DREYFUS SHORT-TERM INCOME FUND, INC.
Supplement to Prospectus Dated December 1, 1994
All mutual fund shares involve certain investment risks, including
the possible loss of principal.
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PROSPECTUS DECEMBER 1, 1994
DREYFUS SHORT-TERM INCOME FUND, INC.
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DREYFUS SHORT-TERM INCOME FUND, INC. (THE "FUND") IS AN OPEN-END,
NON-DIVERSIFIED, MANAGEMENT INVESTMENT COMPANY, KNOWN AS A MUTUAL FUND. ITS
GOAL IS TO PROVIDE YOU WITH AS HIGH A LEVEL OF CURRENT INCOME AS IS
CONSISTENT WITH THE PRESERVATION OF CAPITAL. THE FUND INVESTS PRIMARILY IN A
BROAD RANGE OF DEBT SECURITIES OF DOMESTIC AND FOREIGN ISSUERS AND MAINTAINS
A DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY OF THREE YEARS OR LESS.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY IMPOSED BY THE FUND.
THE FUND PROVIDES FREE REDEMPTION CHECKS, WHICH YOU CAN USE IN
AMOUNTS OF $500 OR MORE FOR CASH OR TO PAY BILLS. YOU CONTINUE TO EARN INCOME
ON THE AMOUNT OF THE CHECK UNTIL IT CLEARS. YOU CAN PURCHASE OR REDEEM SHARES
BY TELEPHONE USING DREYFUS TELETRANSFER.
THE FUND BEARS CERTAIN COSTS OF ADVERTISING, ADMINISTRATION AND/OR
DISTRIBUTION PURSUANT TO A PLAN ADOPTED IN ACCORDANCE WITH RULE 12B-1 UNDER
THE INVESTMENT COMPANY ACT OF 1940.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES THE FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUND THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
PART B (ALSO KNOWN AS THE STATEMENT OF ADDITIONAL INFORMATION), DATED
DECEMBER 1, 1994, WHICH MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER
DISCUSSION OF CERTAIN AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE
OF INTEREST TO SOME INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY,
WRITE TO THE FUND AT 144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK
11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 666.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO
TIME.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 3
CONDENSED FINANCIAL INFORMATION................... 3
DESCRIPTION OF THE FUND........................... 4
MANAGEMENT OF THE FUND............................ 11
HOW TO BUY FUND SHARES............................ 12
SHAREHOLDER SERVICES.............................. 14
HOW TO REDEEM FUND SHARES......................... 17
SERVICE PLAN...................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 20
PERFORMANCE INFORMATION........................... 21
GENERAL INFORMATION............................... 22
APPENDIX.......................................... 23
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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[This Page Left Blank Intentionally]
Page 2
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<S> <C> <C>
Management Fees ............................................................................... .50%
12b-1 Fees (distribution and servicing)........................................................ .23%
Other Expenses................................................................................. .22%
Total Fund Operating Expenses ................................................................. .95%
</TABLE>
<TABLE>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at
the end of each time period: $10 $30 $53 $117
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the various costs and expenses borne by the Fund, and therefore indirectly by
investors, the payment of which will reduce investors' return on an annual
basis. Long-term investors could pay more in 12b-1 fees than the economic
equivalent of paying a front-end sales charge. The information in the
foregoing table does not reflect any fee waivers or expense reimbursement
arrangements that may be in effect. Certain Service Agents (as defined below)
may charge their clients direct fees for effecting transactions in Fund
shares; such fees are not reflected in the foregoing table. See "Management
of the Fund," "How to Buy Fund Shares" and "Service Plan."
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose report thereon appears in
the Statement of Additional Information. Further financial data and related
notes are included in the Statement of Additional Information, available upon
request.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share
of Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each year indicated. This information
has been derived from the Fund's financial statements.
<TABLE>
YEAR ENDED JULY 31,
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PER SHARE DATA: 1993(1) 1994
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<S> <C> <C>
Net asset value, beginning of year................................................... $12.50 $12.47
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INVESTMENT OPERATIONS:
Investment income--net .............................................................. .89 .84
Net realized and unrealized (loss) on investments.................................... (.01) (.54)
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TOTAL FROM INVESTMENT OPERATIONS..................................................... .88 .30
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DISTRIBUTIONS:
Dividends from investment income-net................................................. (.89) (.83)
Dividends from net realized gain on investments...................................... (.02) --
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TOTAL DISTRIBUTIONS.................................................................. (.91) (.83)
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Net asset value, end of year......................................................... $12.47 $11.94
======= =======
TOTAL INVESTMENT RETURN................................................................ 7.68%(2) 2.47%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average net assets ............................................. -- .24%
Ratio of net investment income to average net assets................................. 7.58%(2) 6.79%
Decrease reflected in above expense ratios due to
undertakings by The Dreyfus Corporation.............................................. 1.12%(2) .71%
Portfolio Turnover Rate.............................................................. 54.59%(3) 74.90%
Net Assets, end of year (000's omitted).............................................. $205,736 $277,028
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(1)From August 18, 1992 (commencement of operations) to July 31, 1993.
(2)Annualized.
(3)Not annualized.
</TABLE>
Further information about the Fund's performance is contained in its
annual report which may be obtained without charge by writing to the address
or calling the number set forth on the cover page of this Prospectus.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE
The Fund's goal is to provide you with as high a level of current
income as is consistent with the preservation of capital. The Fund's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting shares. There can be no assurance that the Fund's
investment objective will be achieved.
MANAGEMENT POLICIES
Under normal market conditions, the Fund invests at least 80% of its
net assets in debt securities and securities with debt-like characteristics,
such as bonds, debentures, notes, mortgage-related securities and
asset-backed securities of domestic and foreign issuers and municipal
obligations. The Fund may invest up to 30% of the value of its total assets
in securities of foreign issuers.
At least 65% of the value of the Fund's net assets must be invested
in debt securities rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or at least BBB by Standard & Poor's Corporation ("S&P"), Fitch
Investors Service, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff")
or, if unrated, deemed to be of comparable quality by The Dreyfus
Corporation. Debt securities rated Baa by Moody's and BBB by S&P, Fitch and
Duff are considered investment grade obligations which lack outstanding
investment characteristics and may have speculative characteristics as well.
The Fund may invest up to 35% of the value of its net assets in debt
securities rated lower than Baa by Moody's and BBB by S&P, Fitch and Duff and
as low as Caa by Moody's and CCC by S&P, Fitch and Duff, or, if unrated,
deemed to be of comparable quality by The Dreyfus Corporation. Securities
rated Caa by Moody's and CCC by S&P, Fitch and Duff are considered to have
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal and to be of poor standing. See "Risk
Factors_Lower Rated Securities" below for a discussion of certain risks, and
"Appendix" in the Statement of Additional Information. Under normal market
conditions, the dollar-weighted average maturity of the Fund's portfolio is
three years or less.
