because floating-rate
securities are relatively insensitive to interest-rate changes, they maintained
their principal value while providing attractive levels of income.
Toward the end of the reporting period, when we determined that the bulk of
interest-rate hikes were likely to be behind us, we lengthened the fund's
duration to equal the duration of the Merrill Lynch Domestic Master Index to
lock in prevailing yields and capture potential capital appreciation.
As of October 31, 1999, we have maintained the fund's high credit quality,
focusing mainly on investment-grade corporate bonds and GNMA securities that
carry government agency guarantees. We have also emphasized triple-A rated
positions in commercial mortgage-backed and asset-backed securities, which we
believe are unusually attractive because of high yield spreads over U.S.
Treasuries, stable commercial real estate markets, low consumer default levels,
and the likely effects of pending bankruptcy reform by Congress. Of course,
liquidity risk remains a primary concern for privately issued mortgage-backed
securities.
November 15, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND
INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION FUND SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. THE U.S. GOVERNMENT GUARANTEE ON
SECURITIES DOES NOT EXTEND TO THE MARKET VALUE OF THESE SECURITIES, OR TO THE
FUND'S SHARES.
(2) SOURCE: BLOOMBERG L.P. -- THE MERRILL LYNCH DOMESTIC MASTER INDEX IS AN
UNMANAGED PERFORMANCE BENCHMARK COMPOSED OF U.S. TREASURY AND AGENCY, AND
MORTGAGE AND INVESTMENT-GRADE CORPORATE SECURITIES WITH MATURITIES GREATER THAN
OR EQUAL TO ONE YEAR.
The Fund
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Core Bond Fund
and the Merrill Lynch Domestic Master index
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<TABLE>
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Average Annual Total Returns AS OF 10/31/99
1 Year 5 Years 10 Years
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FUND 6.38% 9.27% 8.73%
((+)) SOURCE: BLOOMBERG L.P.
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN DREYFUS CORE BOND FUND ON
10/31/89 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 FIXED-INCOME 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 $100 MILLION PER COUPON. THE INDEX DOES NOT TAKE INTO ACCOUNT
CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO FUND
PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN
THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT
<TABLE>
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STATEMENT OF INVESTMENTS
October 31, 1999
Principal
BONDS AND NOTES--101.6% Amount ($) Value ($)
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AIRCRAFT & AEROSPACE--2.4%
America West Airlines Pass-Through Trust,
Pass-Through Ctfs.,
Ser. 1997-1, Cl. C, 7.53%, 2004 6,674,410 6,660,828
ASSET-BACKED--1.7%
GE Capital Mortgage Services, Home Equity Loan,
Asset-Backed Ctfs.,
Ser. 1996-HE4, Cl. B3, 9.308%, 2026 1,337,815 (a,b) 1,112,058
PPL Transition Bond,
Asset-Backed Ctfs.,
Ser. 1999-1, Cl. A6, 6.96%, 2007 3,500,000 3,506,563
4,618,621
ASSET-BACKED-AUTO RECEIVABLE BACKED NOTES--3.3%
BMW Vehicle Owner Trust,
Ser. 1999-A, Cl. A4, 6.54%, 2004 2,200,000 2,199,582
MMCA Auto Owner Trust,
Ser. 1999-2, Cl. A3, 7%, 2004 6,000,000 6,026,250
WFS Financial Owner Trust,
Ser. 1999-B, Cl. A3, 6.32%, 2003 860,000 855,992
9,081,824
BANKING--10.3%
Abbey National,
Sub. Deb, 7.95%, 2029 5,500,000 5,633,106
Capital One Bank,
Medium-Term Notes, 6.7%, 2008 5,000,000 4,641,295
Dresdner Funding Trust I,
Notes, 8.151%, 2031 6,000,000 (a) 5,651,292
KBC Bank Funding Trust III,
Trust Preferred Securities, 9.86%, 2049 2,300,000 (a,b) 2,335,342
National Westminster Bank,
Notes, 7.375%, 2009 4,400,000 4,386,303
Sanwa Finance Aruba,
Notes, 8.35%, 2009 3,000,000 3,053,160
Wachovia,
Notes, 6.15%, 2009 2,900,000 2,707,605
28,408,103
BUILDING MATERIALS--.9%
ICF Kaiser International,
Sr. Sub. Notes, 13%, 2003 4,750,000 (c) 2,392,812
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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CABLE-SATELLITE--1.5%
British Sky Broadcasting Group,
Notes, 8.2%, 2009 4,200,000 (a) 4,093,853
COMMERCIAL MORTGAGE
PASS-THROUGH CTFS.--11.5%
Asset Securitization,
Ser. 1997-D5, Cl. A2, 6.816%, 2041 8,000,000 (b) 7,545,000
DLJ Commercial Mortgage:
Ser. 1998-CF2, Cl. B2, 7.066%, 2031 4,000,000 (b) 3,630,000
Ser. 1999-CG2, Cl. B-2, 7.607%, 2009 3,457,000 (b) 3,108,059
GS Mortgage Securities II,
Ser. 1998-C1, Cl. D, 7.243%, 2030 9,000,000 (b) 8,173,710
Structured Asset Securities, REMIC,
Ser. 1996-CFL, Cl. H, 7.75%, 2028 4,750,000 (a) 3,415,606
TrizecHahn Office Properties Trust,
Ser. 1999-TOP, Cl. D, 6.58%, 2007 6,000,000 (a,b) 5,949,375
31,821,750
COMPUTER PERIPHERALS--1.6%
Xerox,
Conv. Notes, .57%, 2013 8,400,000 (d) 4,473,000
COMPUTERS--1.1%
IBM,
Deb., 7.125%, 2096 3,100,000 2,931,593
ENERGY--2.1%
Dual Drilling,
Sr. Sub. Notes, 9.875%, 2004 3,000,000 3,070,119
Perez Companc,
Notes, 9%, 2006 3,000,000 (a) 2,707,500
5,777,619
FINANCE--4.0%
DLJ,
Medium-Term Notes, .4%, 2000 7,100,000 (a) 7,096,308
Lehman Brothers Holdings,
Notes, 7.875%, 2009 3,800,000 3,852,630
10,948,938
FOREIGN--2.1%
Korea Development Bank,
Notes, 6.625%, 2003 6,000,000 5,734,866
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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FOREIGN/GOVERNMENTAL--3.2%
Republic of Argentina,
Deb., 11.25%, 2004 794,400 770,568
Republic of Costa Rica,
Notes, 9.335%, 2009 5,000,000 (a) 5,062,500
Province of Quebec, Ser. PD,
Deb., 7.5%, 2029 2,900,000 2,914,442
8,747,510
INSURANCE--2.3%
Conseco,
Notes, 9%, 2006 6,200,000 6,233,778
REAL ESTATE--5.1%
Crescent Real Estate Equities,
Notes, 7%, 2002 8,950,000 8,426,971
Reckson Operating Partnership,
Notes, 7.75%, 2009 6,000,000 5,665,404
14,092,375
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--8.1%
Bank of America Mortgage Securities:
Ser. 1999-6, Cl. B4, 6.25%, 2014 592,891 (a) 430,772
Ser. 1999-6, Cl. B6, 6.25%, 2014 444,650 (a) 87,818
Ser. 1999-10, Cl. B4, 6.5%, 2014 300,014 (a) 220,229
Ser. 1999-10, Cl. B5, 6.5%, 2014 150,505 (a) 94,771
Bear Stearns Mortgage Securities,
REMIC, Ser. 1995-1, Cl. 2B4, 7.4%, 2010 210,566 (a) 180,560
Chase Mortgage Finance Trust, REMIC:
Ser. 1994-E, Cl. B5, 6.25%, 2010 145,925 (a) 121,802
Ser. 1999-S3, Cl. B4, 6.25%, 2014 167,841 (a) 110,319
Ser. 1999-S6, Cl. B3, 6.25%, 2014 661,433 (a) 495,661
Ser. 1999-S6, Cl. B4, 6.25%, 2014 330,717 (a) 216,671
Ser. 1999-S7, Cl. B3, 6.25%, 2014 370,063 (a) 277,432
Ser. 1999-S13, Cl. B2, 6.5%, 2014 600,000 518,290
GE Capital Mortgage Services, REMIC:
Ser. 1993-11, Cl. B4, 6%, 2008 126,393 (a) 112,964
Ser. 1993-15, Cl. B3, 6%, 2008 373,556 (a) 332,465
Ser. 1994-21, Cl. B4, 6.5%, 2009 242,871 (a) 205,454
Ser. 1994-22, Cl. B2, 6%, 2009 154,157 145,004
Ser. 1996-10, Cl. B3, 6.75%, 2011 477,589 (a) 415,204
Ser. 1996-12, Cl. B2, 7.25%, 2011 746,609 (a) 721,644
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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RESIDENTIAL MORTGAGE PASS-THROUGH CTFS. (CONTINUED)
GE Capital Mortgage Services, REMIC (continued):
Ser. 1996-12, Cl. B3, 7.25%, 2011 319,607 (a) 283,352
Ser. 1996-14, Cl. 2B3, 7.25%, 2011 239,773 (a) 212,199
Ser. 1997-13, Cl. B2, 6.75%, 2012 927,104 870,709
Ser. 1998-1, Cl. B2, 6.75%, 2013 465,074 438,407
Ser. 1998-10, Cl. 2B4, 6.5%, 2013 214,632 (a) 147,962
MORSERV:
Ser. 1996-1, Cl. B2, 7%, 2011 725,750 699,215
Ser. 1996-1, Cl. B3, 7%, 2011 362,875 (a) 324,887
Norwest Asset Securities:
Ser. 1997-11, Cl. B3, 7%, 2027 736,440 (a) 579,256
Ser. 1997-15, Cl. B3, 6.75%, 2012 466,583 (a) 381,140
Ser. 1998-2, Cl. B3, 6.5%, 2028 491,888 357,695
Ser. 1998-9, Cl. B4, 6.5%, 2028 812,283 (a) 600,911
Ser. 1998-11. Cl. B3, 6.5%, 2013 704,861 634,262
Ser. 1998-11, Cl. B4, 6.5%, 2013 845,646 (a) 730,105
Ser. 1998-13, Cl. B4, 6.25%, 2028 739,574 (a) 520,359
Ser. 1998-18, Cl. B4, 6.25%, 2028 864,355 (a) 595,460
Ser. 1999-19, Cl. B4, 6.25%, 2014 493,268 (a) 360,086
PNC Mortgage Securities, REMIC:
Ser. 1998-2, Cl. III-B4, 6.75%, 2013 454,608 (a) 361,697
Ser. 1998-2, Cl. III-B5, 6.75%, 2013 363,686 (a) 282,846
Ser. 1998-2, Cl. IV-B4, 6.75%, 2027 261,672 (a) 229,419
Ser. 1998-2, Cl. IV-B5, 6.75%, 2027 261,672 (a) 177,084
Prudential Home Mortgage Securities, REMIC:
Ser. 1996-7, Cl. B2, 6.75%, 2011 651,961 617,122
Ser. 1996-7, Cl. B3, 6.75%, 2011 1,695,775 (a) 1,473,205
Ser. 1996-7, Cl. B4, 6.75%, 2011 782,016 (a) 618,037
Residential Accredit Loans,
Ser. 1997-QS6, Cl. B1, 7.5%, 2012 337,262 287,727
Residential Funding Mortgage Securities I, REMIC:
Ser. 1995-J1, Cl. 2, 9.141%, 2023 1,599,988 (a,b) 1,260,241
Ser. 1997-S19, Cl. B1, 6.5%, 2012 745,988 (a) 597,723
Ser. 1997-S19, Cl. B2, 6.5%, 2012 319,683 (a) 227,374
Ser. 1997-S21, Cl. B1, 6.5%, 2012 430,763 (a) 386,188
Ser. 1998-S14, Cl. B1, 6.5%, 2013 648,771 (a) 508,677
Structured Asset Securities, REMIC,
Ser. Greenpoint 1996-A:
Cl. B1, 8.353%, 2027 1,725,923 (b) 1,601,333
Cl. B2, 8.353%, 2027 689,990 (b) 736,133
Cl. B4, 8.353%, 2027 414,184 (a,b) 397,745
22,185,616
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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RETAIL--5.3%
Fred Meyer,
Bonds, 7.375%, 2005 5,000,000 5,007,960
Saks:
Notes, 7.25%, 2004 3,350,000 3,166,708
Notes, 8.25%, 2008 4,000,000 3,872,304
Tricon Global Restaurants,
Sr. Notes, 7.45%, 2005 2,800,000 2,692,455
14,739,427
SPECIAL PURPOSE ENTITY--1.0%
Air 2 US, Ser. A,
Enhanced Equipment Notes, 8.027%, 2019 2,900,000 (a) 2,900,000
U.S. GOVERNMENT AGENCIES/MORTGAGE BACKED--33.1%
Federal Home Loan Mortgage,
REMIC, Multiclass Mortgage Participation Ctfs.
(Interest Only Obligation),
Ser. 2047, Cl. PJ, 7%, 2/15/2028 3,909,672 (e) 1,475,901
Federal National Mortgage Association, REMIC Trust,
Gtd. Pass-Through Ctfs. (Collateralized by
FNMA Pass-Through Ctfs.)
(Interest Only Obligation):
Ser. 1996-70, Cl. PL, 7%, 2/25/2026 13,026,753 (e) 2,808,894
Ser. 1997-56, Cl. PM, 7%, 6/18/2026 3,142,293 (e) 829,377
Ser. 1997-74, Cl. PK, 7%, 11/18/2027 4,593,642 (e) 1,668,784
Government National Mortgage Association I:
6.5%, 11/15/2029 7,000,000 (f) 6,691,510
7%, 11/15/2029 3,000,000 (f) 2,943,750
7.5%, 1/15/2002-7/15/2002 196,819 200,192
Construction Loan:
6.8%, 7/15/2001 11,123,564 11,127,012
6.8%, 5/15/2039 1,559,536 (f) 1,461,112
Project Loan:
6.375%, 1/15/2034 9,707,098 8,842,567
6.495%, 7/15/2030 10,104,790 9,684,734
6.5%, 9/15/2033 9,658,552 9,071,068
6.54%, 7/15/2033 15,024,187 14,606,214
Government National Mortgage Association II,
Adjustable Rate Mortgage:
5%, 11/20/2029 8,000,000 (f) 7,800,000
5.5%, 11/1/2029 7,000,000 (f) 6,897,170
6%, 11/20/2029 5,000,000 (f) 4,976,550
91,084,835
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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UTILITIES-TELEPHONE--1.0%
AT&T Canada,
Sr. Notes, 7.65%, 2006 2,700,000 (a) 2,705,532
TOTAL BONDS AND NOTES
(cost $284,185,734) 279,632,880
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COMMON STOCKS--1.2% Shares Value ($)
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BROADCASTING--1.2%
Spanish Broadcasting System, Cl.A 2,675 (a,g) 3,210,000
TELECOMMUNICATIONS--.0%
Comunicacion Celular (warrants) 2,500 (a,g) 150,313
TRANSPORTATION--.0%
Golden Ocean Group (warrants) 5,270 (g) 5,929
TOTAL COMMON STOCKS
(cost $862,013) 3,366,242
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PREFERRED STOCKS--10.5%
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BROADCASTING--5.0%
Spanish Broadcasting System,
Cum., $142.50 12,889 (a) 13,726,785
ENTERTAINMENT--4.0%
Paxson Communications,
Cum., $132.50 10,150 11,012,750
TELECOMMUNICATIONS--1.5%
Winstar Communications,
Ser. C, Cum., $142.50 5,000 4,000,000
TOTAL PREFERRED STOCKS
(cost $26,434,344) 28,739,535
Principal
SHORT-TERM INVESTMENTS--.2% Amount ($) Value ($)
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U.S. TREASURY BILLS;
4.49%, 12/9/1999
(cost $547,395) 550,000 (h) 547,432
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TOTAL INVESTMENTS (cost $312,029,486) 113.5% 312,286,089
LIABILITIES, LESS CASH AND RECEIVABLES (13.5%) (37,170,178)
NET ASSETS 100.0% 275,115,911
(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, 1999,
THESE SECURITIES AMOUNTED TO $75,396,183 OR 27.4% OF NET ASSETS.
(B) VARIABLE RATE SECURITY-INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(C) NON-INCOME PRODUCING--SECURITY IN DEFAULT.
(D) REFLECTS DATE SECURITY CAN BE REDEEMED AT HOLDER'S OPTION; THE STATED
MATURITY IS 4/21/2018.
(E) NOTIONAL FACE AMOUNT SHOWN.
(F) PURCHASED ON A FORWARD COMMITMENT BASIS.
(G) NON-INCOME PRODUCING SECURITY.
(H) HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN
FINANCIAL FUTURES POSITIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
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The Fund
STATEMENT OF FINANCIAL FUTURES
October 31, 1999
Unrealized
Market Value Appreciation
Covered (Depreciation)
Contracts by Contracts ($) Expiration at 10/31/99 ($)
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL FUTURES LONG
U.S. Treasury 5 year Notes 112 12,090,750 December '99 80,516
U.S. Treasury 20 year Bonds 7 795,156 December '99 17,062
FINANCIAL FUTURES SHORT
U.S. Treasury 10 year Notes 97 10,642,719 December '99 (121,141)
(23,563)
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
Cost Value
- -------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 312,029,486 312,286,089
Receivable for investment securities sold 4,161,149
Dividends and interest receivable 3,147,751
Paydowns receivable 21,528
Receivable for shares of Beneficial Interest subscribed 3,244
Prepaid expenses and other assets 7,726
319,627,487
- -------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 183,788
Due to Distributor 57,983
Cash overdraft due to Custodian 314,841
Payable for investment securities purchased 40,264,841
Bank loans payable--Note 2 3,300,000
Payable for shares of Beneficial Interest redeemed 211,763
Interest payable--Note 2 65,240
Payable for futures variation margin 9,656
Accrued expenses 103,464
44,511,576
- --------------------------------------------------------------------------------
NET ASSETS ($) 275,115,911
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 282,255,960
Accumulated undistributed investment income--net 286,646
Accumulated net realized gain (loss) on investments
and forward currency exchange contracts (7,659,735)
Accumulated net unrealized appreciation (depreciation)
on investments [including ($23,563) net unrealized
depreciation on financial futures]--Note 4(b) 233,040
- --------------------------------------------------------------------------------
NET ASSETS ($) 275,115,911
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
(Unlimited number of $.001 par value shares
of Beneficial Interest authorized) 19,228,164
- --------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption price per share ($) 14.31
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF OPERATIONS
Year Ended October 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Interest 19,142,879
Cash dividends (net of $6,470 foreign taxes withheld at source) 2,904,968
TOTAL INCOME 22,047,847
- --------------------------------------------------------------------------------
EXPENSES:
Management fee--Note 3(a) 1,658,341
Shareholder servicing costs--Note 3(b) 976,744
Interest expense--Note 2 395,881
Professional fees 91,991
Prospectus and shareholders' reports 57,339
Custodian fees--Note 3(b) 37,673
Trustees' fees and expenses--Note 3(c) 18,616
Registration fees 16,683
Miscellaneous 12,211
TOTAL EXPENSES 3,265,479
INVESTMENT INCOME--NET 18,782,368
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (7,157,101)
Net realized gain (loss) on forward currency exchange contracts
Short transactions 303,688
Net realized gain (loss) on financial futures (64,605)
NET REALIZED GAIN (LOSS) (6,918,018)
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions (including $264,765
net unrealized appreciation on financial futures) 5,353,806
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (1,564,212)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 17,218,156
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31,
--------------------------------
1999 1998
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 18,782,368 19,457,627
Net realized gain (loss) on investments (6,918,018) 4,228,356
Net unrealized appreciation (depreciation)
on investments 5,353,806 (13,705,034)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 17,218,156 9,980,949
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (18,877,503) (19,635,824)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold 66,224,793 69,009,151
Dividends reinvested 13,963,988 14,364,793
Cost of shares redeemed (86,749,648) (65,900,857)
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS (6,560,867) 17,473,087
TOTAL INCREASE (DECREASE) IN NET ASSETS (8,220,214) 7,818,212
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 283,336,125 275,517,913
END OF PERIOD 275,115,911 283,336,125
Undistributed investment income--net 286,646 381,781
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 4,617,771 4,585,726
Shares issued for dividends reinvested 971,101 958,864
Shares redeemed (6,036,959) (4,404,263)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (448,087) 1,140,327
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased
(or decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
Year Ended October 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 14.40 14.86 14.24 14.22 12.95
Investment Operations:
Investment income--net .98 1.01 1.05 .98 .93
Net realized and unrealized gain (loss)
on investments (.09) (.45) .59 .02 1.27
Total from Investment Operations .89 .56 1.64 1.00 2.20
Distributions:
Dividends from investment income--net (.98) (1.02) (1.02) (.98) (.93)
Net asset value, end of period 14.31 14.40 14.86 14.24 14.22
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 6.38 3.74 11.94 7.27 17.57(a)
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to average
net assets 1.04 1.02 1.03 1.04 1.04
Ratio of interest expense to average
net assets .14 .03 .06 .02 --
Ratio of net investment income
to average net assets 6.80 6.76 7.25 6.89 6.87
Portfolio Turnover Rate 284.63 313.40 347.68 214.55 176.59
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ X 1,000) 275,116 283,336 275,518 294,911 320,345
(A) EXCLUSIVE OF SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Core Bond 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"), which is a wholly-owned
subsidiary of Mellon Financial 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.