The Fund may invest in money market instruments consisting of U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as described under "Certain
Portfolio Securities" below. Under normal market conditions, the Fund does
not expect to have a substantial portion of its assets invested in money
market instruments. However, when The Dreyfus Corporation determines that
adverse market conditions exist, the Fund may adopt a temporary defensive
posture and invest its entire portfolio in money market instruments.
The Fund may engage in various investment techniques such as foreign
exchange transactions, leveraging, and lending portfolio securities, each of
which involves risk. For a discussion of such investment techniques and their
related risks, see "Investment Techniques" and "Risk Factors_Other Investment
Considerations" below.
CERTAIN PORTFOLIO SECURITIES
MORTGAGE-RELATED SECURITIES.The Fund may invest in mortgage-related
securities which are collateralized by pools of mortgage loans assembled for
sale to investors by various governmental agencies, such as the Government
National Mortgage Association and government-related organizations such as
the Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as well as by private issuers such as commercial banks, savings
and loan institutions, mortgage banks and private mortgage insurance
companies, and similar foreign entities. Mortgage-related securities are a
form of derivative security. The mortgage-related securities in which the
Fund may invest include those with fixed, floating and variable interest
rates, those with interest rates that change based on multiples of changes in
interest rates and those with interest rates that change inversely to changes
in interest rates, as well as stripped mortgage-backed securities. Stripped
mortgage-backed securities usually are structured with two
Page 4
classes that receive different proportions of interest and principal
distributions on a pool of mortgage-backed securities or whole loans. A
common type of stripped mortgage-backed security will have one class receiving
some of the interest and most of the principal from the mortgage collateral,
while the other class will receive most of the interest and the remainder of
the principal. In the most extreme case, one class will receive all of the
interest (the interest-only or "IO" class), while the other class will receive
all of the principal (the principal-only or "PO" class). Although certain
mortgage-related securities are guaranteed by a third party or otherwise
similarly secured, the market value of the security, which may fluctuate, is
not so secured. If the Fund purchases a mortgage-related security at a
premium, all or part of the premium may be lost if there is a decline in the
market value of the security, whether resulting from changes in interest
rates or prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of certain mortgage-backed securities
are inversely affected by changes in interest rates, while others, which the
Fund may purchase, may be structured so that their interest rates will
fluctuate inversely (and thus their price will increase as interest rates
rise and decrease as interest rates fall) in response to changes in interest
rates. Though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to the Fund. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, the Fund may
fail to fully recoup its initial investment in these securities even if the
securities are rated in the highest rating category by a nationally
recognized statistical rating organization. In addition, regular payments
received in respect of mortgage-related securities include both interest and
principal. No assurance can be given as to the return the Fund will receive
when these amounts are reinvested. The Fund also may invest in collateralized
mortgage obligations structured on pools of mortgage pass-through
certificates or mortgage loans. For further discussion concerning the
investment considerations involved, see "Risk Factors_Other Investment
Considerations" below, and "Investment Objective and Management Policies_Portf
olio Securities_Mortgage-Related Securities" in the Fund's Statement of
Additional Information.
ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities. The
securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Fund may
invest in these and other types of asset-backed securities that may be
developed in the future.
ZERO COUPON SECURITIES -- The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. The Fund also may invest in zero coupon securities issued by
corporations and financial institutions which constitute a proportionate
ownership of the issuer's pool of underlying U.S. Treasury securities. A zero
coupon security pays no interest to its holder during its life or until a
stated date and is sold at a discount to its face value at maturity. The
amount of the discount fluctuates with the market price of the security. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities.
MONEY MARKET INSTRUMENTS -- The Fund may invest, in the circumstances
described under "Management Policies" above, in the following types of money
market instruments:
U.S. GOVERNMENT SECURITIES.The Fund may purchase securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, which
include U.S. Treasury securities that differ in their
Page 5
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one
to ten years; and Treasury Bonds generally have initial maturities of greater
than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such
as those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Interest
may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support
to such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law.
The Fund will invest in such securities only when it is satisfied that the
credit risk with respect to the issuer is minimal.
BANK OBLIGATIONS. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, the Fund may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only
in debt obligations of U.S. domestic issuers. Such risks include possible
future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the securities, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of
principal and interest on these securities and the possible seizure or
nationalization of foreign deposits.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. The
Fund will invest in time deposits of domestic banks that have total assets in
excess of one billion dollars. Time deposits which may be held by the Fund
will not benefit from insurance from the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the Federal Deposit Insurance
Corporation.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
REPURCHASE AGREEMENTS. Repurchase agreements involve the acquisition
by the Fund of an underlying debt instrument, subject to an obligation of the
seller to repurchase, and the Fund to resell, the instrument at a fixed price
usually not more than one week after its purchase. Certain costs may be
incurred by the Fund in connection with the sale of the securities if the
seller does not repurchase them in accordance with the repurchase agreement.
In addition, if bankruptcy proceedings are commenced with respect to the
seller of the securities, realization on the securities by the Fund may be
delayed or limited.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS. Commercia
l paper consists of short-term, unsecured promissory notes issued to finance
short-term credit needs. The commercial paper purchased by the Fund will
consist only of direct obligations issued by domestic or foreign entities.
The Fund may purchase floating and variable rate demand notes and bonds,
which are obligations ordinarily having stated maturities in excess of one
year, but which permit the holder to demand payment of principal at any time
or at specified intervals.
Page 6
MUNICIPAL OBLIGATIONS _ Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities. While, in general, municipal obligations
are tax exempt securities having relatively low yields as compared to
taxable, non-municipal obligations of similar quality, certain issues of
municipal obligations, both taxable and non-taxable, offer yields comparable
and in some cases greater than the yields available on other permissible Fund
investments. The Fund will invest in municipal obligations, the ratings of
which correspond with the ratings of other permissible Fund investments.
Dividends received by shareholders on Fund shares which are attributable to
interest income received by the Fund from municipal obligations generally
will be subject to Federal income tax. It is currently the Fund's intention
to invest no more than 25% of its assets in municipal obligations. However,
this percentage may be varied from time to time without shareholder approval.
WARRANTS _ The Fund may invest up to 2% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached
to securities. A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time.
ILLIQUID SECURITIES -- The Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain asset-backed and
mortgage-backed securities, such as certain collateralized mortgage
obligations and stripped mortgage-backed securities. As to these securities,
the Fund is subject to a risk that should the Fund desire to sell them at a
price the Fund deems representative of their value when a ready buyer is not
available, the value of the Fund's net assets could be adversely affected.
INVESTMENT TECHNIQUES
In connection with its investment objective and policies, the Fund
may employ, among others, the following investment techniques which may
involve certain risks.
FOREIGN CURRENCY TRANSACTIONS _ The Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates in connection with hedging and other non-speculative strategies
involving specific settlement transactions. The Fund will conduct its
currency exchange transactions either on a spot (i.e., cash) basis at the
rate prevailing in the currency exchange market, or through entering into
forward contracts to purchase or sell currencies. A forward currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which must be more than two days from the date of the contract,
at a price set at the time of the contract. Transaction hedging is the
purchase or sale of forward currency with respect to specific receivables or
payables of the Fund generally arising in connection with the purchase or
sales of its portfolio securities. These contracts are entered into in the
interbank market conducted directly between currency traders (typically
commercial banks or other financial institutions) and their customers.
LEVERAGE THROUGH BORROWING -- The Fund may borrow for investment purposes.
This borrowing, which is known as leveraging, generally will be unsecured,
except to the extent the Fund enters into reverse repurchase agreements
described below. The Investment Company Act of 1940 requires the Fund to
maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Leveraging may exaggerate the
effect on net asset value of any increase or decrease in the market value of
the Fund's portfolio. Money borrowed for leveraging will be subject to
interest costs that may or may not be recovered by appreciation of the
securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased. The Fund also may be required to
maintain minimum average
Page 7
balances in connection with such borrowing or to pay a commitment or other
fee to maintain a line of credit; either of these requirements would increase
the cost of borrowing over the stated interest rate.
Among the forms of borrowing in which the Fund may engage is the
entry into reverse repurchase agreements with banks, brokers or dealers.
These transactions involve the transfer by the Fund of an underlying debt
instrument in return for cash proceeds based on a percentage of the value of
the security. The Fund retains the right to receive interest and principal
payments on the security. At an agreed upon future date, the Fund repurchases
the security at principal, plus accrued interest. In certain types of
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based on the prevailing overnight repurchase rate.
The Fund will maintain in a segregated custodial account cash or U.S.
Government securities or other high quality liquid debt securities at least
equal to the aggregate amount of its reverse repurchase obligations, plus
accrued interest, in certain cases, in accordance with releases promulgated
by the Securities and Exchange Commission. The Securities and Exchange
Commission views reverse repurchase transactions as collateralized borrowings
by the Fund. These agreements, which are treated as if reestablished each
day, are expected to provide the Fund with a flexible borrowing tool.
LENDING PORTFOLIO SECURITIES _ From time to time, the Fund may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions.
Such loans may not exceed 331/3% of the value of the Fund's total assets. In
connection with such loans, the Fund will receive collateral consisting of
cash, U.S. Government securities or irrevocable letters of credit which will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Fund can increase its income
through the investment of such collateral. The Fund continues to be entitled
to payments in amounts equal to the interest or other distributions payable
on the loaned security and receives interest on the amount of the loan. Such
loans will be terminable at any time upon specified notice. The Fund might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund.
FORWARD COMMITMENTS -- The Fund may purchase securities on a when-issued or
forward commitment basis, which means that the price is fixed at the time of
commitment, but delivery and payment ordinarily take place a number of days
after the date of the commitment to purchase. The Fund will make commitments
to purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date
if it is deemed advisable. The Fund will not accrue income in respect of a
security purchased on a when-issued or forward commitment basis prior to its
stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in the Fund's portfolio are subject to changes
in value (both generally changing in the same way, i.e., appreciating when
interest rates decline and depreciating when interest rates rise) based upon
the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on
a when-issued or forward commitment basis may expose the Fund to risk because
they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of the Fund consisting of cash, cash
equivalents or U.S. Government securities or other high quality liquid debt
securities at least equal at all times to the amount of the when-issued or
forward commitments will be established and maintained at the Fund's
custodian bank. Purchasing securities on a when-issued or forward commitment
basis when the Fund is fully or almost fully invested may result in greater
potential fluctuation in the value of the Fund's net assets and its net asset
value per share.
CERTAIN FUNDAMENTAL POLICIES
The Fund may (i) borrow money to the extent permitted under the
Investment Company Act of 1940; and (ii) invest up to 25% of the value of its
total assets in the securities of issuers in a single industry, provided
there is no limitation on the purchase of obligations issued or guaranteed by
the U.S.
Page 8
Government, its agencies or instrumentalities. This paragraph
describes fundamental policies that cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940) of
the Fund's outstanding voting shares. See "Investment Objective and
Management Policies_Investment Restrictions" in the Statement of Additional
Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
The Fund may (i) pledge, hypothecate, mortgage or otherwise encumber
its assets, but only to the extent necessary to secure permitted borrowings
and to the extent related to the deposit of assets in escrow in connection
with portfolio transactions; and (ii) invest up to 15% of the value of its
net assets in repurchase agreements providing for settlement in more than
seven days after notice and in other illiquid securities. See "Investment
Objective and Management Policies_Investment Restrictions" in the Statement
of Additional Information.
RISK FACTORS
LOWER RATED SECURITIES -- You should carefully consider the relative risks of
investing in the higher yielding (and, therefore, higher risk) debt
securities in which the Fund may invest. These are debt securities such as
those rated Ba by Moody's or BB by S&P, Fitch or Duff or as low as Caa by
Moody's or CCC by S&P, Fitch or Duff. They generally are not meant for
short-term investing and may be subject to certain risks with respect to the
issuing entity and to greater market fluctuations than certain lower
yielding, higher rated fixed-income securities. Securities rated Ba by
Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Securities rated BB by S&P, Fitch or Duff are
regarded as having predominantly speculative characteristics and, while such
obligations have less near-term vulnerability to default than other
speculative grade debt, they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Securities rated Caa by Moody's or CCC by S&P, Fitch or Duff are of poor
standing and may be in default or have current identifiable vulnerability to
default. Such securities, though high yielding, are characterized by great
risk. See "Appendix" in the Statement of Additional Information for a general
description of Moody's, S&P, Fitch and Duff securities ratings. The ratings
of Moody's, S&P, Fitch and Duff represent their opinions as to the quality of
the securities which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and, although ratings may
be useful in evaluating the safety of interest and principal payments, they
do not evaluate the market value risk of these securities. Therefore,
although these ratings may be an initial criterion for selection of portfolio
investments, The Dreyfus Corporation also will evaluate these securities and
the ability of the issuers of such securities to pay interest and principal.
The Fund's ability to achieve its investment objective may be more dependent
on The Dreyfus Corporation's credit analysis than might be the case for a
fund that invested in higher rated securities. Once the rating of a portfolio
security has been changed, the Fund will consider all circumstances deemed
relevant in determining whether to continue to hold the security.
The market price and yield of securities rated Ba or lower by Moody's
and BB or lower by S&P, Fitch and Duff are more volatile than those of higher
rated securities. Factors adversely affecting the market price and yield of
these securities will adversely affect the Fund's net asset value. In
addition, the retail secondary market for these securities may be less liquid
than that of higher rated securities; adverse market conditions could make it
difficult at times for the Fund to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value.