The fund held an adjourned shareholder meeting on November 5, 1998, at which
meeting shareholders voted to approve proposals to (i) change the fund's
investment objective, from "maximizing current income" to "maximizing total
return" , (ii) eliminate a credit quality restriction that provided that 95% of
the fund' s assets may be invested in debt securities with a credit quality as
low as CCC/Caa; and (iii) change certain of the fund's investment restrictions,
to update them to current applicable law and to reclassify certain fundamental
restrictions as non-fundamental.
The Company's Board of Trustees approved, effective November 15, 1998, a change
of the fund' s name from "Dreyfus Strategic Income Fund" to "Dreyfus Core Bond
Fund".
The Company accounts separately for the assets, liabilities and operations of
each series. Expenses directly attributable to each series are charged to that
series' operations; expenses which are applicable to all series 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.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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 on investments.
Net realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, currency gains or losses
realized on securities transactions and the difference between the amount of
dividends, interest and foreign withholding taxes recorded on the fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities at fiscal year end,
resulting from changes in exchange rates. Such gains and losses are included
with net realized and unrealized gain or loss on investments.
(C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income, including, where
applicable, amortization of discount on investments, is recognized on the
accrual basis. Under the terms of the custody agreement, the fund received net
earnings credits of $1,641 during the period ended October 31, 1999 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
(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 $7,932,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1999. If not
applied, $1,064,000 of the carryover expires in fiscal 2003 and $6,868,000
expires in fiscal 2007.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1999 was approximately $7,313,700, with a
related weighted average annualized interest rate of 5.41%.
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, 1999, the fund was charged $690,976 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, 1999, the fund was charged $206,035
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, 1999, the fund was
charged $37,673 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:
(A) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities, financial futures and
forward currency exchange contracts, during the period ended October 31, 1999,
amounted to $879,566,031 and $832,183,739, respectively.
The fund may enter 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
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
unrealized gain on each open contract. At October 31, 1999, there were no open
forward currency exchange contracts.
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, 1999 are set forth in the
Statement of Financial Futures.
(B) At October 31, 1999, accumulated net unrealized appreciation on investments
and financial futures was $233,040, consisting of $8,015,088 gross unrealized
appreciation and $7,782,048 gross unrealized depreciation.
At October 31, 1999, 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).
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Core Bond Fund
We have audited the accompanying statement of assets and liabilities, including
the statements of investments and financial futures, of Dreyfus Core Bond Fund
(one of the funds constituting Dreyfus Debt and Equity Funds) as of October 31,
1999, 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, 1999 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 Core Bond Fund at October 31, 1999, 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 10, 1999
The Fund
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the fund hereby designates 14.46% of the
ordinary dividends paid during the fiscal year ended October 31, 1999 as
qualifying for the corporate dividends received deduction. Shareholders will
receive notification in January 2000 of the percentage applicable to the
preparation of their 1999 income tax returns.
NOTES
For More Information
Dreyfus Core Bond 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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE Call 1-800-645-6561
BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request to [email protected]
ON THE INTERNET Information can be viewed online or downloaded from:
http://www.dreyfus.com
(c) 1999 Dreyfus Service Corporation 031AR9910
Dreyfus Equity
Income Fund
ANNUAL REPORT October 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
10 Statement of Assets and Liabilities
11 Statement of Operations
12 Statement of Changes in Net Assets
13 Financial Highlights
14 Notes to Financial Statements
19 Report of Independent Auditors
20 Important Tax Information
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
The Fund
Dreyfus
Equity Income Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Equity Income Fund,
covering the 12-month period from November 1, 1998 through October 31, 1999.
Inside, you' ll find valuable information about how the fund was managed during
the reporting period, including a discussion with the fund's portfolio manager,
Timothy M. Ghriskey.
Despite a relatively weak third quarter of 1999 for the U.S. stock market, the
past year has been rewarding for most equity investors overall. When the
reporting period began, most sectors of the U.S. stock market had completed a
sharp correction caused primarily by concerns regarding the spread of the global
financial crisis in overseas markets. Soon after the start of 1999, however,
those fears abated. In fact, the U.S. economy remained strong, characterized by
low inflation and high levels of consumer spending. These conditions supported
continued strength in the stock market through the spring.
In the summer of 1999, however, the Federal Reserve Board raised short-term
interest rates twice in an effort to forestall inflationary pressures in a
fast-growing economy. Because higher interest rates tend to increase the cost of
capital and make fixed-income securities more competitive relative to equities,
most sectors of the stock market declined. By the end of the 12-month reporting
period, major stock indices had fallen from the record highs reached during the
summer, although stock prices generally were still higher than they were one
year earlier.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Equity Income Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
November 15, 1999
DISCUSSION OF FUND PERFORMANCE
Timothy M. Ghriskey, Portfolio Manager
How did Dreyfus Equity Income Fund perform relative to its benchmark?
For the 12-month period ended October 31, 1999, the fund's total return was
9.87% . This compares with a total return of 16.52% for the fund's new
benchmark, the Russell 1000 Value Index, for the same period. Further
discussion about this benchmark change follows the line-graph comparison
contained in this annual report.
While the fund's performance was less than that of the benchmark, the fund has a
conservative investment style, and we are pleased with the results. We believe
the fund' s performance is especially noteworthy in light of our distinctive
strategy and objective, which is designed to cushion investors from declines in
the stock market while providing income from stock dividends and offering the
potential to benefit from advances in the market.
What is the fund's investment approach?
Dreyfus Equity Income Fund invests primarily in carefully selected,
value-oriented companies that pay above-average dividends relative to the
Standard & Poor's 500 Composite Stock Price Index. We believe that investing in
higher dividend-paying stocks offers a more conservative approach to equity
investing because the prices of high dividend-paying stocks may decline less
than other stocks in falling markets. In effect, the stocks' dividend yields may
provide a cushion against declines that other stocks do not enjoy.
The fund's conservative approach is also reflected in our buy-and-hold strategy,
which targets long-term growth rather than short-term profit. Because we tend to
buy and sell relatively few stocks over the course of a single year, we may be
able to minimize investors' tax liabilities and reduce the fund's trading costs
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
We select investments one stock and one company at a time. Our investment
process begins with computerized, quantitative analysis to identify
dividend-paying stocks that meet our definition of value -- those that appear
underpriced in relation to the company's intrinsic value. Then, among the stocks
that have passed our value screens, we focus on companies that we believe are
best positioned to grow in the current market environment. Our team of
experienced analysts examines the fundamentals of each top-ranked candidate,
providing additional information to help the portfolio manager decide which to
purchase, and to decide if any current holdings should be sold.
The result of our approach during the recent one-year period was a portfolio of
approximately 50 stocks representing a variety of industries. A portfolio with
this concentration of investments can be more volatile than a more diversified
fund.
What other factors influenced the fund's performance?
Strong consumer demand in a robust economy boosted shares of the fund's consumer
durable stocks, such as General Motors, and consumer cyclicals, such as Intimate
Brands. In the energy sector, holdings in companies such as Mobil rose in
response to industry mergers, growing global industrial activity and production
limits instituted by the Organization of Petroleum Exporting Countries (OPEC).
The communications services sector also showed strong growth, driven by rapidly
increasing demand for cellular services as well as line-based analog and digital
communications. The fund benefited from investments in key communications
services companies such as Sprint and Bell Atlantic.
The financial services industry, which represented the fund's single largest
group of holdings, responded well to a strong U.S. economy and the apparent
stabilization of many global economies during the first half of the period.
However, during the second half of the period, rising interest rates hurt stocks
in this interest-rate-sensitive sector. While some of the fund's financial
holdings, such as Chase Manhattan, Wells Fargo and The Bank of New York,
performed relatively well, others disappointed. As a result, the financial
sector was a weak contributor to fund performance.
What is the fund's current strategy?
We continue to believe that dividend-paying stocks may provide investors with an
opportunity to benefit from stock market growth while cushioning the impact of
market volatility. Therefore, we remain committed to our disciplined strategy of
investing in high dividend-yielding stocks. Of course, dividend-paying stocks
may have less upside potential in rising markets, as the prior year has
indicated.
Value stocks significantly underperformed growth stocks this past year, as
measured by comparison of the Russell 1000 Growth Index and Russell 1000 Value
Index, which returned 34.25% and 16.52%, respectively, over the past 12-month
period.(2) Events during the period reminded us about the importance of style
diversification. Specifically, in early April 1999 a powerful shift in market
sentiment appeared to take place. Precipitated by unexpected strength in the
U.S. and global economies, investment dollars abruptly flowed out of growth
stocks and into traditional value sectors such as energy, basic materials and
capital goods. Although the trend proved short lived, and growth began to again
outperform value, it hinted at the speed with which market sentiment can turn.
We believe our disciplined, quantitatively driven investment strategy provides a
sound value-oriented investment, and we continue to maintain our disciplined
investment style and our commitment to value.
November 15, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN FLUCTUATE SUCH THAT UPON REDEMPTION FUND SHARES MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF FUND
EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH
OCTOBER 31, 2000, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD
THESE EXPENSES NOT BEEN ABSORBED, THE FUND'S RETURNS WOULD HAVE BEEN LOWER.
(2) SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- REFLECTS THE REINVESTMENT OF
INCOME DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE RUSSELL
1000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH
LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 1000
INDEX MEASURES THE PERFORMANCE OF THE 1,000 LARGEST COMPANIES IN THE RUSSELL
3000 INDEX, WHICH REPRESENT APPROXIMATELY 89% OF THE TOTAL MARKET CAPITALIZATION
OF THE RUSSELL 3000 INDEX.
The Fund
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Equity Income
Fund with the Russell 1000 Value Index and the Wilshire Large Company Value
Index
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Annual Total Returns AS OF 10/31/99
Inception From
Date 1 Year Inception
- -----------------------------------------------------------------------------------------------------------------------------------
Fund 12/29/95 9.87% 15.17%
((+)) SOURCE: LIPPER ANALYTICAL SERVICES, INC.
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN DREYFUS EQUITY INCOME FUND
ON 12/29/95 (INCEPTION DATE) TO A $10,000 INVESTMENT MADE ON THAT DATE IN THE
RUSSELL 1000 VALUE INDEX AND IN THE WILSHIRE LARGE COMPANY VALUE INDEX WHICH ARE
DESCRIBED BELOW. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED.
THE FUND'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE
FEES AND EXPENSES. THIS IS THE FIRST YEAR IN WHICH COMPARATIVE PERFORMANCE IS
BEING SHOWN FOR THE RUSSELL 1000 VALUE INDEX, WHICH THIS YEAR HAS BEEN SELECTED
AS THE PRIMARY INDEX FOR COMPARING THE FUND'S PERFORMANCE ON AN ONGOING BASIS,
BASED ON THE FUND'S AND THE INDEX'S VALUE ORIENTATION. THE RUSSELL 1000 VALUE
INDEX REPLACES THE WILSHIRE LARGE COMPANY VALUE INDEX, WHICH WAS USED AS THE
FUND'S PRIMARY BENCHMARK LAST YEAR BECAUSE THE FUND'S MANAGER PREFERS THE
INFORMATION MADE AVAILABLE BY RUSSELL. THE RUSSELL 1000 VALUE INDEX USES COMPANY
PRICE-TO-BOOK RATIOS AND LONG-TERM GROWTH RATES TO CALCULATE A COMPOSITE RANKING
WHICH IS USED TO DETERMINE IF A STOCK IS "GROWTH" OR "VALUE." THE WILSHIRE LARGE
COMPANY VALUE INDEX, SELECTED AS THE FUND'S PRIMARY BENCHMARK INDEX LAST YEAR,
IS COMPOSED OF THE LARGEST 750 STOCKS IN THE WILSHIRE 5000 INDEX WHICH MEET
CERTAIN STATISTICAL CRITERIA FOR "VALUE." PURSUANT TO APPLICABLE FEDERAL
REGULATIONS, THE PERFORMANCE OF THE WILSHIRE INDEX WILL BE PROVIDED FOR THIS
FISCAL YEAR 1999, BUT WILL NOT BE PROVIDED IN THE FUTURE. THE INDICES DO NOT
TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING
TO FUND PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS
CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN
THIS REPORT.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF INVESTMENTS
October 31, 1999
COMMON STOCKS--97.7% Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
BANKING--16.8%
Bank of America 1,200 77,250
Bank of New York 2,600 108,875
Chase Manhattan 1,600 139,800
First Tennessee National 3,000 102,000
Fleet Boston 2,400 104,700
Morgan (J.P.) & Co. 800 104,700
Wachovia 1,000 86,250
Wells Fargo 2,600 124,475
848,050
COMMERCIAL SERVICES--2.3%
Outdoor Systems 2,700 (a) 114,412
CONSUMER DURABLES--1.9%
General Motors 1,400 98,350
CONSUMER NON-DURABLES--5.3%
Flowers Industries 6,100 102,938
Heinz (H.J.) 2,200 105,050
PepsiCo 1,800 62,437
270,425
CONSUMER SERVICES--1.8%
Clear Channel Communications 600 (a) 48,225
Disney (Walt) 1,700 44,837
93,062
ELECTRONIC TECHNOLOGY--8.2%
EMC 1,400 (a) 102,200
General Dynamics 900 49,894
International Business Machines 300 29,512
Lexmark International Group, Cl. A 400 (a) 31,225
Lucent Technologies 1,600 102,800
Motorola 1,000 97,438
413,069
ENERGY MINERALS--6.9%
Atlantic Richfield 900 83,869
Mobil 1,500 144,750
Royal Dutch Petroleum (New York Shares) 900 53,944
Texaco 1,100 67,512
350,075
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED) Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCE--9.6%
American Express 200 30,800
Citigroup 4,800 259,800
Freddie Mac 1,100 59,469
Merrill Lynch 300 23,550
Morgan Stanley Dean Witter & Co. 1,000 110,312
483,931
HEALTH SERVICES--2.0%
Columbia/HCA Healthcare 4,300 103,738
HEALTH TECHNOLOGY--5.1%
Abbott Laboratories 1,200 48,450
Bristol-Myers Squibb 1,300 99,856
Warner-Lambert 1,400 111,738
260,044
INSURANCE--4.3%
American General 1,400 103,863
American International Group 1,100 113,231
217,094
NON-ENERGY MINERALS--1.0%
Alcoa 800 48,600
PROCESS INDUSTRIES--5.5%
Dow Chemical 800 94,600
duPont (E.I.) deNemours & Co. 1,000 64,438
Olin 8,500 117,406
276,444
PRODUCER MANUFACTURING--7.0%
Caterpillar 900 49,725
General Electric 900 122,006
Honeywell International 900 94,894
Minnesota Mining & Manufacturing 900 85,556
352,181
TECHNOLOGY SERVICES--3.9%
Computer Associates International 1,700 96,050
Electronic Data Systems 1,700 99,450
195,500
COMMON STOCKS (CONTINUED) Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.3%
Union Pacific 1,200 66,900
UTILITIES--14.8%
AT&T 2,200 102,850
AT&T - Liberty Media Group, Cl. A 800 (a) 31,750
Bell Atlantic 1,700 110,394
Duke Energy 300 16,950
Enron 600 23,962
GTE 600 45,000
Illinova 3,000 95,438
MCI WorldCom 500 (a) 42,906
Pinnacle West Capital 1,300 47,937
SBC Communications 1,974 100,551
Southern 600 15,938
Sprint (FON Group) 500 37,156
Texas Utilities 2,000 77,500
748,332
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $4,300,894) 97.7% 4,940,207
CASH AND RECEIVABLES (NET) 2.3% 115,976
NET ASSETS 100.0% 5,056,183
(A) NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of Investments 4,300,894 4,940,207
Receivable for investment securities sold 282,989
Dividends receivable 4,985
Prepaid expenses 8,758
5,236,939
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 320
Due to Distributor 1,008
Cash overdraft due to Custodian 11,871
Payable for investment securities purchased 136,043
Accrued expenses 31,514
180,756
- --------------------------------------------------------------------------------
NET ASSETS ($) 5,056,183
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 4,146,418
Accumulated undistributed investment income--net 5,409
Accumulated net realized gain (loss) on investments 265,043
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 639,313
- --------------------------------------------------------------------------------
NET ASSETS ($) 5,056,183
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
(unlimited number of $.001 par value shares of Beneficial Interest authorized)
302,024
NET ASSET VALUE, offering and redemption price per share ($) 16.74
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended October 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Cash dividends (net of $760 foreign taxes withheld at source) 117,873
Interest 6,117
TOTAL INCOME 123,990
EXPENSES:
Management fee--Note 3(a) 36,753
Auditing fees 20,081
Registration fees 19,300
Shareholder servicing costs--Note 3(b) 13,681
Prospectus and shareholders' reports 9,679
Custodian fees--Note 3(b) 2,840
Trustees' fees and expenses--Note 3(c) 475
Legal fees 408
Loan commitment fees--Note 2 20
Miscellaneous 2,163
TOTAL EXPENSES 105,400
Less--expense reimbursement from Manager due to undertaking--Note 3(a) (44,126)
NET EXPENSES 61,274
INVESTMENT INCOME--NET 62,716
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments 273,380
Net unrealized appreciation (depreciation) on investments 110,299
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 383,679
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 446,395
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31,
---------------------------
1999 1998
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 62,716 86,382
Net realized gain (loss) on investments 273,380 400,656
Net unrealized appreciation (depreciation)
on investments 110,299 (159,179)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 446,395 327,859
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (62,584) (84,192)
Net realized gain on investments (407,514) (329,506)
TOTAL DIVIDENDS (470,098) (413,698)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold 531,633 657,588
Dividends reinvested 452,445 396,607
Cost of shares redeemed (370,190) (816,316)
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS 613,888 237,879
TOTAL INCREASE (DECREASE) IN NET ASSETS 590,185 152,040
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 4,465,998 4,313,958
END OF PERIOD 5,056,183 4,465,998
Undistributed investment income--net 5,409 5,277
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 31,412 37,863
Shares issued for dividends reinvested 27,856 23,937
Shares redeemed (21,921) (46,766)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 37,347 15,034
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
Year Ended October 31,
------------------------------------------------------------
1999 1998 1997 1996(a)
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 16.87 17.28 13.89 12.50
Investment Operations:
Investment income--net .22(b) .32 .32 .23
Net realized and unrealized gain (loss)
on investments 1.38 .87 3.67 1.38
Total from Investment Operations 1.60 1.19 3.99 1.61
Distributions:
Dividends from investment income--net (.22) (.31) (.32) (.22)
Dividends from net realized gain on
investments (1.51) (1.29) (.28) --
Total Distributions (1.73) (1.60) (.60) (.22)
Net asset value, end of period 16.74 16.87 17.28 13.89
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 9.87 7.17 29.34 12.93(c)
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets 1.25 1.25 1.27 1.08(c)
Ratio of net investment income
to average net assets 1.28 1.82 1.98 1.76(c)
Decrease reflected in above expense ratios
due to undertakings by the Manager .90 .84 1.36 1.05(c)
Portfolio Turnover Rate 159.61 168.02 80.43 98.84(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ X 1,000) 5,056 4,466 4,314 2,858
(A) FROM DECEMBER 29, 1995 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1996.