The market values of certain lower rated debt securities tend to
reflect individual corporate developments to a greater extent than do higher
rated securities, which react primarily to fluctuations in the general level
of interest rates, and tend to be more sensitive to economic conditions than
are higher rated securities. Companies that issue debt securities often are
highly leveraged and may not have available to them more traditional methods
of financing. Therefore, the risk associated with acquiring the securities of
such issuers
Page 9
generally is greater than is the case with higher rated securities. See
"Investment Objective and Management Policies_Risk Factors_Lower Rated
Securities" in the Fund's Statement of Additional Information.
INVESTING IN FOREIGN SECURITIES -- Foreign securities markets generally are
not as developed or efficient as those in the United States. Securities of
some foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Similarly, volume and liquidity in most foreign
securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States. The issuers of
some of these securities, such as foreign bank obligations, may be subject to
less stringent or different regulations than are U.S. issuers. In addition,
there may be less publicly available information about a non-U.S. issuer, and
non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held
outside the United States, the Fund will be subject to additional risks which
include possible adverse political and economic developments, possible
seizure or nationalization of foreign deposits and possible adoption of
governmental restrictions that might adversely affect the payment of
principal and interest on the foreign securities or might restrict the
payment of principal and interest to investors located outside the country of
the issuers, whether from currency blockage or otherwise. Custodial expenses
for a portfolio of non-U.S. securities generally are higher than for a
portfolio of U.S. securities.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. Some currency exchange costs may be
incurred when the Fund changes investments from one country to another.
Furthermore, some of these securities may be subject to brokerage
taxes levied by foreign governments, which have the effect of increasing the
cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income received by the
Fund from sources within foreign countries may be reduced by withholding and
other taxes imposed by such countries. Tax conventions between certain
countries and the United States, however, may reduce or eliminate such taxes.
All such taxes paid by the Fund will reduce its net income available for
distribution to investors.
FOREIGN CURRENCY EXCHANGE _ Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad.
The foreign currency market offers less protection against defaults
in the forward trading of currencies than is available when trading in
currencies occurs on an exchange. Since a forward currency contract is not
guaranteed by an exchange or clearinghouse, a default on the contract would
deprive the Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
OTHER INVESTMENT CONSIDERATIONS -- Investors should be aware that even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities generally are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. The values of fixed-income securities also may be
affected by changes in the credit rating or financial condition of the
issuing entities.
The use of investment techniques such as leverage through borrowing,
purchasing securities on a forward commitment basis and lending portfolio
securities, and the purchase of certain stripped mortgage-backed securities
and zero coupon securities, involves greater risk than that incurred by many
other funds with similar objectives. These risks are described above under
"Investment Techniques." In addition, using these techniques may produce
higher than normal portfolio turnover and may affect the degree to which the
Fund's net asset value fluctuates. Higher portfolio turnover rates are likely
to result in comparatively greater brokerage commissions or transaction
costs. Short-term gains realized from portfolio transactions are taxable to
share-
Page 10
holders as ordinary income. The amount of portfolio activity will not be
a limiting factor when making portfolio decisions. Under normal market
conditions, the Fund's portfolio turnover rate generally will not exceed
100%. See "Portfolio Transactions" in the Statement of Additional
Information.
No assurance can be given as to the liquidity of the market for
certain mortgage-backed securities, such as collateralized mortgage
obligations and stripped mortgage-backed securities, and certain asset-backed
securities. Determination as to the liquidity of such securities will be made
in accordance with guidelines established by the Fund's Board of Directors.
In accordance with such guidelines, The Dreyfus Corporation will monitor the
Fund's investments in such securities with particular regard to trading
activity, availability of reliable price information and other relevant
information.
The Fund's classification as a "non-diversified" investment company
means that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940. A "diversified" investment company is required by the Investment
Company Act of 1940 generally to invest, with respect to 75% of its total
assets, not more than 5% of such assets in the securities of a single issuer.
However, the Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which requires that, at the end of each
quarter of its taxable year, (i) at least 50% of the market value of the
Fund's total assets be invested in cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets, and (ii) not more than 25% of the value of its total assets be
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies). Since
a relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, some of which may be within the
same industry or economic sector, the Fund's portfolio securities may be more
susceptible to any single economic, political or regulatory occurrence than
the portfolio securities of a diversified investment company.
Investment decisions for the Fund are made independently from those
of other investment companies advised by The Dreyfus Corporation. However, if
such other investment companies are prepared to invest in, or desire to
dispose of, securities of the type in which the Fund invests at the same time
as the Fund, available investments or opportunities for sales will be
allocated equitably to each investment company. In some cases, this procedure
may adversely affect the size of the position obtained for or disposed of by
the Fund or the price paid or received by the Fund.
MANAGEMENT OF THE FUND
The Dreyfus Corporation, located at 200 Park Avenue, New York, New
York 10166, was formed in 1947 and serves as the Fund's investment adviser.
The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As
of October 31, 1994, The Dreyfus Corporation managed or administered
approximately $73 billion in assets for more than 1.9 million investor
accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of the Fund's affairs under a Management Agreement with the Fund,
subject to the overall authority of the Fund's Board of Directors in
accordance with Maryland law. The Fund's primary portfolio manager is Gerald
E. Thunelius. He has held that position since June 1994, and has been an
employee of The Dreyfus Corporation since May 1989. The Fund's other
portfolio managers are identified under "Management of the Fund" in the
Fund's Statement of Additional Information. The Dreyfus Corporation also
provides research services for the Fund as well as for other funds advised by
The Dreyfus Corporation through a professional staff of portfolio managers
and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-
Page 11
owned subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National
Association, Mellon Bank (MD), The Boston Company, Inc., AFCO Credit
Corporation and a number of companies known as Mellon Financial Services
Corporations. Through its subsidiaries, Mellon managed more than $201 billion
in assets as of September 30, 1994, including approximately $76 billion in
mutual fund assets. As of September 30, 1994, various subsidiaries of Mellon
provided non-investment services, such as custodial or administration
services, for approximately $659 billion in assets, including approximately
$108 billion in mutual fund assets.
Under the terms of the Management Agreement, the Fund has agreed to
pay The Dreyfus Corporation a monthly fee at the annual rate of .50 of 1% of
the value of the Fund's average daily net assets. From time to time, The
Dreyfus Corporation may waive receipt of its fees and/or voluntarily assume
certain expenses of the Fund, which would have the effect of lowering the
overall expense ratio of the Fund and increasing yield to investors at the
time such amounts are waived or assumed, as the case may be. The Fund will
not pay The Dreyfus Corporation at a later time for any amounts it may waive,
nor will the Fund reimburse The Dreyfus Corporation for any amounts it may
assume. For the fiscal year ended July 31, 1994, no management fee was paid
by the Fund pursuant to an undertaking by The Dreyfus Corporation.