(B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Equity 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. Capital appreciation is a secondary objective. 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 Financial 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.
The Board of Trustees of the Company approved, effective March 1, 1999, a change
of the fund's name from "Dreyfus Equity Dividend Fund" to "Dreyfus Equity Income
Fund".
The Company accounts separately for the assets, liabilities and operations of
each series. Expenses directly attributable to each series are charged to that
series' operations; expenses which are applicable to all series are allocated
among them on a pro rata basis.
As of October 31, 1999, APT Holdings Corporation, an indirect subsidiary of
Mellon Financial Corporation, held 205,496 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. Securities for which there are no such
valuations are valued at fair value as determined in good faith under the
direction of the Board of Trustees. Investments 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 $377 during the period ended October 31, 1999 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
(D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date.
Dividends from investment income-net are declared The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $500 million
redemption credit facility (the "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, 1999, 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 has undertaken from
November 1, 1998 through October 31, 2000 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 fees, interest on
borrowings, commitment fees, Shareholder Services Plan fees and extraordinary
expenses, exceed an annual rate of 1% of the value of the fund' s average daily
net assets. The expense reimbursement, pursuant to the undertaking, amounted to
$44,126 during the period ended October 31, 1999.
(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, 1999, the fund was charged $12,251 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, 1999, the fund was charged $1,126 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, 1999, the fund was
charged $2,840 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) During the period ended October 31, 1999, the fund incurred total brokerage
commissions of $17,210, of which $3,929 was paid to Dreyfus Brokerage Services,
a wholly-owned subsidiary of Mellon Financial Corporation.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding
short-term securities, during the period ended October 31, 1999, amounted to
$7,659,670 and $7,566,019, respectively.
At October 31, 1999, accumulated net unrealized appreciation on investments was
$639,313, consisting of $661,148 gross unrealized appreciation and $21,835 gross
unrealized depreciation.
At October 31, 1999, 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).
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Equity Income Fund
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Dreyfus Equity Income Fund (one of the funds
constituting Dreyfus Debt and Equity Funds) as of October 31, 1999, 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, 1999 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 Income Fund at October 31, 1999, 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 10, 1999
The Fund
IMPORTANT TAX INFORMATION (Unaudited)
For Federal tax purposes, the fund hereby designates $1.51 per share as a
long-term capital gain distribution of the $1.55 per share paid on December 28,
1998.
The fund also designates 100% of the ordinary dividends paid during the fiscal
year ended October 31, 1999 as qualifying for the corporate dividends received
deduction. Shareholders will receive notification in January 2000 of the
percentage applicable to the preparation of their 1999 income tax returns.
For More Information
Dreyfus Equity 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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE Call 1-800-645-6561
BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request to [email protected]
ON THE INTERNET Information can be viewed online or downloaded from:
http://www.dreyfus.com
(c) 1999 Dreyfus Service Corporation 042AR9910
Dreyfus
High Yield
Securities Fund
ANNUAL REPORT October 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
14 Statement of Assets and Liabilities
15 Statement of Operations
16 Statement of Changes in Net Assets
17 Financial Highlights
18 Notes to Financial Statements
23 Report of Independent Auditors
24 Important Tax Information
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
The Fund
Dreyfus
High Yield Securities Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus High Yield Securities
Fund, covering the 12-month period from November 1, 1998 through October 31,
1999. Inside, you' ll find valuable information about how the fund was managed
during the reporting period, including a discussion with the fund's portfolio
manager, Roger King, a member of the Dreyfus Taxable Fixed Income Team.
The past 12 months have been highly volatile for most bonds. Although U.S.
Treasury securities began the reporting period in the wake of a rally caused
primarily by a "flight to quality" amid the spread of the global financial
crisis in overseas markets, most higher yielding sectors of the bond market had
declined sharply. The Federal Reserve Board responded to the global financial
crisis last fall by reducing short-term interest rates. Its strategy apparently
was effective, and the U.S. economy remained strong through the remainder of the
reporting period.
Because inflation is more likely to rise in a strong economy, the overall bond
market -- including U.S. Treasury securities -- declined during the first 10
months of 1999. To help forestall a rise of inflation, the Federal Reserve Board
raised short-term interest rates twice during the summer of 1999, effectively
reversing most of last fall's interest-rate cuts. Higher interest rates led to
some erosion of bond prices, especially among the higher yielding market
sectors. In this environment, however, the yields of many higher yielding bonds
- -- including corporate bonds and U.S. government agency securities -- have
recently been quite attractive compared to the yields of U.S. Treasury
securities of comparable maturity.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus High Yield Securities Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
November 15, 1999
DISCUSSION OF PERFORMANCE
Roger King, Portfolio Manager Dreyfus Taxable Fixed Income Team
How did Dreyfus High Yield Securities Fund perform relative to its benchmark?
For the 12-month period ended October 31, 1999, the fund produced a total return
of 19.61% .(1) This compares to a 5.61% return for the fund's benchmark, the
Merrill Lynch High-Yield Master II Index for the same period.(2)
We attribute the fund's performance to three principal factors. First, through
the midpoint of the fund's fiscal year, the overall high yield market staged a
general recovery from the extraordinarily depressed levels reached in the wake
of the Asian financial crisis. Second, a number of the market segments in which
the fund was most heavily invested, including telecommunications and
broadcasting, showed exceptional strength in the first half of the reporting
period. Third, the fund buys "units" of high yield issuers. These units are high
yield bonds that are accompanied by warrants. This year, the fund achieved
significant gains from the warrants acquired as part of "units." The fund may or
may not experience such results from holdings of warrants in the future.
While we were pleased with the fund's performance, almost all the gain was
achieved in the first half of the fiscal year. In the latter part of the year,
liquidity concerns have re-entered the high yield market, putting downward
pressure on high yield bond prices market-wide.
What is the fund's investment approach?
The fund seeks to maximize total return, consisting of capital appreciation and
current income. To do so, we invest in high yield fixed-income securities.
Issuers of below investment-grade securities may be in early stages of
development or may have highly leveraged balance sheets. To attract buyers and
compensate them for assuming greater risks, the issuer must offer higher
interest rates than those offered by more established companies.
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
In making our investment decisions, we review the securities issued by a wide
range of firms, including new companies, companies breaking into new industries,
and companies that, while fundamentally sound, have experienced financial
difficulty. Our approach to selecting individual issues is based on careful
credit analysis -- our projection of each issuer's ability to repay its debt. We
attempt to add balance to our portfolio by purchasing the securities of more
established companies, which tend to operate in more stable markets with
relatively predictable consumer demand.
In each case, our emphasis is on uncovering out-of-favor companies that we
believe are undervalued. We search for likely changes in ownership, management
or corporate strategy -- events that could lead the market to discover the value
we have seen and create the potential for price appreciation. By seeking out and
investing in out-of-favor companies, the fund has increased total return
potential, but also the likelihood of greater volatility of return.
What other factors influenced the fund's performance?
When the reporting period began, fixed-income investors were concerned that
economic weakness in overseas markets might reduce earnings growth for many
companies in the United States, including issuers of high yield bonds. It
quickly became apparent, however, that these fears were largely unfounded. In
fact, the troubled economies of Japan and Southeast Asia strengthened, while
economic growth in the U.S. barreled ahead. In this environment, the high yield
market recovered from the steep drop it experienced in the latter part of 1998,
indeed, outperforming most other fixed-income market segments over the first
three months of 1999. Such recovery, however, proved short-lived, as liquidity
pressures and lack of demand brought negative returns back to the high yield
market over recent months.
During May and June, investor sentiment shifted away from a concern that the
economy might slow to fears that it might grow too quickly and awaken
inflationary pressures. As a result of inflationary fears, th
Federal Reserve Board increased short-term interest rates twice. In response to
these rate hikes, the fixed-income market experienced a general decline.
Most importantly, pressure on bond prices continued through the third quarter of
1999. The high yield market has fallen, albeit gradually, to levels seen at the
depth of the October 1998 financial crisis. The major force driving the decline
has been concern over calendar-year-end liquidity. Anticipating problems that we
believe will likely prove unfounded, many investors have stepped to the
sidelines, taking a wait-and-see approach. A large supply of high yield issues
has been met by a weak demand. In such a market, bond prices inevitably decline
What is the fund's current strategy?
The fund' s current strategy remains unchanged -- a focus on total return
utilizing an emphasis on undervalued high yield situations. Steps are being
taken to provide sufficient liquidity through the year-end period.
November 15, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND
INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, FUND SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
(2) SOURCE: BLOOMBERG L.P. -- 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.
The Fund
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus High Yield
Securities Fund and the Merrill Lynch High Yield Master II Index
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Annual Total Returns AS OF 10/31/99
Inception From
Date 1 Year Inception
- -----------------------------------------------------------------------------------------------------------------------------------
FUND 3/25/96 19.61% 9.74%
((+)) SOURCE: BLOOMBERG L.P.
</TABLE>
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 $100 MILLION
PAR AMOUNT OUTSTANDING AND GREATER THAN OR EQUAL TO ONE YEAR TO MATURITY. BOTH
INTEREST AND PRICE CHANGES FOR THE INDEX ARE CALCULATED DAILY BASED ON AN
ACCRUED SCHEDULE AND TRADER PRICING. THE INDEX DOES NOT TAKE INTO ACCOUNT
CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO FUND
PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN
THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF INVESTMENTS
October 31, 1999
Principal
BONDS AND NOTES--63.7% Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
AIRCRAFT & AEROSPACE--.6%
Aircraft Lease Portfolio Securitisation 96-1,
Pass-Through Trust, Ctfs.,
Cl. D, 12.75%, 2006 859,787 851,189
BROADCASTING-1.3%
ACME Intermediate Holdings/Finance, Ser. B,
Sr. Secured Discount Notes, 0/12%, 2005 1,200,000 (a) 834,000
ACME Television/Finance, Ser. B,
Sr. Discount Notes, 0/10.875%, 2004 1,100,000 (a) 965,250
1,799,250
BUILDING MATERIALS--5.1%
American Eco, Ser. B,
Sr. Notes, 9.625%, 2008 4,000,000 2,340,000
FWT,
Sr. Sub. Notes, 9.875%, 2007 5,000,000 (b) 450,000
ICF Kaiser International,
Sr. Sub. Notes, 13%, 2003 9,023,000 (b) 4,545,336
7,335,336
BUSINESS SERVICES--1.4%
Sitel,
Sr. Sub. Notes, 9.25%, 2006 1,000,000 905,000
U.S. Office Products,
Sr. Notes, 9.75%, 2008 2,000,000 1,030,000
1,935,000
CABLE TELEVISION--4.0%
Star Choice Communications,
Sr. Secured Notes, 13%, 2005 500,000 500,000
Supercanal Holdings,
Sr. Notes, 11.5%, 2005 2,000,000 (b,c) 1,030,000
UIH Australia/Pacific:
Ser. B, Sr. Discount Notes, 0/14.75%, 2006 4,380,000 (a) 3,569,700
Ser. D, Sr. Discount Notes, 0/14.75%, 2006 670,000 (a) 546,050
5,645,750
CHEMICALS--.7%
Trans-Resources, Ser. B,
Sr. Discount Notes, 0/12%, 2008 2,000,000 (a) 1,015,000
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE
PASS-THROUGH CTFS.--1.1%
Structured Asset Securities, REMIC:
Ser. Greenpoint 1996-A, Cl. B5, 8.353%, 2027 275,807 (c,d) 210,755
Ser. Greenpoint 1996-A, Cl. B6, 8.353%, 2027 345,291 (c,d) 82,870
Ser. 1996-CFL, Cl. H, 7.75%, 2028 1,750,000 (c) 1,258,381
1,552,006
CONSUMER--3.0%
Packaging Resources,
Sr. Notes, 11.625%, 2003 2,572,850 (d) 2,100,388
Syratech,
Sr. Notes, 11%, 2007 3,000,000 2,122,500
4,222,888
ENERGY--4.7%
Belden & Blake, Ser. B,
Sr. Sub. Notes, 9.875%, 2007 4,000,000 2,340,000
Key Energy Services,
Sr. Sub. Notes, 14%, 2009 (Units) 2,000,000 (c,e) 2,180,000
Michael Petroleum, Ser. B,
Sr. Notes, 11.5%, 2005 2,000,000 (b) 910,000
Petsec Energy, Ser. B,
Sr. Sub. Notes, 9.5%, 2007 2,600,000 1,261,000
6,691,000
ENTERTAINMENT--1.5%
Booth Creek Ski Holdings, Ser. B,
Sr. Notes, 12.5%, 2007 3,000,000 2,205,000
FINANCIAL--.8%
Amresco, Ser. 1998-A,
Sr. Sub. Notes, 9.875%, 2005 2,000,000 1,090,000
FOOD & BEVERAGES--1.0%
Cuddy International,
Sr. Notes, 10.75%, 2007 2,000,000 1,412,500
METALS--1.0%
Metal Management,
Sr. Secured Notes, 12.75%, 2004 1,000,000 955,000
NSM Steel, Ser. B,
Sr. Sub. Mortgage Notes, 12.25%, 2008 (Units) 1,750,000 (b,c,e) 43,750
Northwestern Steel & Wire,
Sr. Notes, 9.5%, 2001 812,000 361,340
1,360,090
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
PUBLISHING--.7%
WAM ! NET,
Sr. Discount Notes, 0/13.25%, 2005 1,750,000 (a) 1,058,750
RESIDENTIAL MORTGAGE
PASS-THROUGH CTFS.--2.3%
Chase Mortgage Finance,
Ser. 1994-E, Cl. B6, 6.25%, 2010 366,314 (c) 98,905
Citicorp Mortgage Services,
REMIC, Ser. 1994-9, Cl. B2, 5.75%, 2009 426,040 (c) 115,031
GE Capital Mortgage Services:
Home Equity Loan, Ser. 1996-HE4,
Cl. B5, 9.308%, 2026 154,957 (c,d) 27,892
REMIC:
Ser. 1993-13, Cl. B5, 6%, 2008 400,541 (c) 108,146
Ser. 1994-15, Cl. B5, 6%, 2009 646,708 (c) 174,611
Ser. 1994-21, Cl. B5, 6.5%, 2009 852,285 (c) 230,117
Ser. 1996-10, Cl. B5, 6.75%, 2011 318,892 (c) 86,101
Ser. 1996-12, Cl. B5, 7.25%, 2011 374,054 (c) 100,994
Ser. 1996-14, Cl. 2B5, 7.25%, 2011 222,861 (c) 60,173
Ser. 1997-11, Cl. B4, 7%, 2027 737,592 (c) 432,067
MORSERV,
Ser. 1996-1, Cl. B5, 7%, 2011 438,732 (c) 118,458
Norwest Asset Securities:
Ser. 1996-8, Cl. B4, 7.5%, 2026 122,588 (c) 90,945
Ser. 1996-8, Cl. B5, 7.5%, 2026 182,699 (c) 49,329
Ser. 1997-11, Cl. B4, 7%, 2027 244,502 (c) 155,106
Ser. 1997-11, Cl. B5, 7%, 2027 367,060 (c) 99,106
Ser. 1997-15, Cl. B4, 6.75%, 2012 389,734 (c) 275,615
Ser. 1997-15, Cl. B5, 6.75%, 2012 233,625 (c) 63,079
Ser. 1997-16, Cl. B5, 6.75%, 2027 294,865 (c) 79,614
Prudential Home Mortgage Securites,
REMIC, Ser. 1996-7, Cl. B5, 6.75%, 2011 783,434 (c) 211,527
Residential Accredit Loans, REMIC:
Ser. 1997-QS6, Cl. B2, 7.5%, 2012 144,580 (c) 107,441
Ser. 1997-QS6, Cl. B3, 7.5%, 2012 338,114 (c) 91,291
Residential Funding Mortgage Securities I,
Ser 1997-S15, Cl. B2, 7%, 2027 769,205 451,788
3,227,336
SHIPPING--2.1%
American President Lines,
Sr. Notes, 7.125%, 2003 3,185,000 2,022,223
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
SHIPPING (CONTINUED)
Holt Group,
Sr. Notes, 9.75%, 2006 1,500,000 986,250
3,008,473
TECHNOLOGY--.5%
Entex Information Services,
Sr. Sub. Notes, 12.5%, 2006 1,850,000 749,250
TELECOMMUNICATION/CARRIERS--18.9%
Bestel,
Sr. Discount Notes, 0/12.75%, 2005 5,000,000 (a) 3,175,000
DTI Holdings, Ser. B,
Sr. Discount Notes, 0/12.5%, 2008 4,750,000 (a) 1,686,250
E. Spire Communications,
Sr. Discount Notes, 0/12.75%, 2006 3,550,000 (a) 1,863,750
FirstWorld Communications,
Sr. Discount Notes, 0/13%, 2008 5,500,000 (a) 2,970,000
Globix,
Sr. Notes, 13%, 2005 3,000,000 3,015,000
MGC Communications, Ser. B,
Sr. Secured Notes, 13%, 2004 5,000,000 4,575,000
Northeast Optic Network,
Sr. Notes, 12.75%, 2008 2,000,000 2,055,000
Poland Telecom Finance, Ser. B,
Sr. Notes, 14%, 2007 6,750,000 6,041,250
Rhythms NetConnections,
Sr. Discount Notes, 0/13.5%, 2008 3,000,000 (a) 1,503,750
26,885,000
TRANSPORTATION--8.2%
Canadian Airlines,
Sr. Notes, 12.25%, 2006 4,350,000 2,762,250
Fine Air Services,
Sr. Notes, 9.875%, 2008 5,000,000 4,231,250
Terminal Railroad Association,
First Mortgage, 4%, 2019 57,000 42,465
Union Pacific,
Sub. Deb, 5.5%, 2033 387,000 281,816
ValuJet,
Sr. Notes, 10.25%, 2001 5,050,000 4,418,750
11,736,531
WIRELESS COMMUNICATIONS--4.8%
American Mobile Satellite/AMSC Acquistion, Ser. B,
Sr. Notes, 12.25%, 2008 500,000 282,500
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
WIRELESS COMMUNICATIONS (CONTINUED)
Comunicacion Celular,
Sr. Discount Notes, 0/14.125%, 2005 3,750,000 (a,c) 1,903,125
Conecel Holdings,
Sr. Notes, 16.5%, 2000 (Units) 2,000,000 (b,c,e) 230,000
Consorcio Ecuatoriano,
Notes, 14%, 2002 1,000,000 (b) 302,500
Ionica,
Sr. Discount Notes, 0/15%, 2007 2,000,000 (a,b) 40,000
Occidente y Caribe Celular, Ser. B,
Sr. Discount Notes, 0/14%, 2004 2,910,000 (a) 1,535,025
OrbCommunications Global/Capital,
Sr. Notes, 14%, 2004 1,000,000 825,000
Telesystem International Wireless:
Ser. B, Sr. Discount Notes, 0/13.25%, 2007 1,400,000 (a) 679,000
Ser. C, Sr. Discount Notes, 0/10.5%, 2007 2,500,000 (a) 1,037,500
6,834,650
TOTAL BONDS AND NOTES
(cost $122,326,833) 90,614,999
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--3.4% Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--.0%
Glasstech (warrants) 2,000 (f) 1,000
BROADCASTING--1.3%
Pegasus Media & Communications (warrants) 5,000 (f) 325,000
Spanish Broadcasting System, Cl.A 1,284 (c,f) 1,540,800
1,865,800
CABLE TELEVISION--.0%
Star Choice Communications (warrants) 11,580 (c,f) 30,397
CONSUMER--.0%
Discovery Zone (warrants) 4,500 (c,f) 5
PAPER & PACKAGING--.0%
SF Holdings Group, Cl. C 370 (c,f) 4
PUBLISHING--.0%
WAM ! NET (warrants) 5,250 (c,f) 42,000
SUPERMARKETS-.0%
Electronic Retailing Systems International (warrants) 1,250 (c,f) 1,250