The Dreyfus Corporation may pay the Fund's distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Fund. The
Fund's distributor may use part or all of such payments to pay Service Agents
in respect of these services.
The Fund bears certain costs of distributing Fund shares in
accordance with a plan (the "Service Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940. See "Annual Fund Operating
Expenses" and "Service Plan."
The Fund's distributor is Premier Mutual Fund Services, Inc. (the
"Distributor"), located at One Exchange Place, Boston, Massachusetts 02109.
The Distributor is a wholly-owned subsidiary of Institutional Administration
Services, Inc., a provider of mutual fund administration services, the parent
company of which is Boston Institutional Group, Inc.
The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). The
Bank of New York, 110 Washington Street, New York, New York 10286, is the
Fund's Custodian.
HOW TO BUY FUND SHARES
You can purchase Fund shares through the Distributor or certain
financial institutions (which may include banks), securities dealers and
other industry professionals (collectively, "Service Agents") that have
entered into service agreements with the Distributor. Stock certificates are
issued only upon your written request. No certificates are issued for
fractional shares. The Fund reserves the right to reject any purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at least
$100. The initial investment must be accompanied by the Fund's Account
Application. For full-time or part-time employees of The Dreyfus Corporation
or any of its affiliates or subsidiaries, directors of The Dreyfus
Corporation, Board members of a fund advised by The Dreyfus Corporation,
including members of the Fund's Board, or the spouse or minor child of any of
the foregoing, the minimum initial investment is $1,000. For full-time or
part-time employees of The Dreyfus Corporation or any of its affiliates or
subsidiaries who elect to have a portion of their pay directly deposited into
their Fund account, the minimum initial investment is $50. The Fund reserves
the right to offer Fund shares without regard to minimum purchase
requirements to employees participating in certain qualified or non-qualified
employee benefit plans or other programs where contributions or account
information can be transmitted in a manner and form acceptable to the Fund.
The Fund reserves the right to vary further the initial and subsequent
investment minimum requirements at any time.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian." Payments to open new accounts which
are mailed
Page 12
should be sent to The Dreyfus Family of Funds, P.O. Box 9387,
Providence, Rhode Island 02940-9387, together with your Account Application.
For subsequent investments, your Fund account number should appear on the
check and an investment slip should be enclosed and sent to The Dreyfus
Family of Funds, P.O. Box 105, Newark, New Jersey 07101-0105. For Dreyfus
retirement plan accounts, both initial and subsequent investments should be
sent to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Neither initial nor subsequent investments should be
made by third party check. Purchase orders may be delivered in person only to
a Dreyfus Financial Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND
WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the nearest
Dreyfus Financial Center, please call one of the telephone numbers listed
under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, DDA #8900117028/Dreyfus
Short-Term Income Fund, Inc., for purchase of Fund shares in your name. The
wire must include your Fund account number (for new accounts, your Taxpayer
Identification Number ("TIN") should be included instead), account
registration and dealer number, if applicable. If your initial purchase of
Fund shares is by wire, please call 1-800-645-6561 after completing your wire
payment to obtain your Fund account number. Please include your Fund account
number on the Fund's Account Application and promptly mail the Account
Application to the Fund, as no redemptions will be permitted until the Account
Application is received. You may obtain further information about remitting
funds in this manner from your bank. All payments should be made in U.S.
dollars and, to avoid fees and delays, should be drawn only on U.S. banks. A
charge will be imposed if any check used for investment in your account does
not clear. The Fund makes available to certain large institutions the ability
to issue purchase instructions through compatible computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
your Fund account number PRECEDED BY THE DIGITS "1111."
Management understands that some Service Agents may impose certain
conditions on their clients which are different from those described in this
Prospectus, and, to the extent permitted by applicable regulatory
authorities, may charge their clients direct fees for Servicing (as defined
under "Service Plan"). These fees would be in addition to any amounts which
might be received under the Service Plan. Each Service Agent has agreed to
transmit to its clients a schedule of such fees. You should consult your
Service Agent in this regard.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by the Distributor
to such plans or programs exceeds one million dollars. All present holdings
of shares of funds in the Dreyfus Family of Funds by such employee benefit
plans or programs will be aggregated to determine the fee payable with
respect to each purchase of Fund shares. The Distributor reserves the right
to cease paying these fees at any time. The Distributor will pay such fees
from its own funds, other than amounts received from the Fund, including past
profits or any other source available to it.
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other agent. Net asset value per share is determined as of
the close of trading on the floor of the New York Stock Exchange (currently
4:00 p.m., New York time), on each day the New York Stock Exchange is open
for business. Net asset value per share is
Page 13
computed by dividing the value of the Fund's net assets (i.e., the value of
its assets less liabilities) by the total number of shares outstanding. The
Fund's investments are valued each business day generally by using available
market quotations or at fair value which may be determined by one or more
pricing services approved by the Board of Directors. Each pricing service's
procedures are reviewed under the general supervision of the Board of
Directors. For further information regarding the methods employed in valuing
Fund investments, see "Determination of Net Asset Value" in the Fund's
Statement of Additional Information.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Fund's Account Application for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject you
to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE _ You may purchase Fund shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Fund's Account Application
or have filed a Shareholder Services Form with the Transfer Agent. The
proceeds will be transferred between the bank account designated in one of
these documents and your Fund account. Only a bank account maintained in a
domestic financial institution which is an Automated Clearing House member
may be so designated. The Fund may modify or terminate this Privilege at any
time or charge a service fee upon notice to shareholders. No such fee
currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
SHAREHOLDER SERVICES
The services and privileges described under this heading may not be
available to clients of certain Service Agents and some Service Agents may
impose certain conditions on their clients which are different from those
described in this Prospectus. You should consult your Service Agent in this
regard.
FUND EXCHANGES -- You may purchase, in exchange for shares of the Fund,
shares of certain other funds managed or administered by The Dreyfus
Corporation, to the extent such shares are offered for sale in your state of
residence. These funds have different investment objectives which may be of
interest to you. If you desire to use this service, you should consult your
Service Agent or call 1-800-645-6561 to determine if it is available and
whether any conditions are imposed on its use.
To request an exchange, you or your Service Agent acting on your
behalf must give exchange instructions to the Transfer Agent in writing or by
telephone. Before any exchange, you must obtain and should review a copy of
the current prospectus of the fund into which the exchange is being made.