TELECOMMUNICATION/CARRIERS-1.2%
Bell Technology Group (warrants) 3,000 (c,f) 30
Bestel (warrants) 5,000 (c,f) 15,000
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED) Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
DTI Holdings (warrants) 23,750 (c,f) 2,850
TELECOMMUNICATION/CARRIERS (CONTINUED)
FirstWorld Communications (warrants) 5,500 (c,f) 385,000
Hyperion Telecommunications (warrants) 1,000 (f) 175,000
Loral Orion Network Systems (warrants) 1,000 (f) 12,125
MGC Communications (warrants) 6,000 (c,f) 900,000
Poland Telecom Finance (warrants) 6,750 (c,f) 37,125
RSL Communications (warrants) 880 (f) 69,630
1,596,760
TRANSPORTATION--.0%
Golden Ocean Group (warrants) 3,000 (f) 3,375
Highwaymaster Communications (warrants) 4,000 (c,f) 1,000
Teletrac Holdings (warrants) 750 (f) 7
4,382
WIRELESS COMMUNICATIONS--.9%
Advanced Radio Telecom (warrants) 30,000 (f) 400,950
American Mobile Satellite (warrants) 2,000 (c,f) 36,250
Comunicacion Celular (warrants) 1,000 (c,f) 60,125
Iridium (warrants) 1,000 (c,f) 250
Microcell Telecommunications (warrants) 16,000 (c,f) 684,000
Occidente y Caribe Celular (warrants) 7,640 (c,f) 115,555
1,297,130
TOTAL COMMON STOCKS
(cost $1,114,734) 4,838,728
- -----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--27.5%
- -----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--12.1%
Granite Broadcasting,
Cum., $127.50 2,127 2,164,222
Paxson Communications:
Cum., $132.50 6,482 7,032,970
Cum., Conv., $975.00 226 (c) 2,480,350
Pegasus Media & Communications,
Ser. A, Cum., $127.50 5,408 5,543,200
17,220,742
ENERGY--1.2%
Clark USA,
Sr. Cum., $115.00 3,125 1,718,750
PREFERRED STOCKS (CONTINUED) Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
PAPER & PACKAGING--.3%
SF Holdings Group,
Cum., $137.50 1,180 359,900
PUBLISHING--2.0%
Day International Group,
Cum., $122.50 3,735 2,913,300
SUPERMARKETS--2.3%
Supermarkets General,
Cum., $3.52 96,000 (f) 3,288,000
TELECOMMUNICATION/CARRIERS--5.2%
Concentric Network,
Cum., $135.00 6,578 6,281,990
Hyperion Telecommunications,
Ser. B, Cum., $128.75 1,290 1,180,350
7,462,340
WIRELESS COMMUNICATIONS--4.4%
Crown Castle International,
Cum., $127.50 2,195 2,195,000
Winstar Communications,
Ser. C, Cum., $142.50 5,000 4,000,000
6,195,000
TOTAL PREFERRED STOCKS
(cost $42,445,732) 39,158,032
- -----------------------------------------------------------------------------------------------------------------------------------
Principal
SHORT-TERM INVESTMENTS--2.8% Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS;
4.5%, 11/4/1999
(cost $3,998,500) 4,000,000 3,998,480
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $169,885,799) 97.4% 138,610,239
CASH AND RECEIVABLES (NET) 2.6% 3,643,103
NET ASSETS 100.0% 142,253,342
(A) ZERO COUPON UNTIL A SPECIFIED DATE AT WHICH TIME THE STATED COUPON RATE BECOMES EFFECTIVE UNTIL MATURITY.
(B) NON-INCOME PRODUCING--SECURITY IN DEFAULT.
(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, 1999,
THESE SECURITIES AMOUNTED TO $16,046,420 OR 11.3% OF NET ASSETS.
(D) VARIABLE RATE SECURITY-INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(E) WITH WARRANTS TO PURCHASE COMMON STOCK.
(F) NON-INCOME PRODUCING SECURITY.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 169,885,799 138,610,239
Cash 2,266,997
Receivable for investment securities sold 3,874,759
Dividends and interest receivable 2,442,476
Receivable for shares of Beneficial Interest subscribed 218,947
Paydowns receivable 193,387
Prepaid expenses and other assets 145
147,606,950
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 92,581
Due to Distributor 30,993
Bank loans payable--Note 2 4,700,000
Payable for shares of Beneficial Interest redeemed 412,213
Interest payable--Note 2 39,038
Accrued expenses 78,783
5,353,608
- --------------------------------------------------------------------------------
NET ASSETS ($) 142,253,342
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 182,565,940
Accumulated undistributed investment income--net 2,492,516
Accumulated net realized gain (loss) on investments (11,529,554)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4(b) (31,275,560)
- --------------------------------------------------------------------------------
NET ASSETS ($) 142,253,342
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
(unlimited number of $.001 par value shares of Beneficial Interest authorized)
12,349,106
NET ASSET VALUE, offering and redemption price per share--Note 3(d) ($)
11.52
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended October 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Interest 17,819,617
Cash dividends 4,799,568
TOTAL INCOME 22,619,185
EXPENSES:
Management fee--Note 3(a) 999,216
Shareholder servicing costs--Note 3(b) 489,615
Interest expense--Note 2 216,313
Professional fees 59,009
Registration fees 39,342
Prospectus and shareholders' reports 29,982
Custodian fees--Note 3(b) 16,324
Trustees' fees and expenses--Note 3(c) 10,829
Miscellaneous 11,960
TOTAL EXPENSES 1,872,590
INVESTMENT INCOME--NET 20,746,595
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments and securities sold short:
Long transactions (8,103,683)
Short sale transactions 3,874,759
NET REALIZED GAIN (LOSS) (4,228,924)
Net unrealized appreciation (depreciation) on investments 10,890,278
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 6,661,354
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 27,407,949
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31,
------------------------------
1999 1998
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 20,746,595 19,868,237
Net realized gain (loss) on investments (4,228,924) (7,282,385)
Net unrealized appreciation (depreciation)
on investments 10,890,278 (46,390,352)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 27,407,949 (33,804,500)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (20,916,521) (19,328,799)
Net realized gain on investments -- (141,121)
TOTAL DIVIDENDS (20,916,521) (19,469,920)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold 92,722,277 190,636,895
Dividends reinvested 14,009,373 13,452,641
Cost of shares redeemed (101,278,631) (141,818,296)
Redemption fee 84,838 409,632
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS 5,537,857 62,680,872
TOTAL INCREASE (DECREASE) IN NET ASSETS 12,029,285 9,406,452
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 130,224,057 120,817,605
END OF PERIOD 142,253,342 130,224,057
Undistributed investment income--net 2,492,516 2,662,442
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 8,142,569 12,746,280
Shares issued for dividends reinvested 1,251,388 957,437
Shares redeemed (8,814,025) (10,120,402)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 579,932 3,583,315
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
Year Ended October 31,
-----------------------------------------------------------
1999 1998 1997 1996(a)
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 11.06 14.76 13.83 12.50
Investment Operations:
Investment income--net 1.55 1.55 1.58 .69
Net realized and unrealized
gain (loss) on investments .48 (3.69) 1.05 1.19
Total from Investment Operations 2.03 (2.14) 2.63 1.88
Distributions:
Dividends from investment income--net (1.58) (1.57) (1.56) (.55)
Dividends from net realized
gain on investments -- (.02) (.23) --
Total Distributions (1.58) (1.59) (1.79) (.55)
Redemption fees added to paid-in capital .01(b) .03(b) .09(b) --
Net asset value, end of period 11.52 11.06 14.76 13.83
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 19.61 (16.28) 21.13 25.14(c)
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to
average net assets 1.08 1.06 .71 .02(c)
Ratio of interest expense to average net assets .14 .15 .34 .27(c)
Ratio of net investment income
to average net assets 13.50 10.87 11.72 11.33(c)
Decrease reflected in above expense ratios
due to undertakings by the Manager -- -- .43 1.55(c)
Portfolio Turnover Rate 41.72 117.34 252.50 233.62(d)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 142,253 130,224 120,818 24,857
(A) FROM MARCH 25, 1996 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1996.
(B) BASED ON AVERAGE SHARES OUSTANDING AT EACH MONTH END.
(C) ANNUALIZED.
(D) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The 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"), which is a
wholly-owned subsidiary of Mellon Financial 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.
The Company accounts separately for the assets, liabilities and operations of
each series. Expenses directly attributable to each series are charged to that
series' operations; expenses which are applicable to all series 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 $2,169 during the period ended October 31, 1999 based on
available cash balances left on deposit. Interest 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, 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, 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 $11,526,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999. If not applied, $7,297,000 of the carryover expires in fiscal
2006 and $4,229,000 expires in fiscal 2007.
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, 1999 was approximately $4,060,500, with a
related weighted average annualized interest rate of 5.33%.
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, 1999, the fund was charged $384,314 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, 1999, the fund was charged $47,125 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, 1999, the fund was
charged $16,324 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 $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
(d) A 1% redemption fee is charged and retained by the fund on shares redeemed
within six months following the date of issuance, including redemptions through
the use of the fund' s Exchange privilege.
NOTE 4--Securities Transactions:
(a) The following summarizes the aggregate amount of purchases and sales
(including paydowns) of investment securities and securities sold short,
excluding short-term securities, during the period ended October 31, 1999:
Purchases ($) Sales ($)
- --------------------------------------------------------------------------------
Long transactions 61,935,037 70,849,930
Short sale transactions 2,730,591 6,605,350
TOTAL 64,665,628 77,455,280
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. The fund' s long
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
security positions serve as collateral for the open short positions. At October
31, 1999, there were no securities sold short outstanding.
(b) At October 31, 1999, accumulated net unrealized depreciation on investments
was $31,275,560, consisting of $8,553,832 gross unrealized appreciation and
$39,829,392 gross unrealized depreciation.
At October 31, 1999, 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).
REPORT OF 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, 1999 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, 1999 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, 1999, 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 10, 1999
The Fund
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the fund hereby designates 19.73% of the
ordinary dividends paid during the fiscal year ended October 31, 1999 as
qualifying for the corporate dividends received deduction. Shareholders will
receive notification in January 2000 of the percentage applicable to the
preparation of their 1999 income tax returns.
For More Information
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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE Call 1-800-645-6561
BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request to [email protected]
ON THE INTERNET Information can be viewed online or downloaded from:
http://www.dreyfus.com
(c) 1999 Dreyfus Service Corporation 043AR9910
Dreyfus Premier
High Yield Debt
Plus Equity Fund
ANNUAL REPORT October 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
8 Statement of Investments
12 Statement of Assets and Liabilities
13 Statement of Operations
14 Statement of Changes in Net Assets
16 Financial Highlights
20 Notes to Financial Statements
25 Report of Independent Auditors
26 Important Tax Information
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
The Fund
Dreyfus Premier
High Yield Debt Plus Equity Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Premier High Yield Debt
Plus Equity Fund, covering the 12-month period from November 1, 1998 through
October 31, 1999. Inside, you'll find valuable information about how the fund
was managed during the reporting period, including a discussion with Roger King
and John Koerber, portfolio managers and members of the Dreyfus Taxable Fixed
Income Team.
The past 12 months have been highly volatile for stocks and bonds, which began
the reporting period in the wake of a sharp correction caused primarily by the
spread of the global financial crisis in overseas markets. The Federal Reserve
Board responded to the crisis last fall by reducing short-term interest rates.
Its strategy apparently was effective, and the U.S. economy remained strong
through the remainder of the reporting period.
Because inflation is more likely to rise in a strong economy, the U.S. bond
market generally declined during the first 10 months of 1999. To help forestall
a rise of inflation, the Federal Reserve Board raised short-term interest rates
twice during the summer of 1999, effectively reversing most of last fall's
interest-rate cuts.
Despite weakness in the U.S. stock market toward the end of the reporting
period, these economic conditions generally supported stock prices throughout
the year. Technology stocks and other stocks with high earnings growth rates
provided the highest overall returns, while value-oriented and small-cap stocks
generally lagged the market averages.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Premier High Yield Debt Plus Equity Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
November 15, 1999
Discussion of Performance
Roger King and John Koerber, Portfolio Managers Dreyfus Taxable Fixed Income
Team
How did Dreyfus Premier High Yield Debt Plus Equity Fund perform relative to its
benchmark?
For the 12-month period ended October 31, 1999, the fund produced a total return
of 42.76% for Class A shares, 41.82% for Class B shares, 41.70% for Class C
shares and 42.40% for Class T shares.(1) This compares to a 5.61% return for the
fund' s benchmark, the Merrill Lynch High-Yield Master II index for the same
period.(2)
We attribute the fund's performance to two principal factors. First, through the
midpoint of the fund' s fiscal year, the overall high yield market staged a
general recovery from the extraordinarily depressed levels reached in the wake
of the Asian financial crisis. Second, a number of the market segments in which
the fund was most heavily invested, including telecommunications and
broadcasting, showed exceptional strength in the first half of the reporting
period.
While we were pleased with the fund's performance, almost all the gain was
achieved in the first half of the fiscal year. A portion of that gain was
recovery from previous underperformance by the fund.
What is the fund's investment approach?
The fund seeks to maximize total return in two ways. First, we invest in
fixed-income securities issued by companies with credit ratings below investment
grade. Second, we purchase stock in companies that issue below investment-grade
debt. Issuers of below investment-grade debt are perceived by the marketplace as
carrying a higher element of risk than more established companies, and therefore
issuers must offer a higher yield to compensate for that risk.
Our approach to the selection of individual bonds is based on careful credit
analysis -- our projection of an issuer's ability to meet its obligations. Our
emphasis is on uncovering out-of-favor companies that we believe are
undervalued. We search for likely changes in ownership, man The Fun
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
agement or business strategy -- events that could lead the market to discover
the value we see and create the potential for price appreciation.
Of the approximately 2,000 companies issuing high yield bonds, about one-third
also issue common stock. We review these companies to find about one dozen
stocks that we believe have the greatest potential for growth. When evaluating
stocks, we look at factors that are similar to those we consider when purchasing
high yield bonds. Because stocks have greater return potential, and because we
believe the common equity of all high yield issuers is underfollowed, we believe
that purchasing a select portfolio of this asset class potentially can enhance
returns. Of course, equities also can increase share price and investment return
volatility as well as the potential for losses.
What other factors influenced the fund's performance?
When the reporting period began, fixed-income investors were concerned that
economic weakness in overseas markets might reduce earnings growth for many
companies in the United States, including issuers of high yield bonds. It
quickly became apparent, however, that these fears were largely unfounded. In
fact, the troubled economies of Japan and Southeast Asia strengthened while
economic growth in the U.S. barreled ahead. In this environment, the high yield
market recovered from the steep drop it experienced in the latter part of 1998.
During May and June, investor sentiment shifted again from a concern that the
economy might slow to a fear that it might grow too quickly. As a result of
inflation fears, the Federal Reserve Board increased short-term interest rates
twice. In response, the fixed-income market experienced a general decline, with
the high yield sector declining more than the bond market as a whole.
Pressure on bond prices continued through the third quarter of 1999. The high
yield market has fallen, albeit gradually, to levels seen at the depth of the
October 1998 financial crisis. The major force driving the decline has been
concern over calendar-year-end liquidity. In anticipation of problems which we
believe will likely prove unfounded, many investors have stepped to the
sidelines, taking a wait-and-see
approach. A large supply of high yield issues has been met by a weak demand. In
such a market, bond prices inevitably decline.
In addition, the strong performance realized from the fund's holdings of equity
and warrants contributed significantly to the fund's achieving such a high level
of return. Such a level of return involves accepting increased risk of
volatility, and such returns cannot be consistently achieved. Also, because the
fund is relatively small in size, this level of return is more easily achieved
than in a large fund.
What is the fund's current strategy?
We have worked steadily to restructure the fund to protect it from market
instability. In the second half of the year, given the difficulties of the
market, we have tended to increasingly favor the income element of high yield
bonds over the high growth potential of equities. Thus, we have reduced our
equity exposure somewhat. In anticipation of year-end bargains, the fund
increased its cash position in the August-September time frame. We believe we
have made some attractive purchases in the last several weeks, with the emphasis
on increasing our bond exposure. These steps are designed to help us continue to
provide shareholders with high levels of income and the potential for capital
gain, while attempting to limit exposure to broader market risks. To the extent
the fund continues its greater focus on fixed-income securities, it is much less
likely that the fund will be able to achieve returns of the kind achieved over
the past 12 months.
November 15, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID,
AND DOES NOT TAKE INTO CONSIDERATION THE MAXIMUM INITIAL SALES CHARGES IN THE
CASE OF CLASS A AND CLASS T SHARES, OR THE APPLICABLE CONTINGENT DEFERRED SALES
CHARGES IMPOSED ON REDEMPTIONS IN THE CASE OF CLASS B AND CLASS C SHARES. HAD
THESE CHARGES BEEN REFLECTED, RETURNS WOULD HAVE BEEN LOWER. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND INVESTMENT RETURN
FLUCTUATE SUCH THAT UPON REDEMPTION FUND SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF FUND
EXPENSES BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT THAT WAS IN EFFECT
THROUGH OCTOBER 31, 1999. HAD THESE EXPENSES NOT BEEN ABSORBED, THE FUND'S
RETURNS WOULD HAVE BEEN LOWER.
(2) SOURCE: BLOOMBERG L.P. -- 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.
The Fund
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Premier High
Yield Debt Plus Equity Fund Class A shares, Class B shares, Class C shares and
Class T shares and the Merrill Lynch High Yield Master II Index
((+)) SOURCE: BLOOMBERG L.P.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN EACH OF THE CLASS A, CLASS
B, CLASS C AND CLASS T SHARES OF DREYFUS PREMIER HIGH YIELD DEBT PLUS EQUITY
FUND ON 6/29/98 (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 6/30/98 IS USED AS THE BEGINNING VALUE ON 6/29/98. ALL
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED.
THE FUND'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT THE MAXIMUM
INITIAL SALES CHARGE ON CLASS A AND CLASS T SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES AND ALL OTHER APPLICABLE
FEES AND EXPENSES ON ALL CLASSES. 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 $100 MILLION PAR AMOUNT OUTSTANDING AND GREATER
THAN OR EQUAL TO ONE YEAR TO MATURITY. BOTH INTEREST AND PRICE CHANGES FOR THE
INDEX ARE CALCULATED DAILY BASED ON AN ACCRUED SCHEDULE AND TRADER PRICING.
THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER
INFORMATION RELATING TO FUND PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF
APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS
AND ELSEWHERE IN THIS REPORT.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Annual Total Returns AS OF 10/31/99
Inception From
Date 1 Year Inception
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Shares
WITH SALES CHARGE (5.75%) 6/29/98 34.50% 9.21%
WITHOUT SALES CHARGE 6/29/98 42.76% 14.13%
Class B Shares
WITH REDEMPTION* 6/29/98 37.82% 10.43%
WITHOUT REDEMPTION 6/29/98 41.82% 13.31%
Class C Shares
WITH REDEMPTION** 6/29/98 40.70% 13.24%
WITHOUT REDEMPTION 6/29/98 41.70% 13.24%
Class T Shares
WITH SALES CHARGE (4.5%) 6/29/98 36.04% 10.01%
WITHOUT SALES CHARGE 6/29/98 42.40% 13.86%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
* THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS B SHARES IS 4% AND IS
REDUCED TO 0% AFTER SIX YEARS.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C SHARES IS 1% FOR
SHARES REDEEMED WITHIN ONE YEAR OF THE DATE OF PURCHASE.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
The Fund
STATEMENT OF INVESTMENTS
October 31, 1999
Principal
BONDS AND NOTES--60.9% Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--4.9%
Scandinavian Broadcasting System,
Conv. Deb., 7%, 2004 400,000 537,000
BUSINESS SERVICES--5.7%
Employee Solutions, Ser. B,
Sr. Notes, 10%, 2004 500,000 302,500
Entex Information Services,
Sr. Sub. Notes, 12.5%, 2006 150,000 60,750
U.S. Office Products,
Sr. Notes, 9.75%, 2008 500,000 257,500
620,750
CHEMICALS--2.3%
Trans-Resources, Ser. B,
Sr. Discount Notes, 0/12%, 2008 500,000 (a) 253,750
CONSUMER--2.0%
Revlon Consumer Products,
Sr. Sub. Notes, 8.625%, 2008 400,000 220,000
FINANCIAL--2.3%
Penncorp Financial,
Sr. Sub. Notes, 9.25%, 2003 300,000 253,500
FOOD & BEVERAGES--2.2%
Chiquita Brands International,
Conv. Sub. Deb., 7%, 2001 300,000 240,000
FOREIGN--4.9%
Comunicacion Celular,
Sr. Discount Notes, 0/14.125%, 2005 250,000 (a,b) 126,875
UIH Australia/Pacific, Ser.B,
Sr. Discount Notes, 0/14%, 2006 500,000 (a) 407,500
534,375
FOREST PRODUCTS--6.3%
Maxxam Group Holdings,
Sr. Secured Notes, 12%, 2003 250,000 252,500
SF Holdings, Ser. B
Sr. Secured Discount Notes, 0/12.75%, 2008 1,000,000 (a) 435,000
687,500
GAMING--2.3%
Jazz Casino,
Sr. Notes, 5.927%, 2009 400,000 (c) 253,241
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--1.4%
Paging Network,
Sr. Notes, 10%, 2008 500,000 152,500
INDUSTRIAL SERVICES--7.8%
American Eco, Ser. B,
Sr. Notes, 9.625%, 2008 750,000 438,750
ICF Kaiser International,
Sr. Sub. Notes, 13%, 2003 825,000 (d) 415,594
854,344
POLLUTION CONTROL--3.2%
Envirosource,
Sr. Notes, 9.75%, 2003 575,000 347,875
RETAIL--1.5%
J. Crew Group, Ser. B,
Sr. Discount Notes, 0/13.125%, 2008 350,000 (a) 166,250
SHIPPING--2.4%
Holt Group,
Sr. Notes, 9.75%, 2006 400,000 263,000
STEEL--.1%
Recycling Industries,
Sr. Sub. Notes, 13%, 2005 200,000 (d) 7,000
TECHNOLOGY--2.7%
Therma-Wave, Ser. B,
Sr. Notes, 10.625%, 2004 400,000 302,000
TELECOMMUNICATION/CARRIERS--2.9%
FirstWorld Communications,
Sr. Discount Notes, 0/13%, 2008 600,000 (a) 324,000
TEXTILES--3.5%
Pillowtex, Ser. B,
Sr. Notes, 9%, 2007 400,000 142,000
Sassco Fashions,
Sr. Notes, 12.75%, 2004 200,000 194,000
Texfi Industries,
Sr. Sub. Deb., 8.75%, 1999 244,000 (d) 53,680
389,680
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.5%
Terminal Railroad Association,
First Mortgage, 4%, 2019 375,000 279,377
TOTAL BONDS AND NOTES
(cost $6,792,163) 6,686,142
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--16.0% Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--1.3%
Sinclair Broadcast Group, Cl. A 15,000 (e) 150,000
BUILDING MATERIALS--2.2%
Associated Materials 15,000 241,875
CHEMICALS--1.3%
American Pacific 20,000 (e) 140,000
CONSUMER--4.2%
Coinmachine Laundry 39,000 (e) 458,250
FOREST PRODUCTS--.0%
SF Holdings, Cl. C 200 (b,e) 2
GAMING--1.3%
Isle of Capri Casinos 12,000 (e) 142,500
INDUSTRIAL SERVICES--.9%
Emcor Group 5,000 (e) 93,750
PAGING--.3%
Arch Communication Group (warrants) 120,992 (e) 34,029
RECREATION--1.5%
American Skiing 35,000 (e) 164,062
RESTAURANTS--1.5%
Advantica Restaurant Group (warrants) 376,000 (e) 164,500
TELECOMMUNICATION/CARRIERS--1.5%
FirstWorld Communications (warrants) 600 (b,e) 42,000
GST Telecommunications 18,000 (e) 121,500
163,500
TOTAL COMMON STOCKS
(cost $1,612,769) 1,752,468
PREFERRED STOCKS--8.0% Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--5.0%
Paxson Communications,
Cum. Conv., $975.00 50 (b) 548,750
ENERGY--.4%
Contour Energy,
Cum. Conv., $2.625 10,000 40,000
FOOD & BEVERAGES--1.4%
Nebco Evans Holdings,
Cum., $11.25 5,140 155,485
SUPERMARKETS--1.2%
Supermarkets General,
Cum., $3.52 4,000 (e) 137,000
TOTAL PREFERRED STOCKS
(cost $886,560) 881,235
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
SHORT-TERM INVESTMENTS--16.8% Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER:
American Express Credit,
5.22%, 11/1/1999 360,000 360,000
BMW U.S. Capital,
5.33%, 11/1/1999 500,000 500,000
Dow Chemical,
5.33%, 11/1/1999 500,000 500,000
Transamerica Finance,
5.34%, 11/1/1999 485,000 485,000
TOTAL SHORT-TERM INVESTMENTS
(cost $1,845,000) 1,845,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $11,136,492) 101.7% 11,164,845
LIABILITIES, LESS CASH AND RECEIVABLES (1.7%) (192,814)
NET ASSETS 100.0% 10,972,031
(A) ZERO COUPON UNTIL A SPECIFIED DATE AT WHICH TIME THE STATED COUPON RATE BECOMES EFFECTIVE UNTIL MATURITY.
(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, 1999,
THESE SECURITIES AMOUNTED TO $717,627 OR 6.5% OF NET ASSETS.
(C) VARIABLE RATE SECURITY-INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(D) NON-INCOME PRODUCING--SECURITY IN DEFAULT.
(E) NON-INCOME PRODUCING SECURITY.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
Cost Value
- -------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of Investments 11,136,492 11,164,845
Cash 40,970
Interest and dividends receivable 196,569
Receivable for shares of Beneficial Interest subscribed 120,417
Prepaid expenses and other assets 20,540
11,543,341
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation 1,503
Due to Distributor 6,578
Payable for shares of Beneficial Interest redeemed 300,000
Payable for investment securities purchased 220,983
Accrued expenses 42,246
571,310
- --------------------------------------------------------------------------------
NET ASSETS ($) 10,972,031
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 10,493,348
Accumulated distributions in excess of investment income--net (44,270)
Accumulated net realized gain (loss) on investments 494,600
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 28,353
- --------------------------------------------------------------------------------
NET ASSETS ($) 10,972,031
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE
Class A Class B Class C Class T
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets ($) 3,643,126 5,198,652 1,268,726 861,527
Shares Outstanding 285,204 406,469 99,314 67,402
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ($) 12.77 12.79 12.77 12.78
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
STATEMENT OF OPERATIONS
Year Ended October 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Interest 1,338,061
Cash dividends 124,579
TOTAL INCOME 1,462,640
EXPENSES:
Management fee--Note 3(a) 81,082
Registration fees 86,854
Distribution fees--Note 3(b) 45,555
Shareholder servicing costs--Note 3(c) 27,746
Auditing fees 20,963
Prospectus and shareholders' reports 11,403
Custodian fees--Note 3(c) 6,552
Trustees' fees and expenses--Note 3(d) 888
Miscellaneous 8,438
TOTAL EXPENSES 289,481
Less--expense reimbursement from the Manager due to
undertaking--Note 3(a) (135,817)
NET EXPENSES 153,664
INVESTMENT INCOME--NET 1,308,976
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments 548,020
Net unrealized appreciation (depreciation) on investments 1,865,042
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 2,413,062
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 3,722,038
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31,
---------------------------------
1999 1998(a)
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 1,308,976 207,990
Net realized gain (loss) on investments 548,020 (53,420)
Net unrealized appreciation (depreciation)
on investments 1,865,042 (1,836,689)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 3,722,038 (1,682,119)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net:
Class A shares (549,069) (59,567)
Class B shares (604,075) (52,961)
Class C shares (136,995) (14,021)
Class T shares (130,308) (14,240)
TOTAL DIVIDENDS (1,420,447) (140,789)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold:
Class A shares 150,176 4,024,588
Class B shares 1,767,475 4,180,616
Class C shares 436,285 1,088,000
Class T shares -- 1,000,000
Dividends reinvested:
Class A shares 544,522 59,567
Class B shares 550,326 52,961
Class C shares 126,521 13,840
Class T shares 130,308 14,240
Cost of shares redeemed:
Class A shares (1,323,577) --
Class B shares (1,575,348) --
Class C shares (352,652) (64,500)
Class T shares (330,000) --
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS 124,036 10,369,312
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,425,627 8,546,404
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 8,546,404 --
END OF PERIOD 10,972,031 8,546,404
Undistributed investment income (Distributions in
excess of investment income--net (44,270) 67,201
(A) FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended October 31,
---------------------------------
1999 1998(a)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
CLASS A(B)
Shares sold 11,739 321,985
Shares issued for dividends reinvested 44,101 5,722
Shares redeemed (98,343) --
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (42,503) 327,707
- --------------------------------------------------------------------------------
CLASS B(B)
Shares sold 139,973 336,268
Shares issued for dividends reinvested 44,405 5,088
Shares redeemed (119,265) --
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 65,113 341,356
- --------------------------------------------------------------------------------
CLASS C
Shares sold 33,035 87,040
Shares issued for dividends reinvested 10,213 1,331
Shares redeemed (26,305) (6,000)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 16,943 82,371
- --------------------------------------------------------------------------------
CLASS T
Shares sold -- 80,000
Shares issued for dividends reinvested 10,544 1,368
Shares redeemed (24,510) --
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (13,966) 81,368
(A) FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998.
(B) DURING THE PERIOD ENDED OCTOBER 31, 1999, 4,592 CLASS B SHARES REPRESENTING
$57,015 WERE AUTOMATICALLY CONVERTED TO 4,599 CLASS A SHARES.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the
fiscal periods indicated. All information (except portfolio turnover rate)
reflects financial results for a single fund share. Total return shows how much
your investment in the fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions. These
figures have been derived from the fund's financial statements.
Year Ended October 31,
-----------------------------
CLASS A SHARES 1999 1998(a)
- ----------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 10.27 12.50
Investment Operations:
Investment income--net 1.65 .27
Net realized and unrealized gain (loss)
on investments 2.59 (2.31)
Total from Investment Operations 4.24 (2.04)
Distributions:
Dividends from investment income--net (1.74) (.19)
Net asset value, end of period 12.77 10.27
- ----------------------------------------------------------------------------
TOTAL RETURN (%)(B) 42.76 (16.38)(c)
- ----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets 1.00 1.00(d)
Ratio of net investment income
to average net assets 12.71 7.07(d)
Decrease reflected in above expense ratios
due to undertaking by the Manager 1.26 2.26(d)
Portfolio Turnover Rate 135.77 42.54(c)
- ----------------------------------------------------------------------------
Net Assets, end of period ($ X 1,000) 3,643 3,364
(A) FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998.
(B) EXCLUSIVE OF SALES CHARGE.
(C) NOT ANNUALIZED.
(D) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended October 31,
---------------------------
CLASS B SHARES 1999 1998(a)
- --------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 10.26 12.50
Investment Operations:
Investment income--net 1.47 .24
Net realized and unrealized gain (loss)
on investments 2.69 (2.32)
Total from Investment Operations 4.16 (2.08)
Distributions:
Dividends from investment income--net (1.63) (.16)
Net asset value, end of period 12.79 10.26
- --------------------------------------------------------------------------
TOTAL RETURN (%)(B) 41.82 (16.64)(c)
- --------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets 1.75 1.75(d)
Ratio of net investment income
to average net assets 11.63 6.32(d)
Decrease reflected in above expense ratios
due to undertaking by the Manager 1.26 2.26(d)
Portfolio Turnover Rate 135.77 42.54(c)
- --------------------------------------------------------------------------
Net Assets, end of period ($ X 1,000) 5,199 3,503
(A) FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998.
(B) EXCLUSIVE OF SALES CHARGE.
(C) NOT ANNUALIZED.
(D) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
Year Ended October 31,
--------------------------------
CLASS C SHARES 1999 1998(a)
- -------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 10.25 12.50
Investment Operations:
Investment income--net 1.48 .25
Net realized and unrealized gain (loss)
on investments 2.67 (2.33)
Total from Investment Operations 4.15 (2.08)
Distributions:
Dividends from investment income--net (1.63) (.17)
Net asset value, end of period 12.77 10.25
- --------------------------------------------------------------------------------
TOTAL RETURN (%)(B) 41.70 (16.64)(c)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets 1.75 1.75(d)
Ratio of net investment income
to average net assets 11.56 6.29(d)
Decrease reflected in above expense ratios
due to undertaking by the Manager 1.26 2.26(d)
Portfolio Turnover Rate 135.77 42.54(c)
- --------------------------------------------------------------------------------
Net Assets, end of period ($ X 1,000) 1,269 844
(A) FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998.
(B) EXCLUSIVE OF SALES CHARGE.
(C) NOT ANNUALIZED.
(D) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended October 31,
---------------------------------
CLASS T SHARES 1999 1998(a)
- --------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 10.26 12.50
Investment Operations:
Investment income--net 1.63 .26
Net realized and unrealized gain (loss)
on investments 2.59 (2.32)
Total from Investment Operations 4.22 (2.06)
Distributions:
Dividends from investment income--net (1.70) (.18)
Net asset value, end of period 12.78 10.26
- --------------------------------------------------------------------------------
TOTAL RETURN (%)(B) 42.40 (16.44)(c)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets 1.25 1.25(d)
Ratio of net investment income
to average net assets 12.49 6.82(d)
Decrease reflected in above expense ratios
due to undertaking by the Manager 1.26 2.26(d)
Portfolio Turnover Rate 135.77 42.54(c)
- --------------------------------------------------------------------------------
Net Assets, end of period ($ X 1,000) 862 835
(A) FROM JUNE 29, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998.
(B) EXCLUSIVE OF SALES CHARGE.
(C) NOT ANNUALIZED.
(D) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
The 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 Financial 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.
The Company accounts separately for the assets, liabilities and operations of
each series. Expenses directly attributable to each series are charged to that
series' operations; expenses which are applicable to all series are allocated
among them on a pro rata basis.
As of October 31, 1999, MBC Investments Corp., an indirect subsidiary of Mellon
Financial Corporation, held the following shares:
Class A . . . . . . . . . . 270,947 Class C . . . . . . . . . .66,829
Class B . . . . . . . . . . 267,117 Class T . . . . . . . . . .67,402
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 $468 during the period ended October 31, 1999 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
The 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 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.
NOTE 2--Bank Line of Credit:
The fund 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. During the period ended October 31, 1999, the fund did not borrow
under the line of credit.
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, 1998 through October 31, 2000 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, Rule 12b-1 distribution fees and expenses, shareholder services fee
and extraordinary expenses, exceed an annual rate of .75 of 1% of the
value of the fund' s average daily net assets. The expense reimbursement,
pursuant to the undertaking, amounted to $135,817 during the period ended
October 31, 1999.
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager, retained
$3,707 during the period ended October 31, 1999, from commissions earned on
sales of the fund's shares.
(B) Under the Distribution Plan (the "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 their average daily
net assets 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, 1999, Class B, Class C and Class T shares were charged
$35,076, $7,996 and $2,483, respectively, pursuant to the Plan.
(C) Under the Shareholder Services Plan, Class A, Class B, Class C and Class T
shares 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, 1999, Class A, Class B, Class C and
Class T shares were charged $10,187, $11,692, $2,665 and $2,483, 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, 1999, the fund was charged $301 pursuant to the transfer
agency agreement.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The fund compensates Mellon under a custody agreement for providing custodial
services for the fund. During the period ended October 31, 1999, the fund was
charged $6,552 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.
(E) During the period ended October 31, 1999, the fund incurred total brokerage
commissions of $8,360, of which $1,370 was paid to Dreyfus Brokerage Services, a
wholly-owned subsidiary of Mellon Financal Corporation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding
short-term securities, during the period ended October 31, 1999, amounted to
$12,968,006 and $13,551,610, respectively.