Prospectuses may be obtained by calling 1-800-645-6561. Except in the case of
Personal Retirement Plans, the shares being exchanged must have a current
value of at least $500; furthermore, when establishing a new account by
exchange, the shares being exchanged must have a value of at least the
minimum initial investment required for the fund into which the exchange is
being made. The ability to issue exchange instructions by telephone is given
to all Fund shareholders automatically, unless you check the relevant "NO"
box on the Account Application, indicating that you specifically refuse this
privilege. The Telephone Exchange Privilege may be established for an
existing account by written request, signed by all shareholders on the
account or by a separate signed Shareholder Services Form, also available by
calling 1-800-645-6561. If you have established the Telephone Exchange
Privilege, you may telephone exchange instructions by calling 1-800-221-4060
or, if you are calling from overseas, call 1-401-455-3306. See "How to Redeem
Fund Shares_Procedures." Upon an exchange into a new account, the following
shareholder services and privileges, as applicable and where available, will
be automatically carried over to the fund into which the exchange is made:
Telephone Exchange Privilege, Check Redemption Privilege, Wire Redemption
Privilege, Telephone Redemption Privilege, Dreyfus TELETRANSFER Privilege,
and the dividend/capital gain distribution option (except for Dreyfus
Dividend Sweep) selected by the investor.
Page 14
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the fund from
which you are exchanging were: (a) purchased with a sales load, (b) acquired
by a previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestment of dividends or distributions paid with respect
to the foregoing categories of shares. To qualify, at the time of your
exchange you must notify the Transfer Agent or your Service Agent must notify
the Distributor. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal fee in accordance with rules promulgated by the
Securities and Exchange Commission. The Fund reserves the right to reject any
exchange request in whole or in part. The availability of Fund exchanges may
be modified or terminated at any time upon notice to shareholders.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
DREYFUS AUTO-EXCHANGE PRIVILEGE -- Dreyfus Auto-Exchange Privilege enables
you to invest regularly (on a semi-monthly, monthly, quarterly or annual
basis), in exchange for shares of the Fund, in shares of other funds in the
Dreyfus Family of Funds of which you are currently an investor. The amount
you designate, which can be expressed either in terms of a specific dollar or
share amount ($100 minimum), will be exchanged automatically on the first
and/or fifteenth of the month according to the schedule you have selected.
Shares will be exchanged at the then-current net asset value; however, a
sales load may be charged with respect to exchanges into funds sold with a
sales load. See "Shareholder Services" in the Statement of Additional
Information. The right to exercise this Privilege may be modified or
cancelled by the Fund or the Transfer Agent. You may modify or cancel your
exercise of this Privilege at any time by writing to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. The Fund may
charge a service fee for the use of this Privilege. No such fee currently is
contemplated. The exchange of shares of one fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss. For more information concerning this
Privilege and the funds in the Dreyfus Family of Funds eligible to
participate in this Privilege, or to obtain a Dreyfus Auto-Exchange
Authorization Form, please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDER -- Dreyfus-Automatic Asset Builder permits
you to purchase Fund shares (minimum of $100 and maximum of $150,000 per
transaction) at regular intervals selected by you. Fund shares are purchased
by transferring funds from the bank account designated by you. At your
option, the account designated by you will be debited in the specified
amount, and Fund shares will be purchased, once a month, on either the first
or fifteenth day, or twice a month, on both days. Only an account maintained
at a domestic financial institution which is an Automated Clearing House
member may be so designated. To establish a Dreyfus-Automatic Asset Builder
account, you must file an authorization form with the Transfer Agent. You may
obtain the necessary authorization form by calling 1-800-645-6561. You may
cancel this Privilege or change the amount of purchase at any time by mailing
written notification to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. The Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE _ Dreyfus Government Direct
Deposit Privilege enables you to purchase Fund shares (minimum of $100 and
maximum of $50,000 per transaction) by having Federal salary, Social
Security, or certain veterans', military or other payments from the Federal
government automati-
Page 15
cally deposited into your Fund account. You may deposit as much of such
payments as you elect. To enroll in Dreyfus Government Direct Deposit, you
must file with the Transfer Agent a completed Direct Deposit Sign-Up Form for
each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from Dreyfus Service Corporation. Death or
legal incapacity will terminate your participation in this Privilege. You may
elect at any time to terminate your participation by notifying in writing the
appropriate Federal agency. Further, the Fund may terminate your participation
upon 30 days' notice to you.
DREYFUS DIVIDEND OPTIONS -- Dreyfus Dividend Sweep enables you to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Fund in shares of another fund in the Dreyfus Family of Funds of
which you are a shareholder. Shares of the other fund will be purchased at
the then-current net asset value; however, a sales load may be charged with
respect to investments in shares of a fund sold with a sales load. If you are
investing in a fund that charges a sales load, you may qualify for share price
s which do not include the sales load or which reflect a reduced sales load.
See "Shareholder Services" in the Statement of Additional Information.
Dreyfus Dividend ACHpermits you to transfer electronically on the payment
date dividends or dividends and capital gain distributions, if any, from the
Fund to a designated bank account. Only an account maintained at a financial
institution which is an Automated Clearing House member may be so designated.
Banks may charge a fee for this service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 6527, Providence, Rhode Island 02940-6527. Enrollment in or
cancellation of these privileges is effective three business days following
receipt. These privileges are available only for existing accounts and may
not be used to open new accounts. Minimum subsequent investments do not apply
for Dreyfus Dividend Sweep. The Fund may modify or terminate these privileges
at any time or charge a service fee. No such fee currently is contemplated.
Shares held under Keogh Plans, IRAs or other retirement plans are not
eligible for Dreyfus Dividend Sweep.
DREYFUS PAYROLL SAVINGS PLAN -- Dreyfus Payroll Savings Plan permits you to
purchase Fund shares (minimum of $100 per transaction) automatically on a
regular basis. Depending upon your employer's direct deposit program, you may
have part or all of your paycheck transferred to your existing Dreyfus
account electronically through the Automated Clearing House system at each
pay period. To establish a Dreyfus Payroll Savings Plan account, you must
file an authorization form with your employer's payroll department. Your
employer must complete the reverse side of the form and return it to The
Dreyfus Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
You may obtain the necessary authorization form by calling 1-800-645-6561.
You may change the amount of purchase or cancel the authorization only by
written notification to your employer. It is the sole responsibility of your
employer, not Dreyfus Service Corporation, The Dreyfus Corporation, the Fund,
the Transfer Agent or any other person, to arrange for transactions under the
Dreyfus Payroll Savings Plan. The Fund may modify or terminate this Privilege
at any time or charge a service fee. No such fee currently is contemplated.
Shares held under Keogh Plans, IRAs or other retirement plans are not
eligible for this Privilege.
AUTOMATIC WITHDRAWAL PLAN -- The Automatic Withdrawal Plan permits you to
request withdrawal of a specified dollar amount (minimum of $50) on either a
monthly or quarterly basis if you have a $5,000 minimum account. An
application for the Automatic Withdrawal Plan can be obtained by calling
1-800-645-6561. There is a service charge of 50cents for each withdrawal
check. The Automatic Withdrawal Plan may be ended at any time by you, the
Fund or the Transfer Agent. Shares for which certificates have been issued
may not be redeemed through the Automatic Withdrawal Plan.