At October 31, 1999, accumulated net unrealized appreciation on investments was
$28,353, consisting of $933,728 gross unrealized appreciation and $905,375 gross
unrealized depreciation.
At October 31, 1999, 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).
REPORT OF 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, 1999, 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, 1999 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 Premier High Yield Debt Plus Equity Fund at October 31, 1999, 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 10, 1999
The Fund
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the fund hereby designates 6.60% of the
ordinary dividends paid during the fiscal year ended October 31, 1999 as
qualifying for the corporate dividends received deduction. Shareholders will
receive notification in January 2000 of the percentage applicable to the
preparation of their 1999 income tax returns.
NOTES
For More Information
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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE Call your financial representative or 1-800-554-4611
BY MAIL Write to: The Dreyfus Premier Family of Funds 144 Glenn Curtiss
Boulevard Uniondale, NY 11556-0144
(c) 1999 Dreyfus Service Corporation 046/246AR9910
Dreyfus Premier
Real Estate
Mortgage Fund
ANNUAL REPORT October 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
8 Statement of Investments
11 Statement of Assets and Liabilities
12 Statement of Operations
13 Statement of Cash Flows
14 Statement of Changes in Net Assets
16 Financial Highlights
21 Notes to Financial Statements
27 Report of Independent Auditors
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
The Fund
Dreyfus Premier
Real Estate Mortgage Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Premier Real Estate
Mortgage Fund, covering the 12-month period from November 1, 1998 through
October 31, 1999. Inside, you'll find valuable information about how the fund
was managed during the reporting period, including a discussion with the fund's
portfolio manager, Michael Hoeh.
The past 12 months have been highly volatile for most bonds. Although U.S.
Treasury securities began the reporting period in the wake of a rally caused
primarily by a "flight to quality" amid the spread of the global financial
crisis in overseas markets, most higher yielding sectors of the bond market had
declined sharply. The Federal Reserve Board responded to the global financial
crisis last fall by reducing short-term interest rates. Its strategy apparently
was effective, and the U.S. economy remained strong through the remainder of the
reporting period.
Because inflation is more likely to rise in a strong economy, the overall bond
market -- including U.S. Treasury securities -- declined during the first 10
months of 1999. To help forestall a rise of inflation, the Federal Reserve Board
raised short-term interest rates twice during the summer of 1999, effectively
reversing most of last fall's interest-rate cuts. Higher interest rates led to
some erosion of bond prices, especially among the higher yielding market
sectors. In this environment, however, the yields of many higher yielding bonds
- -- including corporate bonds and U.S. government agency securities -- have
recently been quite attractive compared to the yields of U.S. Treasury
securities of comparable maturity.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Premier Real Estate Mortgage Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
November 15, 1999
DISCUSSION OF FUND PERFORMANCE
Michael Hoeh, Portfolio Manager
Dreyfus Taxable Fixed Income Team
How did Dreyfus Premier Real Estate Mortgage Fund perform relative to its
benchmark?
The fund's Class A shares produced a 5.41% total return for the 12-month period
ended October 31, 1999.(1) This performance compared very favorably with the
fund' s benchmarks, the Standard & Poor's Real Estate Investment Trust Composite
Index(2) and Lehman Brothers Aggregate Bond Index,(3) which returned -7.73% and
0.53% , respectively.
The public offering of the fund' s Class B, C, R, and T shares commenced on
December 24, 1998. From December 24, 1998 through October 31, 1999, Class B
shares returned 4.88% , Class C shares returned 5.05%, Class R shares returned
6.02% and Class T shares returned 5.51%.
The fund was successful because of its "hybrid" structure and approach to real
estate investing, which includes diversifying into both equity and fixed-income
securities. Under the past year's economic and market conditions, fixed-income
real estate securities provided much better returns than equity real estate
securities.
What is the fund's investment approach?
The fund seeks to maximize total return, including both capital appreciation and
current income. The fund invests primarily in mortgage-related debt securities,
including below investment-grade issues, but maintains an average credit quality
of BBB or higher for its fixed-income investments. It also invests in REIT debt
and equity, and other real estate-related equities.
We use a three-step investment approach:
*Based on our analysis of the real estate market and risk-adjusted return
projections, we allocate the fund' s assets among commercial and residential
mortgage-backed securities, U.S. government agency mortgages, commercial
mortgage obligations, asset-backed securities, REIT debt, and REIT common and
preferred stocks.
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
*Quantitative analytical tools help us identify the market's most attractive
mortgage-related investments. We strive to keep the fund' s fixed-income
securities within a 20% range above and below the duration of the Lehman
Brothers Aggregate Bond Index.
*We conduct fundamental analysis of REIT debt and equity investments to find
those in markets with improving rental rates and low levels of new construction.
To help limit risk, we diversify the fund's REIT holdings both geographically
and across market sectors.
What other factors influenced the fund's performance?
Economic and market conditions of the past year were generally positive for real
estate debt securities, but provided a poor environment for real estate
equities.
When the reporting period began, the U.S. stock and bond markets had just
completed a period of heightened turmoil. The spread of the global credit and
currency crisis and the concurrent failure of a large U.S. hedge fund caused
domestic and overseas investors to shift assets away from the riskier, higher
return sectors of the financial markets, causing their prices to decline
sharply. Credit-sensitive securities -- including many high yielding
fixed-income instruments --were particularly hard hit.
The Federal Reserve Board and many other nations' central banks responded by
reducing key short-term interest rates in an effort to restore liquidity to the
financial markets. The central bankers' strategy evidently worked, because it
became apparent early in 1999 that the credit and currency crisis was easing.
Faced with a robust U.S. economy and the prospect of recovery overseas,
investors once again became comfortable with non-U.S. government guaranteed
assets, causing their prices to rise. However, equity investors continued to
focus almost exclusively on large-capitalization growth stocks and technology
companies. During the summer of 1999, the Federal Reserve reversed course by
raising short-term interest rates twice, effectively offsetting most of last
fall's rate cuts.
These economic conditions proved to be adverse for small-capitalization value
stocks in general and REITS in particular. REITS were also punished because of
industry-specific factors, including an increase in supply of commercial and
industrial real estate and increased new construction.
What is the fund's current strategy?
The fund responded to the changing economic environment by allocating 75% of its
assets to real estate fixed-income investments and 25% to real estate equity
investments. This strategy served us well as bond prices recovered from last
fall' s turmoil, especially among credit-sensitive residential and commercial
mortgage-backed securities.
The fund also benefited from its equity security selection strategy, which
focused primarily on the office sector. Despite the general weakness of real
estate stocks, several of our holdings contributed positively to the fund's
performance when they became acquisition targets.
More recently, we have increased the fund's exposure to equity investments.
After falling nearly 15% over the past year, we believe that real estate
equities offer outstanding values, especially at current high dividend levels.
We hope to participate early in the recovery of real estate equities, just as we
positioned the fund for success last year by over-weighting the real estate
market's then undervalued fixed-income sector. Of course, as market and economic
conditions change, our approach may change.
Because we believe that the bulk of interest-rate hikes are behind us, we have
extended the average duration of the fund's fixed-income component in order to
lock in prevailing yields.
November 15, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID,
AND DOES NOT TAKE INTO CONSIDERATION THE MAXIMUM INITIAL SALES CHARGES IN THE
CASE OF CLASS A AND CLASS T SHARES, OR THE APPLICABLE CONTINGENT DEFERRED SALES
CHARGES IMPOSED ON REDEMPTIONS IN THE CASE OF CLASS B AND CLASS C SHARES. HAD
THESE CHARGES BEEN REFLECTED, RETURNS WOULD HAVE BEEN LOWER. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS. SHARE PRICES, YIELD AND INVESTMENT RETURN
FLUCTUATE SUCH THAT UPON REDEMPTION SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. RETURN FIGURES PROVIDED REFLECT THE ABSORPTION OF FUND EXPENSES
BY THE DREYFUS CORPORATION PURSUANT TO AN AGREEMENT IN EFFECT THROUGH OCTOBER
31, 2000, AT WHICH TIME IT MAY BE EXTENDED, TERMINATED OR MODIFIED. HAD THESE
EXPENSES NOT BEEN ABSORBED, THE FUND'S RETURNS WOULD HAVE BEEN LOWER.
(2) SOURCE: BLOOMBERG L.P. -- THE STANDARD & POOR'S REAL ESTATE INVESTMENT
TRUST (REIT) 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.
(3) SOURCE: BLOOMBERG L.P. -- THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS A
WIDELY ACCEPTED, UNMANAGED INDEX OF CORPORATE, GOVERNMENT AND GOVERNMENT AGENCY
DEBT INSTRUMENTS, MORTGAGE- AND ASSET-BACKED SECURITIES. THE INDEX INCLUDES
REINVESTED DIVIDENDS.
The Fund
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Premier Real
Estate Mortgage Fund Class A shares with the Lehman Brothers Aggregate Bond
Index and the Standard & Poor's Real Estate Investment Trust Composite Index
((+)) SOURCE: BLOOMBERG L.P.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN CLASS A SHARES OF DREYFUS
PREMIER 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. PERFORMANCE FOR CLASS B, CLASS C, CLASS R AND
CLASS T SHARES WILL VARY FROM THE PERFORMANCE OF CLASS A SHARES SHOWN ABOVE DUE
TO DIFFERENCES IN CHARGES AND EXPENSES.
THE FUND'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT THE MAXIMUM
INITIAL SALES CHARGE ON CLASS A SHARES AND ALL OTHER 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>
<CAPTION>
<S> <C> <C> <C>
Average Annual Total Returns AS OF 10/31/99
Inception From
Date 1 Year Inception
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
WITH SALES CHARGE (5.75%) 9/30/97 (0.66)% 2.24%
WITHOUT SALES CHARGE 9/30/97 5.41% 5.17%
- ------------------------------------------------------------------------------------------------------------------------------------
Actual Aggregate Total Returns AS OF 10/31/99
Inception From
Date 1 Year Inception
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
WITH REDEMPTION((+)) 12/24/98 -- 0.97%
WITHOUT REDEMPTION 12/24/98 -- 4.88%
CLASS C SHARES
WITH REDEMPTION((+)(+)) 12/24/98 -- 4.07%
WITHOUT REDEMPTION 12/24/98 -- 5.05%
CLASS R SHARES 12/24/98 -- 6.02%
CLASS T SHARES
WITH SALES CHARGE (4.5%) 12/24/98 -- 0.75%
WITHOUT SALES CHARGE 12/24/98 -- 5.51%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
((+)) THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS B SHARES IS 4% AND
IS REDUCED TO 0% AFTER SIX YEARS.
((+)(+)) THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C SHARES IS 1%
FOR SHARES REDEEMED WITHIN ONE YEAR OF THE DATE OF PURCHASE.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
The Fund
STATEMENT OF INVESTMENTS
October 31, 1999
Principal
BONDS AND NOTES--93.1% Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.5%
Nomura Depositor Trust,
Ser. 1998-STI, Cl. B-2, 9.656%, 2003 500,000 (a,b) 451,641
COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--21.6%
DLJ Mortgage Acceptance,
Ser. 1997-CF2, Cl. B-3TB, 6.99%, 2009 200,000 (a) 164,938
GGP Ala Moana,
Ser. 1999-C1, Cl. D, 6.516%, 2004 500,000 (a,b) 497,812
GS Mortgage Securities II,
Ser. 1998-GS1, Cl. D, 6.209%, 2000 250,000 (a,b) 249,220
Library Tower Trust I,
Ser. 1998-I, Cl. B, 6.66%, 2029 500,000 (a) 467,001
Mall Asset Realty Trust,
Ser. 1999-1A, Cl. F, 5.9337%, 2001 500,000 (a,b) 478,750
Merrill Lynch Mortgage Investors,
Ser. 1997-SD1, Cl. E, 6.4375%, 2010 775,000 (a,b) 717,238
Trizec Hahn Office Properties Trust,
Ser. 1999-TOPA, Cl. D, 6.58%, 2007 200,000 (a,b) 198,312
2,773,271
REAL ESTATE INVESTMENT TRUST--3.4%
Crescent Real Estate Equities,
Notes, 7.5%, 2007 500,000 (a) 438,081
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--35.6%
Bank of America Mortgage Securities:
Ser. 1999-6, Cl. B-5, 6.25%, 2024 296,939 (a) 185,308
Ser. 1999-10, Cl. B-6,2014 225,139 (a) 44,606
Chase Mortgage Finance:
Ser. 1998-S3, Cl. B-4, 6.5%, 2013 318,918 (a) 212,629
Ser. 1998-S3, Cl. B-5, 6.5%, 2013 425,404 (a) 93,589
Ser. 1998-S5, Cl. B-5, 6.5%, 2013 300,041 (a) 66,009
Ser. 1999-S7, Cl. B-4, 6.25%, 2014 183,912 (a) 118,451
Ser. 1999-S13, Cl. B-3, 6.5%, 2014 525,000 (a) 402,549
Ser. 1999-S13, Cl. B-4, 6.5%, 2014 225,000 (a) 145,151
Ser. 1999-S13, Cl. B-5, 6.5%, 2014 225,704 (a) 42,884
GE Capital Mortgage Services:
Ser. 1998-16, Cl. B-4, 6.5%, 2013 357,724 (a) 236,601
Ser. 1998-16, Cl. B-5, 6.5%, 2013 357,727 (a) 78,700
Norwest Asset Securities:
Ser. 1997-17, Cl. B-5, 7.25%, 2027 1,031,093 (a) 288,706
Ser. 1997-20, Cl. B-4, 6.75%, 2012 235,089 (a) 181,707
Ser. 1998-2, Cl. B-4, 6.5%, 2028 369,162 220,574
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS. (CONTINUED)
Norwest Asset Securities (continued):
Ser. 1998-2, Cl. B-5, 6.5%, 2028 369,698 68,452
Ser. 1998-9, Cl. B-5, 6.5%, 2028 270,433 (a) 170,789
Ser. 1998-9, Cl. B-6, 6.5%, 2028 406,686 (a) 75,301
Ser. 1998-19, Cl. B-6, 6.5%, 2013 321,726 (a) 79,325
Ser. 1999-19, Cl. B-5, 6.25%, 2014 370,937 (a) 218,853
Ser. 1999-19, Cl. B-6, 6.25%, 2014 370,591 (a) 68,617
Ser. 1999-22, Cl. B-5, 6.25%, 2014 298,018 (a) 191,942
PNC Mortgage Securities:
Ser. 1997-8, Cl. 3B-4, 6.75%, 2012 240,670 (a) 195,590
Ser. 1997-8, Cl. 3B-5, 6.75%, 2012 192,535 (a) 131,442
Ser. 1997-8, Cl. 3B-6, 6.75%, 2012 192,533 (a) 46,208
Ser. 1998-2, Cl. 3B-6, 6.75%, 2013 363,690 (a) 87,286
Ser. 1998-2, Cl. 4B-6, 6.75%, 2027 261,676 (a) 60,186
Residential Funding Mortgage Securities I:
Ser. 1995-J1, Cl. 2, 9.128%, 2023 388,818 (a,b) 306,255
Ser. 1998-NS1, Cl. B-2, 6.375%, 2009 71,584 (a) 47,536
Ser. 1998-NS1, Cl. B-3, 6.375%, 2009 214,689 (a) 69,640
Ser. 1998-S16, Cl. B-2, 6.5%, 2013 218,838 (a) 128,089
Ser. 1998-S16, Cl. B-3, 6.5%, 2013 218,842 (a) 53,787
Ser. 1998-S22, Cl. B-2, 6.5%, 2013 367,614 242,281
4,559,043
U.S. GOVERNMENTS--5.9%
U. S. Treasury Notes,
6%, 8/15/2004 750,000 752,078
U.S. GOVERNMENT AGENCIES--23.1%
Federal Home Loan Mortgage,
REMIC, Multiclass Mortgage Participation Ctfs.,
(Interest Only Obligation):
Ser. 1499, Cl. E, 7%, 2023 864,285 (c,d) 412,912
Ser. 1542, Cl. QC, 7%, 2020 750,000 (c,d) 62,490
Ser. 1995, Cl. PY, 7%, 2027 875,000 (c,d) 331,816
Ser. 2153, Cl. PI, 6.5%, 2016 1,318,229 (d) 301,133
Federal National Mortgage Association,
REMIC, Multiclass Mortgage Participation Ctfs.,
(Interest Only Obligation):
Ser. 1993-119, Cl. JA, 7%, 2019 585,582 (d) 14,581
Ser. 1998-17, Cl. PL, 7%, 2019 1,250,000 (c,d) 161,813
Government National Mortgage Association I:
6% 500,000 (e) 464,215
7% 250,000 (e) 245,312
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES (CONTINUED)
Government National Mortgage Association I (continued):
Project Notes:
6.45%, 11/15/2033 496,628 482,658
6.625%, 8/15/2028 495,150 487,876
2,964,806
TOTAL BONDS AND NOTES
(cost $12,967,271) 11,938,920
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY-RELATED SECURITIES--29.4% Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS
REAL ESTATE INVESTMENT TRUSTS--27.2%
AMB Property 15,000 298,125
Alexandria Real Estate 12,000 345,000
Crescent Real Estate Equities 34,000 567,375
Equity Residential Properties Trust 10,000 418,125
Meditrust 29,200 235,425
Nationwide Health Properties 15,000 248,437
PS Business Parks 10,000 226,250
Public Storage 10,000 241,250
Simon Property Group 15,000 345,938
Spieker Properties 10,000 349,375
Trammell Crow 15,000 217,500
3,492,800
REAL ESTATE--2.2%
Trizec Hahn 15,000 277,500
TOTAL EQUITY-RELATED SECURITIES
(cost $4,102,734) 3,770,300
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $17,070,005) 122.5% 15,709,220
LIABILITIES, LESS CASH AND RECEIVABLES (22.5%) (2,891,533)
NET ASSETS 100.0% 12,817,687
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, 1999, THESE
SECURITIES AMOUNTED TO $7,690,729 OR 60.0% OF NET ASSETS.
B VARIABLE INTEREST RATE--INTEREST RATE SUBJECT TO CHANGE PERIODICALLY.
C SECURITIES HELD IN WHOLE OR IN PART BY THE CUSTODIAN IN A SEGREGATED ACCOUNT
AS COLLATERAL FOR SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS.
D REFLECTS NOTIONAL FACE.
E PURCHASED ON A FORWARD COMMITMENT BASIS.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of Investments 17,070,005 15,709,220
Cash 190,792
Receivable for investment securities sold 831,205
Dividends and interest receivable 200,267
Paydowns receivable 7,887
Prepaid expenses 57,383
Due from The Dreyfus Corporation and affiliates 2,930
16,999,684
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to Distributor 2,673
Bank loan payable--Note 2 2,310,000
Payable for investment securities purchased 1,798,029
Interest payable--Note 2 48,091
Accrued expenses 23,204
4,181,997
- --------------------------------------------------------------------------------
NET ASSETS ($) 12,817,687
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 14,355,586
Accumulated undistributed investment income--net 141,839
Accumulated net realized gain (loss) on investments (318,953)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 (1,360,785)
- --------------------------------------------------------------------------------
NET ASSETS ($) 12,817,687
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE
Class A Class B Class C Class R Class T
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets ($) 12,452,179 79,946 3,542 280,964 1,056
Shares Outstanding 1,106,785 7,154 316 24,998 93.952
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
PER SHARE ($) 11.25 11.17 11.21 11.24 11.24
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
STATEMENT OF OPERATIONS
Year Ended October 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Interest 1,354,706
Cash dividends 345,878
TOTAL INCOME 1,700,584
EXPENSES:
Management fee--Note 3(a) 86,712
Interest expense--Note 2 214,953
Registration fees 67,044
Shareholder servicing costs--Note 3(c) 35,517
Auditing fees 17,346
Prospectus and shareholders' reports 14,047
Custodian fees--Note 3(c) 5,540
Trustees' fees and expenses--Note 3(d) 1,115
Legal fees 1,036
Distribution fees--Note 3(b) 229
Miscellaneous 19,320
TOTAL EXPENSES 462,859
Less--expense reimbursement from the Manager due to
undertaking--Note 3(a) (127,617)
NET EXPENSES 335,242
INVESTMENT INCOME--NET 1,365,342
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4:
Net realized gain (loss) on investments (245,082)
Net unrealized appreciation (depreciation) on investments (413,593)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (658,675)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 706,667
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CASH FLOWS
Year Ended October 31, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES ($):
Dividends and interest received 1,690,740
Interest and loan commitment fees paid (190,352)
Operating expenses paid (122,762)
1,377,626
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES ($):
Purchases of portfolio securities (47,721,217)
Proceeds from sales of portfolio securities 48,724,914 1,003,697
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES ($):
Proceeds from fund shares sold 1,350,728
Payments for fund shares redeemed (2,078,836)
Cash dividends paid (68,028)
Net proceeds from bank loans (1,172,000) (1,968,136)
- --------------------------------------------------------------------------------
Increase in cash 413,187
Cash overdraft at beginning of period (222,395)
Cash at end of period 190,792
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES ($):
Net Increase in Net Assets Resulting from Operations 706,667
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in dividends and interest receivable (22,655)
Decrease in paydowns receivable 12,811
Increase in interest payable 24,601
Increase in accrued expenses 1,028
Increase in prepaid expenses (927)
Increase in due from
The Dreyfus Corporation and affiliates (2,486)
Decrease in due to Distributor (88)
Net realized loss on investments 245,082
Net unrealized depreciation on investments 413,593
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,377,626
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31,
-----------------------------
1999(a) 1998
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 1,365,342 1,035,615
Net realized gain (loss) on investments (245,082) 205,391
Net unrealized appreciation (depreciation)
on investments (413,593) (928,840)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 706,667 312,166
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net:
Class A shares (1,347,086) (938,975)
Class B shares (3,216) --
Class C shares (137) --
Class R shares (15,086) --
Class T shares (75) --
Net realized gain on investments:
Class A shares (282,340) (123,741)
TOTAL DIVIDENDS (1,647,940) (1,062,716)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold:
Class A shares 962,717 3,543,424
Class B shares 82,511 --
Class C shares 3,500 --
Class R shares 301,000 --
Class T shares 1,000 --
Dividends reinvested:
Class A shares 1,571,690 1,039,144
Class B shares 818 --
Class C shares 137 --
Class R shares 7,192 --
Class T shares 75 --
Cost of shares redeemed:
Class A shares (2,071,724) (1,320,983)
Class R shares (7,112) --
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS 851,804 3,261,585
TOTAL INCREASE (DECREASE) IN NET ASSETS (89,469) 2,511,035
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 12,907,156 10,396,121
END OF PERIOD 12,817,687 12,907,156
Undistributed investment income--net 141,839 144,634
A FROM DECEMBER 24, 1998 (COMMENCEMENT OF INITIAL OFFERING) TO OCTOBER 31, 1999,
FOR CLASS B, CLASS C, CLASS R AND CLASS T SHARES.
SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended October 31,
---------------------------------
1999(a) 1998
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
CLASS A
Shares sold 82,330 271,699
Shares issued for dividends reinvested 136,179 79,840
Shares redeemed (179,624) (103,016)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 38,885 248,523
- --------------------------------------------------------------------------------
CLASS B
Shares sold 7,081 --
Shares issued for dividends reinvested 73 --
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 7,154 --
- --------------------------------------------------------------------------------
CLASS C
Shares sold 304 --
Shares issued for dividends reinvested 12 --
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 316 --
- --------------------------------------------------------------------------------
CLASS R
Shares sold 25,025 --
Shares issued for dividends reinvested 595 --
Shares redeemed (622) --
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 24,998 --
- --------------------------------------------------------------------------------
CLASS T
Shares sold 87 --
Shares issued for dividends reinvested 7 --
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 94 --
A FROM DECEMBER 24, 1998 (COMMENCEMENT OF INITIAL OFFERING) TO OCTOBER 31, 1999,
FOR CLASS B, CLASS C, CLASS R AND CLASS T SHARES.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the
fiscal periods indicated. All information (except portfolio turnover rate)
reflects financial results for a single fund share. Total return shows how much
your investment in the fund would have increased (or decreased) during each
period, assuming you had reinvested all dividends and distributions. These
figures have been derived from the fund's financial statements.
Year Ended October 31,
-------------------------------------
CLASS A SHARES 1999 1998 1997(a)
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 12.09 12.69 12.50
Investment Operations:
Investment income--net 1.22 1.03 .06
Net realized and unrealized gain (loss)
on investments (.57) (.52) .13
Total from Investment Operations .65 .51 .19
Distributions:
Dividends from investment income--net (1.23) (.96) --
Dividends from net realized gain
on investments (.26) (.15) --
Total Distributions (1.49) (1.11) --
Net asset value, end of period 11.25 12.09 12.69
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 5.41 3.82 17.34(b,c)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to
average net assets .90 .90 .90(c)
Ratio of interest expense to
average net assets 1.61 1.66 --
Ratio of net investment income
to average net assets 10.23 8.13 5.39(c)
Decrease reflected in above expense ratios
due to undertakings by the Manager .96 .71 2.77(c)
Portfolio Turnover Rate 267.67 752.42 244.61(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 12,452 12,907 10,396
A FROM SEPTEMBER 30, 1997 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1997.
B EXCLUSIVE OF REDEMPTION FEE.
C ANNUALIZED.
D NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
Year Ended
CLASS B SHARES October 31, 1999(a)
- --------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 11.47
Investment Operations:
Investment income--net .77
Net realized and unrealized gain (loss)
on investments (.24)
Total from Investment Operations .53
Distributions:
Dividends from investment income--net (.83)
Net asset value, end of period 11.17
- --------------------------------------------------------------------------------
TOTAL RETURN (%) 5.71(b)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to average net assets 1.60(b)
Ratio of interest expense to average net assets 1.50(b)
Ratio of net investment income
to average net assets 9.57(b)
Decrease reflected in above expense ratios
due to undertakings by the Manager 1.00(b)
Portfolio Turnover Rate 267.67
- --------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 80
A FROM DECEMBER 24, 1998 (COMMENCEMENT OF INITIAL OFFERING) TO OCTOBER 31, 1999
B ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
Year Ended
CLASS C SHARES October 31, 1999(a)
- --------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 11.47
Investment Operations:
Investment income--net .80
Net realized and unrealized gain (loss)
on investments (.25)
Total from Investment Operations .55
Distributions:
Dividends from investment income--net (.81)
Net asset value, end of period 11.21
- --------------------------------------------------------------------------------
TOTAL RETURN (%) 5.91(b)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to average net assets 1.62(b)
Ratio of interest expense to average net assets 1.57(b)
Ratio of net investment income
to average net assets 9.50(b)
Decrease reflected in above expense ratios
due to undertakings by the Manager 1.59(b)
Portfolio Turnover Rate 267.67
- --------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 4
A FROM DECEMBER 24, 1998 (COMMENCEMENT OF INITIAL OFFERING) TO OCTOBER 31, 1999
B ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
Year Ended
CLASS R SHARES October 31, 1999(a)
- --------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 11.47
Investment Operations:
Investment income--net .95
Net realized and unrealized gain (loss)
on investments (.29)
Total from Investment Operations .66
Distributions:
Dividends from investment income--net (.89)
Net asset value, end of period 11.24
- --------------------------------------------------------------------------------
TOTAL RETURN (%) 7.04(b)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to average net assets .59(b)
Ratio of interest expense to average net assets 1.45(b)
Ratio of net investment income
to average net assets 10.33(b)
Decrease reflected in above expense ratios
due to undertakings by the Manager .90(b)
Portfolio Turnover Rate 267.67
- --------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 281
A FROM DECEMBER 24, 1998 (COMMENCEMENT OF INITIAL OFFERING) TO OCTOBER 31, 1999
B ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
Year Ended
CLASS T SHARES October 31, 1999(a)
- --------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 11.47
Investment Operations:
Investment income--net 1.00
Net realized and unrealized gain (loss)
on investments (.39)
Total from Investment Operations .61
Distributions:
Dividends from investment income--net (.84)
Net asset value, end of period 11.24
- --------------------------------------------------------------------------------
TOTAL RETURN (%) 6.45(b)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to average net assets 1.14(b)
Ratio of interest expense to average net assets 1.62(b)
Ratio of net investment income
to average net assets 10.05(b)
Decrease reflected in above expense ratios
due to undertakings by the Manager 1.83(b)
Portfolio Turnover Rate 267.67
- --------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 1
A FROM DECEMBER 24, 1998 (COMMENCEMENT OF INITIAL OFFERING) TO OCTOBER 31, 1999
B ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Premier 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 Financial Corporation.
The Company's Board of Trustees approved, effective December 24, 1998, a change
of the fund's name from "Dreyfus Real Estate Mortgage Fund" to "Dreyfus Premier
Real Estate Mortgage Fund," coinciding with the fund implementing a multiple
class structure.
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,
Class R 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, Class C shares are subject to a CDSC imposed
on Class C shares redeemed within one year of purchase and Class R shares are
sold at net asset value per share only to institutional investors. Other
differences between the classes include the services offered to and the expenses
borne by each class and certain voting rights.
As of October 31, 1999, MBC Investments Corp., an indirect subsidiary of Mellon
Financial Corporation, held 897,286 Class A shares of the fund.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company accounts separately for the assets, liabilities and operations of
each series. Expenses directly attributable to each series are charged to that
series operations; expenses which are applicable to all series 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 debt 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. Investments in equity related securities 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 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 $808 during the period ended October 31,
1999 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 from investment income-net quarterly. 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.
(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 $321,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1999. If not
applied, the carryover expires in fiscal 2007.
During the period ended October 31, 1999, the fund decreased accumulated
undistributed investment income-net by $2,537 and increased accumulated net
realized gain (loss) on investments by $2,437, paid-in capital by $100. Net
assets were not affected by this reclassification.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Bank Lines of Credit:
The fund may borrow up to $10 million for leveraging purposes under a short-term
unsecured line of credit and participates with other Dreyfus-managed funds in a
$100 million unsecured line of credit primarily to be utilized for temporary or
emergency purposes, including the financing of redemptions. Interest is charged
to the fund at rates which are related to the Federal Funds rate in effect at
the time of borrowings.
The average daily amount of borrowings outstanding under both arrangements
during the period ended October 31, 1999 was approximately $4,055,100 with a
related weighted average annualized interest rate of 5.30%.
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 has undertaken from
December 24, 1998 through October 31, 2000 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, shareholder servicing
fees and expenses and extraordinary expenses) exceed an annual rate of .65 of 1%
of the value of the fund's average daily net assets. The expense reimbursement
pursuant to the undertaking, amounted to $127,617 during the period ended
October 31, 1999.
Dreyfus Service Corporation, a wholly owned subsidiary of the Manager, retained
$1,834 during the period ended October 31, 1999, from commissions earned on
sales of the fund's shares.
(B) Under the Distribution Plan adopted pursuant to Rule 12b-1 under the Act,
Class B, Class C and Class T 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 .25 of 1% of the
value of the average daily net assets of Class T shares. During the period ended
October 31, 1999, Class B, Class C and Class T shares were charged $216, $11 and
$2, respectively, pursuant to the Distribution Plan.
(C) Under the Shareholder Services Plan, Class A, Class B, Class C and Class T
shares 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 April 30, 1999, Class A, Class B, Class C and
Class T shares were charged $32,877, $72, $4 and $2, 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, 1999, the fund was charged $2,008 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, 1999, the fund was
charged $5,540 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.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(E) During the period ended October 31, 1999, the fund incurred total brokerage
commissions of $56,928, of which $8,950 was paid to Dreyfus Brokerage Services,
a subsidiary of Mellon Financial Corporation.
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,
1999, amounted to $47,666,470 and $49,224,089, respectively.
At October 31, 1999, accumulated net unrealized depreciation on investments was
$1,360,785, consisting of $218,472 gross unrealized appreciation and $1,579,257
gross unrealized depreciation.
At October 31, 1999, 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).
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus Premier Real Estate Mortgage Fund
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Dreyfus Premier Real Estate Mortgage Fund (one
of the funds constituting Dreyfus Debt and Equity Funds) as of October 31, 1999,
and the related statements of operations and cash flows 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, 1999 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 Premier Real Estate Mortgage Fund at October 31, 1999, the results of
its operations and its cash flows 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 10, 1999
The Fund
NOTES
For More Information
Dreyfus Premier 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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE Call your financial representative or 1-800-554-4611
BY MAIL Write to: The Dreyfus Premier Family of Funds 144 Glenn Curtiss
Boulevard Uniondale, NY 11556-0144
(c) 1999 Dreyfus Service Corporation 045AR9910
Dreyfus
Short Term
High Yield Fund
ANNUAL REPORT October 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
14 Statement of Assets and Liabilities
15 Statement of Operations
16 Statement of Changes in Net Assets
17 Financial Highlights
18 Notes to Financial Statements
22 Report of Independent Auditors
23 Important Tax Information
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
The Fund
Dreyfus
Short Term High Yield Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Short Term High Yield
Fund, covering the 12-month period from November 1, 1998 through October 31,
1999. Inside, you' ll find valuable information about how the fund was managed
during the reporting period, including a discussion with the fund's portfolio
manager, Roger King, a member of the Dreyfus Taxable Fixed Income Team.
The past 12 months have been highly volatile for most bonds. Although U.S.
Treasury securities began the reporting period in the wake of a rally caused
primarily by a "flight to quality" amid the spread of the global financial
crisis in overseas markets, most higher yielding sectors of the bond market had
declined sharply. The Federal Reserve Board responded to the global financial
crisis last fall by reducing short-term interest rates. Its strategy apparently
was effective, and the U.S. economy remained strong through the remainder of the
reporting period.
Because inflation is more likely to rise in a strong economy, the overall bond
market -- including U.S. Treasury securities -- declined during the first 10
months of 1999. To help forestall a rise of inflation, the Federal Reserve Board
raised short-term interest rates twice during the summer of 1999, effectively
reversing most of last fall's interest-rate cuts. Higher interest rates led to
some erosion of bond prices, especially among the higher yielding market
sectors. In this environment, however, the yields of many higher yielding bonds
- -- including corporate bonds and U.S. government agency securities -- have
recently been quite attractive compared to the yields of U.S. Treasury
securities of comparable maturity.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Short Term High Yield Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
November 15, 1999
DISCUSSION OF FUND PERFORMANCE
Roger King, Portfolio Manager Dreyfus Taxable Fixed Income Team
How did Dreyfus Short Term High Yield Fund perform relative to its benchmark?
For the 12-month period ended October 31, 1999, the fund produced a total return
of 3.06% .(1) This compares to a 5.61% return for the fund's benchmark, the
Merrill Lynch High-Yield Master II Index for the same period.(2)
Because of its restricted maturity and duration, we also gauge the fund's
performance against a shorter term measure: a Dreyfus Customized Limited Term
High Yield Index, which produced a 7.19% return for the period.(3) This blended
index is composed of four shorter term sub-indices of the Merrill Lynch
High-Yield Master II Index.(3)
We attribute the fund's performance largely to our investment strategy. While
the fund' s average effective maturity was less than that of the Merrill Lynch
Index, its average credit quality was also lower. Pricing for lower quality
high yield bonds was generally difficult through most of the 12 months, most
notably over the recent few months, as evidenced by the fund' s 0.15%
year-to-date return through October 31, 1999. Unfortunately the strength in the
market was concentrated in the higher quality credits within the high yield
market, as high yield investors generally shunned added credit risk.
What is the fund's investment approach?
The fund seeks to maximize current income by investing in high yield
fixed-income securities. We limit the average effective portfolio maturity and
average effective duration of the fund to three years or less.
We normally invest most of the fund's assets in fixed-income securities of below
investment-grade credit quality. Issuers of below investment-grade securities
may be in early stages of development or may have highly leveraged balance
sheets. To compensate the buyer for the The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
greater risk, these companies must offer higher yields than those offered by
more highly rated firms.
Our approach to selecting individual issues is based on careful credit analysis.
We thoroughly analyze the business, management, financial strength and
competition of each of the companies whose bonds we buy, and then project each
issuer's ability to repay its debt.
What other factors influenced the fund's performance?
When the reporting period began, fixed-income investors were concerned that
economic weakness in overseas markets might reduce earnings growth for many U.S.
companies, including issuers of high yield bonds. It quickly became apparent,
however, that these fears were largely unfounded. In fact, the troubled
economies of Japan and Southeast Asia strengthened while economic growth in the
U.S. barreled ahead. In this environment, the high yield market recovered from
the steep drop it experienced in the latter part of 1998, indeed, outperforming
most other fixed-income market segments over the first three months of 1999.
This recovery, however, proved short-lived as liquidity pressures and lack of
demand brought negative returns back to the high yield market over recent
months.
During May and June, investor sentiment shifted away from a concern that the
economy might slow to fear that it might grow too quickly and awaken
inflationary pressures. As a result of inflation fears, the Federal Reserve
Board increased short-term interest rates twice. In response to these rate
hikes, the fixed-income market experienced a general decline.
Most importantly, pressure on bond prices continued through the third quarter of
1999. The high yield market has fallen, albeit gradually, to levels seen at the
depth of the October 1998 financial crisis. The major force driving the decline
has been concern over calendar-year-end liquidity. In anticipation of problems
which we believe will likely prove unfounded, investors have stepped up
redemptions of high yield mutual funds and fund managers have sold securities in
order to have more cash on hand in anticipation of potential further
redemptions. At the
same time, institutional investors have, to a large extent, stopped buying and
selling, further reducing market liquidity. This has created a market in which a
large supply of high yield issues has been met by a weak demand; in such a
market, bond prices inevitably decline.
What is the fund's current strategy?
We have worked steadily to restructure the fund to protect it from market
illiquidity. As a first step, we shortened the fund's effective maturity and
duration. Second, our new focus on bonds rated BB has improved the fund's
overall credit quality. Third, we continue to place industry focus on more
defensive sectors, such as broadcasting and entertainment, which historically
have been less volatile in different economic environments. These steps are
designed to help us provide shareholders with high levels of current income and
limit performance volatility by improving the fund's overall liquidity profile.
November 15, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND
INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION FUND SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
(2) SOURCE: BLOOMBERG L.P. -- THE MERRILL LYNCH HIGH-YIELD MASTER II INDEX IS
AN UNMANAGED PERFORMANCE BENCHMARK COMPOSED OF U.S. DOMESTIC AND YANKEE BONDS
RATED BELOW INVESTMENT GRADE WITH AT LEAST $100 MILLION PAR AMOUNTS OUTSTANDING
AND GREATER THAN OR EQUAL TO ONE YEAR TO MATURITY.