RETIREMENT PLANS -- The Fund offers a variety of pension and profit-sharing
plans, including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts,"
401(k) Salary Reduction Plans and 403(b)(7) Plans. Plan support services also
are available. You can obtain details on the various plans by calling the
following numbers toll
Page 16
free: for Keogh Plans, please call 1-800-358-5566; for
IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; for SEP-IRAs,
401(k) Salary Reduction Plans and 403(b)(7) Plans, please call 1-800-322-7880.
HOW TO REDEEM FUND SHARES
GENERAL -- You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
The Fund imposes no charges when shares are redeemed directly through
the Distributor. Service Agents may charge a nominal fee for effecting
redemptions of Fund shares. Any certificates representing Fund shares being
redeemed must be submitted with the redemption request. The value of the
shares redeemed may be more or less than their original cost, depending upon
the Fund's then-current net asset value.
The Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUND WILL NOT HONOR REDEMPTION CHECKS UNDER THE CHECK
REDEMPTION PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR
TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE, FOR A PERIOD OF
EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE
CHECK, THE DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET
BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES
WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU
OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE RED
EMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS ON
SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO EXERCISE
ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be redeemed
until the Transfer Agent has received your Account Application.
The Fund reserves the right to redeem your account at its option upon
not less than 45 days' written notice if your account's net asset value is
$500 or less and remains so during the notice period.
PROCEDURES -- You may redeem Fund shares by using the regular redemption
procedure through the Transfer Agent, the Check Redemption Privilege, the
Wire Redemption Privilege, the Telephone Redemption Privilege, or the Dreyfus
TeleTransfer Privilege. Other redemption procedures may be in effect for
clients of certain Service Agents. The Fund makes available to certain large
institutions the ability to issue redemption instructions through compatible
computer facilities.
You may redeem Fund shares by telephone if you have checked the
appropriate box on the Fund's Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select a telephone redemption
privilege or telephone exchange privilege (which is granted automatically
unless you refuse it), you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, or a
representative of your Service Agent, and reasonably believed by the Transfer
Agent to be genuine. The Fund will require the Transfer Agent to employ
reasonable procedures, such as requiring a form of personal identification,
to confirm that instructions are genuine and, if it does not follow such
procedures, the Fund or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent instructions. Neither the Fund nor the Transfer
Agent will be liable for following telephone instructions reasonably believed
to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption
Page 17
procedures may result in your redemption request being processed at a later
time than it would have been if telephone redemption had been used. During
the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION -- Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
6527, Providence, Rhode Island 02940-6527, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP"), and the Stock Exchanges Medallion Program. If
you have any questions with respect to signature-guarantees, please call one
of the telephone numbers listed under "General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE -- You may request on the Account Application,
Shareholder Services Form or by later written request that the Fund provide
Redemption Checks drawn on the Fund's account. Redemption Checks may be made
payable to the order of any person in the amount of $500 or more. Potential
fluctuations in the net asset value of the Fund's shares should be considered
in determining the amount of the check. Redemption Checks should not be used
to close your account. Redemption Checks are free, but the Transfer Agent
will impose a fee for stopping payment of a Redemption Check upon your
request or if the Transfer Agent cannot honor a Redemption Check due to
insufficient funds or other valid reason. You should date your Redemption
Checks with the current date when you write them. Please do not postdate your
redemption checks. If you do, the Transfer Agent will honor upon presentment,
even if presented before the date of the check, all postdated Redemption
Checks which are dated within six months of presentment for payment, if they
are otherwise in good order. Shares for which certificates have been issued
may not be redeemed by Redemption Check. Shares held under Keogh Plans, IRAs
or other Dreyfus retirement plans are not eligible for this Privilege. This
Privilege may be modified or terminated at any time by the Fund or the
Transfer Agent upon notice to shareholders.
WIRE REDEMPTION PRIVILEGE -- You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. To establish the Wire Redemption Privilege, you must
check the appropriate box and supply the necessary information on the Fund's
Account Application or file a Shareholder Services Form with the Transfer
Agent. You may direct that redemption proceeds be paid by check (maximum
$150,000 per day)made out to the owners of record and mailed to your address.
Redemption proceeds of less than $1,000 will be paid automatically by check.
Holders of jointly registered Fund or bank accounts may have redemption
proceeds of not more than $250,000 wired within any 30-day period. You may
telephone redemption requests by calling 1-800-221-4060 or, if you are
calling from overseas, call 1-401-455-3306. The Fund reserves the right to
refuse any redemption request, including requests made shortly after a change
of address, and may limit the amount involved or the number of such requests.
This Privilege may be modified or terminated at any time by the Transfer
Agent or the Fund. The Fund's Statement of Additional Information sets forth
instructions for transmitting redemption requests by wire. Shares held under
Keogh Plans, IRAs or other retirement plans, and shares for which
certificates have been issued, are not eligible for this Privilege.
Page 18
TELEPHONE REDEMPTION PRIVILEGE -- You may redeem Fund shares (maximum
$150,000 per day) by telephone if you have checked the appropriate box on the
Fund's Account Application or have filed a Shareholder Services Form with the
Transfer Agent. The redemption proceeds will be paid by check and mailed to
your address. You may telephone redemption instructions by calling
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of telephone redemption requests. This Privilege may
be modified or terminated at any time by the Transfer Agent or the Fund.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares for
which the certificates have been issued, are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE -- You may redeem Fund shares (minimum $500
per day) by telephone if you have checked the appropriate box and supplied
the necessary information on the Fund's Account Application or have filed a
Shareholder Services Form with the Transfer Agent. The proceeds will be
transferred between your Fund account and the bank account designated in one
of these documents. Only such an account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request or, at your request, paid by check (maximum $150,000 per
day) and mailed to your address. Holders of jointly registered Fund or bank
accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account not more than $250,000 within any 30-day period. The
Fund reserves the right to refuse any request made by telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of such requests. The Fund may modify or terminate
this Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of Fund shares by telephoning
1-800-221-4060 or, if you are calling from overseas, call 1-401-455-3306.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares
issued in certificate form, are not eligible for this Privilege.
SERVICE PLAN
Under the Service Plan, adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund (a) reimburses the Distributor for
payments to certain Service Agents for distributing the Fund's shares and
servicing shareholder accounts ("Servicing") and (b) pays The Dreyfus
Corporation, Dreyfus Service Corporation, a wholly-owned subsidiary of The
Dreyfus Corporation, and any affiliate of either of them (collectively,
"Dreyfus") for advertising and marketing relating to the Fund and for
Servicing, at an aggregate annual rate of .20 of 1% of the value of the Fund's
average daily net assets. Each of the Distributor and Dreyfus may pay one or
more Service Agents a fee in respect of the Fund's shares owned by
shareholders with whom the Service Agent has a Servicing relationship or for
whom the Service Agent is the dealer or holder of record. Each of the
Distributor and Dreyfus determine the amounts, if any, to be paid to Service
Agents under the Service Plan and the basis on which such payments are made.