(3) SOURCE: BLOOMBERG L.P. -- THE DREYFUS CUSTOMIZED LIMITED TERM HIGH YIELD
INDEX IS COMPOSED OF FOUR SUB-INDICES OF THE MERRILL LYNCH HIGH-YIELD MASTER
INDEX II. THESE SUB-INDICES, 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 DREYFUS CUSTOMIZED LIMITED TERM HIGH YIELD INDEX, WHICH IS
COMPOSED OF BONDS RATED NO LOWER THAN "B", THE PORTFOLIO CAN INVEST IN BONDS
WITH LOWER CREDIT RATINGS THAN "B" AND AS LOW AS "D."
The Fund
FUND PERFORMANCE
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
- --------------------------------------------------------------------------------
Average Annual Total Returns AS OF 10/31/99
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Inception From
Date 1 Year Inception
- ------------------------------------------------------------------------------------------------------------------------------------
Fund 8/16/96 3.06% 5.40%
((+)) SOURCE: BLOOMBERG L.P.
</TABLE>
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
MATURITY AND DURATION RESTRICTIONS ON 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 $100 MILLION PAR AMOUNT OUTSTANDING AND GREATER THAN OR EQUAL TO
ONE YEAR TO MATURITY. BOTH INTEREST AND PRICE CHANGES ARE CALCULATED DAILY
BASED ON AN ACCRUED SCHEDULE AND TRADER PRICING. THE CUSTOMIZED LIMITED TERM
HIGH YIELD INDEX IS COMPOSED OF FOUR SUBINDICES OF THE MERRILL INDEX. THESE
SUBINDICES, BLENDED AND MARKET WEIGHTED, ARE (I) BB-RATED 1-3 YEARS, (II)
B-RATED 1-3 YEARS, (III) BB-RATED 3-5 YEARS, AND (IV) B-RATED 3-5 YEARS. UNLIKE
THE CUSTOMIZED LIMITED TERM HIGH YIELD INDEX, WHICH IS COMPOSED OF BONDS RATED
NO LOWER THAN "B," THE FUND CAN INVEST IN BONDS WITH LOWER CREDIT RATINGS THAN
"B" AND AS LOW AS "D". THE MERRILL INDEX INCLUDES "C"-RATED BONDS. NEITHER
INDEX TAKES INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION
RELATING TO FUND PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE,
IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE
IN THIS REPORT.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF INVESTMENTS
October 31, 1999
Principal
BONDS AND NOTES--94.1% Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
AIRCRAFT & AEROSPACE--2.0%
AM General, Ser. B,
Sr. Notes, 12.875%, 2002 912,000 816,240
Aircraft Lease Portfolio Securitisation 96-1,
Pass-Through Trust, Ctfs.,
Cl. D, 12.75%, 2006 515,872 510,713
America West Airlines Pass-Through Trust,
Pass-Through Ctfs.,
Ser. 1996-1, Cl. D, 8.16%, 2002 181,233 180,039
Burke Industries,
Sr. Notes, 9.881%, 2007 2,000,000 (a) 1,310,000
2,816,992
AUTOMOTIVE--3.1%
Aetna Industries,
Sr. Notes, 11.875%, 2006 3,000,000 3,352,500
Penda, Ser. B,
Sr. Notes, 10.75%, 2004 1,000,000 965,000
4,317,500
BROADCASTING--4.2%
Paxson Communications,
Sr. Sub. Notes, 11.625%, 2002 4,000,000 4,160,000
Univision Network Holding,
Sub. Notes, 7%, 2002 2,550,575 1,808,010
5,968,010
BUILDING MATERIALS--1.1%
ICF Kaiser International,
Sr. Sub. Notes, 13%, 2003 3,000,000 (b) 1,511,250
BUSINESS SERVICES--3.0%
Corporate Express,
Conv. Sub. Notes, 4.5%, 2000 2,988,000 2,969,325
Pierce Leahy,
Sr. Sub. Notes, 11.125%, 2006 1,130,000 1,203,450
4,172,775
CABLE TELEVISION-10.3%
Adelphia Communications, Ser. B,
Sr. Notes, 10.25%, 2000 600,000 609,000
Century Communications,
Sr. Notes, 0%, 2003 2,000,000 1,440,000
Diamond Cable Communications:
Sr. Discount Notes, 13.25%, 2004 2,250,000 2,407,500
Sr. Discount Notes, 0/11.75%, 2005 2,000,000 (c) 1,835,000
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION (CONTINUED)
Digital Television Service/Capital, Ser. B,
Sr. Sub. Notes, 12.5%, 2007 2,000,000 2,110,000
Helicon Group,
Sr. Notes, 11%, 2003 2,500,000 2,587,500
Net Sat Servicos,
Sr. Secured Notes, 12.75%, 2001 500,000 (d) 462,500
Pegasus Media & Communications, Ser. B,
Sr. Sub. Notes, 12.5%, 2005 2,775,000 2,997,000
14,448,500
CHEMICALS--2.1%
ISP Holdings, Ser. B,
Sr. Notes, 9.75%, 2002 3,000,000 3,030,000
COMMERCIAL MORTGAGE
PASS-THROUGH CTFS.--2.6%
GS Mortgage Securities II,
Ser. 1999-FL2A, Cl. G, 7.468%, 2013 2,000,000 (a,e) 1,866,060
Nomura Depositor Trust,
Ser. 1998-STI, Cl. B2, 9.656%, 2003 2,000,000 (a,e) 1,806,563
3,672,623
CONSUMER--5.7%
BPC Holding, Ser. B,
Sr. Secured Notes, 12.5%, 2006 350,000 324,625
Hosiery Corp. of America,
Sr. Sub. Notes, 13.75%, 2002 2,000,000 2,080,000
Sharp Do Brazil,
Medium-Term Notes, 9.625%, 2000 1,000,000 (f) 352,500
Southland,
Deb., 5%, 2003 3,250,000 2,770,625
Sweetheart Cup,
Sr. Sub. Notes, 9.625%, 2000 2,500,000 2,437,500
7,965,250
ENERGY--1.1%
Clark USA, Ser. B,
Sr. Notes, 10.875%, 2005 2,000,000 1,590,000
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--3.2%
American Skiing, Ser. B,
Sr. Sub. Notes, 12%, 2006 4,000,000 3,670,000
United Artists Theatres, Ser. B,
Floating Rate Notes, 10.553%, 2007 4,000,000 (a) 820,000
4,490,000
FINANCIAL--1.1%
Imperial Credit Capital Trust I, Ser. A,
Remarketed Par Securities, 10.25%, 2002 2,000,000 1,588,050
FOOD & BEVERAGES--1.4%
Envirodyne Industries,
Sr. Notes, 10.25%, 2001 2,000,000 1,490,000
Sun World International, Ser. B,
First Mortgage, 11.25%, 2004 450,000 453,938
1,943,938
FOREST PRODUCTS--4.4%
Maxxam Group Holdings,
Sr. Secured Notes, 12%, 2003 6,110,000 6,171,100
HEALTH CARE-.8%
EyeCare Centers of America,
Floating Interest Rate Sub. Term Securities, 9.04%, 2008 1,500,000 (a) 1,087,500
INDUSTRIAL--.4%
Applied Extrusion Technology, Ser. B,
Sr. Notes, 11.5%, 2002 500,000 515,000
INSURANCE--2.8%
Reliance Group Holdings,
Sr. Notes, 9%, 2000 3,900,000 3,988,526
METALS--5.2%
Northwestern Steel & Wire,
Sr. Notes, 9.5%, 2001 2,000,000 890,000
Oregon Steel Mills,
First Mortgage, 11%, 2003 2,448,000 2,509,200
Renco Metals,
Sr. Notes, 11.5%, 2003 4,500,000 3,937,500
7,336,700
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
PACKAGING--1.7%
Stone Container,
Sr. Notes, 9.875%, 2001 1,050,000 1,055,250
Vicap, S.A. de C.V.,
Gtd. Sr. Notes, 10.25%, 2002 1,500,000 1,402,500
2,457,750
REAL ESTATE--6.0%
Associated Estates Realty,
Sr. Notes, 8.375%, 2000 1,500,000 1,485,354
Meditrust:
Conv. Notes, 7.5%, 2001 2,500,000 2,278,125
Medium-Term Notes, 7.77%, 2002 1,000,000 930,485
Notes, 7.6%, 2001 395,000 376,663
Rockefeller Center Properties,
Conv. Deb., 0%, 2000 4,000,000 3,360,000
8,430,627
RETAIL--.7%
Cafeteria Operators
(Gtd. by Furrs/Bishops Specialty Group),
Sr. Secured Notes, 12%, 2001 1,000,000 970,000
SUPERMARKETS--.7%
Pathmark Stores,
Discount Notes, 0/10.75%, 2003 1,000,000 (c) 980,000
TECHNOLOGY--1.8%
Baan,
Conv. Sub. Notes, 4.5%, 2001 3,000,000 2,512,500
TELECOMMUNICATION/CARRIERS--2.8%
GST USA,
Sr. Discount Notes, 0/13.875%, 2005 1,000,000 (c) 765,000
Orion Network Systems,
Sr. Discount Notes, 0/12.5%, 2007 7,000,000 (c) 3,115,000
3,880,000
TEXTILES--2.7%
Sassco Fashions,
Sr. Notes, 12.75%, 2004 3,317,519 3,217,994
Texfi Industries,
Sr. Sub. Deb., 8.75%, 1999 2,500,000 (b) 550,000
3,767,994
TRANSPORTATION-10.5%
Eletson Holdings,
First Pfd. Ship Mortgage Notes, 9.25%, 2003 850,000 769,250
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION (CONTINUED)
International Shipholding,
Sr. Notes, 9%, 2003 3,000,000 2,985,000
MTL, Ser. B,
Floating Interest Rate Sub. Term Securities,
10.32%, 2006 3,000,000 (a) 2,655,000
OMI,
Sr. Notes, 10.25%, 2003 2,000,000 2,025,000
Petro Stopping Centers/Financial,
Sr. Notes, 10.5%, 2007 2,000,000 1,930,000
Union Pacific,
Sub. Deb, 5.5%, 2033 3,068,000 2,234,134
ValuJet,
Sr. Notes, 10.25%, 2001 2,450,000 2,143,750
14,742,134
UTILITIES--.1%
Hidroelectrica Piedra Aguila,
Medium-Term Notes, 10.625%, 2001 500,000 (b) 201,250
WIRELESS COMMUNICATIONS--12.6%
Clearnet Communications,
Sr. Discount Notes, 0/14.75%, 2005 2,000,000 (c) 1,902,500
Comunicacion Celular,
Sr. Discount Notes, 0/14.125%, 2005 2,500,000 (c,e) 1,268,750
Dial Call Communications,
Sr. Notes, 10.25%, 2005 2,791,000 2,860,775
Microcell Telecommunications, Ser. B,
Sr. Discount Notes, 0/14%, 2006 5,000,000 (c) 4,125,000
Mobile Telecommunications,
Sr. Notes, 13.5%, 2002 1,200,000 1,365,000
Occidente y Caribe Celular, Ser. B,
Sr. Discount Notes, 0/14%, 2004 5,000,000 (c) 2,637,500
Pagemart Nationwide,
Sr. Discount Notes, 0/15%, 2005 2,495,000 (c) 2,183,125
WinStar Communications,
Sr. Discount Notes, 0/14%, 2005 1,600,000 (c) 1,416,000
17,758,650
TOTAL BONDS AND NOTES
(cost $155,912,678) 132,314,619
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
COMMON STOCKS--.1% Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER--.0%
Discovery Zone (warrants) 1,000 (e,g) 1
Discovery Zone, Cl. A, (warrants) 5,100 (e,g) 5
Discovery Zone, Cl. B, (warrants) 5,100 (e,g) 5
Signature Brands (warrants) 750 (e,g) --
Sun International Hotels 198 (e,g) 4,009
4,020
WIRELESS COMMUNICATIONS--.1%
Comunicacion Celular warrants 1,500 (e,g) 90,188
TOTAL COMMON STOCKS
(cost $151,136) 94,208
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--1.3%
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--1.2%
Spanish Broadcasting System:
Ser. A, Cum., $142.50 229 243,885
Ser. A, Cum., $142.50 1,315 (e) 1,400,475
1,644,360
ENERGY--.1%
Contour Energy,
Cum. Conv., $2.625 34,700 (g) 138,800
TOTAL PREFERRED STOCKS
(cost $2,540,075) 1,783,160
Principal
SHORT-TERM INVESTMENTS--2.3% Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER;
Transamerica Financial,
5.34%, 11/1/1999
(cost $3,295,000) 3,295,000 3,295,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $161,898,889) 97.8% 137,486,987
CASH AND RECEIVABLES (NET) 2.2% 3,126,183
NET ASSETS 100.0% 140,613,170
(A) VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(B) NON-INCOME PRODUCING--SECURITY IN DEFAULT.
(C) ZERO COUPON UNTIL A SPECIFIED DATE AT WHICH TIME THE STATED COUPON RATE
BECOMES EFFECTIVE UNTIL MATURITY.
(D) REFLECTS DATE SECURITY CAN BE REDEEMED AT HOLDER'S OPTION; THE STATED
MATURITY IS 8/5/2004.
(E) 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, 1999, THESE
SECURITIES AMOUNTED TO $6,436,056 OR 4.6% OF NET ASSETS.
(F) REFLECTS DATE SECURITY CAN BE REDEEMED AT HOLDER'S OPTION; THE STATED
MATURITY IS 10/30/2005.
(G) NON-INCOME PRODUCING SECURITY.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 161,898,889 137,486,987
Interest and dividends receivable 3,290,421
Receivable for investment securities sold 420,930
Prepaid expenses and other assets 18,401
141,216,739
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 98,808
Due to Distributor 30,542
Cash overdraft due to Custodian 262,756
Payable for shares of Beneficial Interest redeemed 158,918
Accrued expenses 52,545
603,569
- --------------------------------------------------------------------------------
NET ASSETS ($) 140,613,170
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 176,702,652
Accumulated undistributed investment income--net 207,747
Accumulated net realized gain (loss) on investments (11,885,327)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 (24,411,902)
- --------------------------------------------------------------------------------
NET ASSETS ($) 140,613,170
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
(unlimited number of $.001 par value shares of Beneficial Interest authorized)
13,230,429
NET ASSET VALUE, offering and redemption price per share ($) 10.63
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended October 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Interest 19,697,938
Cash dividends 194,854
TOTAL INCOME 19,892,792
EXPENSES:
Management fee--Note 3(a) 1,115,088
Shareholder servicing costs--Note 3(b) 594,401
Interest expense--Note 2 167,281
Professional fees 43,992
Registration fees 34,985
Prospectus and shareholders' reports 25,306
Custodian fees--Note 3(b) 16,162
Trustees' fees and expenses--Note 3(c) 11,186
Miscellaneous 12,603
TOTAL EXPENSES 2,021,004
INVESTMENT INCOME--NET 17,871,788
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (9,919,365)
Net unrealized appreciation (depreciation) on investments (1,835,044)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (11,754,409)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 6,117,379
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31,
----------------------------
1999 1998
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 17,871,788 19,007,204
Net realized gain (loss) on investments (9,919,365) (1,959,796)
Net unrealized appreciation (depreciation)
on investments (1,835,044) (22,833,877)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 6,117,379 (5,786,469)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (17,829,858) (18,947,207)
Net realized gain on investments -- (1,405,597)
TOTAL DIVIDENDS (17,829,858) (20,352,804)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold 128,889,888 248,552,018
Dividends reinvested 11,014,692 14,395,569
Cost of shares redeemed (164,056,826) (207,057,502)
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS (24,152,246) 55,890,085
TOTAL INCREASE (DECREASE) IN NET ASSETS (35,864,725) 29,750,812
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 176,477,895 146,727,083
END OF PERIOD 140,613,170 176,477,895
Undistributed investment income--net 207,747 165,817
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 11,336,857 19,465,771
Shares issued for dividends reinvested 981,803 1,140,837
Shares redeemed (14,528,971) (16,472,534)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (2,210,311) 4,134,074
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
Year Ended October 31,
-----------------------------------------------------------
1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 11.43 12.98 12.69 12.50
Investment Operations:
Investment income--net 1.16 1.22 1.29 .26
Net realized and unrealized gain (loss)
on investments (.80) (1.44) .34 .19
Total from Investment Operations .36 (.22) 1.63 .45
Distributions:
Dividends from investment income--net (1.16) (1.21) (1.29) (.26)
Dividends from net realized gain on
investments -- (.12) (.05) --
Total Distributions (1.16) (1.33) (1.34) (.26)
Net asset value, end of period 10.63 11.43 12.98 12.69
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 3.06 (2.18) 13.38 17.02(b)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to average
net assets 1.08 1.06 1.09 .92(b)
Ratio of interest expense to average
net assets .10 .12 .22 --
Ratio of net investment income
to average net assets 10.42 9.58 10.02 9.76(b)
Decrease reflected in above expense ratios
due to undertakings by the Manager -- -- .02 1.62(b)
Portfolio Turnover Rate 64.80 71.00 102.59 77.79(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ X 1,000) 140,613 176,478 146,727 18,779
(A) FROM AUGUST 16, 1996 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1996.
(B) ANNUALIZED.
(C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The 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"), which is a wholly-owned subsidiary of Mellon Financial
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.
The Company accounts separately for the assets, liabilities and operations of
each series. Expenses directly attributable to each series are charged to that
series' operations; expenses which are applicable to all series 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, matu-
rity 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 $13,338 during the period ended October 31, 1999 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, 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, 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 $11,879,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1999. If not
applied, $1,960,000 of the carryover expires in fiscal 2006 and $9,919,000
expires in fiscal 2007.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Bank Lines of Credit:
The fund may borrow up to $10 million for leveraging purposes under a short-term
unsecured line of credit and participates with other Dreyfus-managed funds in a
$100 million unsecured line of credit primarily to be utilized for temporary or
emergency purposes, including the financing of redemptions. Interest is charged
to the fund at rates which are related to the Federal Funds rate in effect at
the time of borrowings.
The average daily amount of borrowings outstanding under both arrangements
during the period ended October 31, 1999 was approximately $3,242,700, with a
related weighted average annualized interest rate of 5.16%.
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, 1999, the fund was charged $428,880 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, 1999, the fund was charged $100,483
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, 1999, the fund was
charged $16,162 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,
1999, amounted to $105,683,042 and $129,018,474, respectively.
At October 31, 1999, accumulated net unrealized depreciation on investments was
$24,411,902, consisting of $378,797 gross unrealized appreciation and
$24,790,699 gross unrealized depreciation.
At October 31, 1999, 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).
The Fund
REPORT OF 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, 1999, 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, 1999 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, 1999, 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 10, 1999
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the fund hereby designates 1.068% of the
ordinary dividends paid during the fiscal year ended October 31, 1999 as
qualifying for the corporate dividends received deduction. Shareholders will
receive notification in January 2000 of the percentage applicable to the
preparation of their 1999 income tax returns.
The Fund
NOTES
For More Information
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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE Call 1-800-645-6561
BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request to [email protected]
ON THE INTERNET Information can be viewed online or downloaded from:
http://www.dreyfus.com
(c) 1999 Dreyfus Service Corporation 044AR9910