The fees payable under the Service Plan are payable without regard to actual
expenses incurred.
The Fund also bears the costs of preparing and printing prospectuses
and statements of additional information used for regulatory purposes and for
distribution to existing shareholders. Under the Service Plan, the Fund bears
(a) the costs of preparing, printing and distributing prospectuses and
statements of additional information used for other purposes, and (b) the
costs associated with implementing and operating the Service Plan (such as
costs of printing and mailing service agreements), the aggregate of such
amounts not to exceed in any fiscal year of the Fund the greater of $100,000
or .005 of 1% of the value of the Fund's average daily net assets for such
fiscal year. Each item for which a payment may be made under the Service Plan
may constitute an expense of distributing Fund shares as the Securities and
Exchange Commission construes such term under Rule 12b-1.
Page 19
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund ordinarily declares dividends from net investment income on
each day the New York Stock Exchange is open for business. Dividends usually
are paid on the last business day of each month, and automatically reinvested
in additional Fund shares at net asset value or, at your option, paid in
cash. Shares begin accruing dividends on the day following the date of
purchase. The Fund's earnings for Saturdays, Sundays and holidays are
declared as dividends on the next business day. If you redeem all shares in
your account at any time during the month, all dividends to which you are
entitled will be paid to you along with the proceeds of the redemption.
Distributions from net realized securities gains, if any, generally are
declared and paid once a year, but the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Code, in
all events in a manner consistent with the provisions of the Investment
Company Act of 1940. The Fund will not make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized
or have expired. You may choose whether to receive distributions in cash or
to reinvest in additional Fund shares at net asset value. All expenses are
accrued daily and deducted before declaration of dividends to investors.
Dividends derived from net investment income, together with
distributions from any net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund will be taxable to shareholders as
ordinary income whether received in cash or reinvested in Fund shares. No
dividend paid by the Fund will qualify for the dividends received deduction
allowable to certain U.S. corporations. Distributions from net realized
long-term securities gains of the Fund are taxable to U.S. shareholders as
long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Fund shares and whether such distributions
are received in cash or reinvested in Fund shares. The Code provides that the
net capital gains of an individual generally will not be subject to Federal
income tax at a rate in excess of 28%. Dividends and distributions may be
subject to state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by the Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by the
Fund to a foreign investor as well as the proceeds of any redemptions from a
foreign investor's account, regardless of the extent to which gain or loss
may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup wi
thholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify the Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Page 20
Management of the Fund believes that the Fund has qualified for the
fiscal year ended July 31, 1994 as a "regulated investment company" under the
Code. The Fund intends to continue to so qualify if such qualification is in
the best interests of its shareholders. Such qualification relieves the Fund
of any liability for Federal income tax to the extent its earnings are
distributed in accordance with the applicable provisions of the Code. The
Fund is subject to a non-deductible 4% excise tax, measured with respect to
certain undistributed amounts of taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to the Fund's annualized net investment income
per share over a 30-day period, expressed as a percentage of the net asset
value per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of current
yield may reflect absorbed expenses pursuant to any undertaking that may be
in effect. See "Management of the Fund."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment in the Fund was purchased with an
initial payment of $1,000 and that the investment was redeemed at the end of
a stated period of time, after giving effect to the reinvestment of dividends
and distributions during the period. The return is expressed as a percentage
rate which, if applied on a compounded annual basis, would result in the
redeemable value of the investment at the end of the period. Advertisements
of the Fund's performance will include the Fund's average annual total return
for one, five and ten year periods, or for shorter time periods depending
upon the length of time during which the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Moody's Bond Survey Bond Index, Bond Buyer's
20-Bond Index, Morningstar, Inc. and other industry publications. The Fund's
yield should generally be higher than money market funds (the Fund, however,
does not seek to maintain a stabilized price per share and may not be able to
return an investors' principal), and its price per share should fluctuate
less than long term bond funds (which generally have somewhat higher yields).
Page 21
GENERAL INFORMATION
The Fund was incorporated under Maryland law on June 26, 1992, and
commenced operations on August 18, 1992. The Fund is authorized to issue 500
million shares of Common Stock, par value $.001 per share. Each share has one
vote.
Unless otherwise required by the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
shareholders. As a result, Fund shareholders may not consider each year the
election of Directors or the appointment of auditors. However, pursuant to
the Fund's By-laws, the holders of at least 10% of the shares outstanding and
entitled to vote may require the Fund to hold a special meeting of
shareholders for purposes of removing a Director from office and for any
other purpose. Fund shareholders may remove a Director by the affirmative
vote of a majority of the Fund's outstanding voting shares. In addition, the
Board of Directors will call a meeting of shareholders for the purpose of
electing Directors if, at any time, less than a majority of the Directors
then holding office have been elected by shareholders.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 144 Glenn
Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll free
1-800-645-6561. In New York City, call 1-718-895-1206; on Long Island, call
794-5452.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THE PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
Page 22
APPENDIX
The average distribution of investments in corporate bonds by ratings
for the fiscal year ended July 31, 1994, calculated monthly on a dollar
weighted basis, was as follows:
<TABLE>
Moody's Investors Standard & Poor's
Service, Inc. or Corporation Percentage
------------------------- ------------------------- ---------------
<S> <C> <C> <C>
Aaa AAA 13.3%
Aa AA 3.9
A A 21.5
Baa BBB 46.8
Ba BB 11.0
B B .7
NR NR 2.8
---------
100.0%
======
</TABLE>
The actual distribution of the Fund's corporate bond investments by
ratings on any given date will vary. In addition, the distribution of the
Fund's investments by ratings as set forth above should not be considered as
representative of the Fund's future portfolio composition.
Page 23
Short-Term
Income
Fund, Inc.
(Lion Logo)
Prospectus
Registration Mark
Copy Rights 1994 Dreyfus Service Corporation
083p4120194
DREYFUS SHORT-TERM INCOME FUND, INC.
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
DECEMBER 1, 1994
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus Short-Term Income Fund, Inc. (the "Fund"), dated December 1, 1994,
as it may be revised from time to time. To obtain a copy of the Fund's
Prospectus, please write to the Fund at 144 Glenn Curtiss Boulevard,
Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
On Long Island -- Call 794-5452
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . B-8
Management Agreement. . . . . . . . . . . . . . . . . . . B-11
Purchase of Fund Shares . . . . . . . . . . . . . . . . . B-13
Service Plan. . . . . . . . . . . . . . . . . . . . . . . B-14
Redemption of Fund Shares . . . . . . . . . . . . . . . . B-15
Shareholder Services. . . . . . . . . . . . . . . . . . . B-17
Determination of Net Asset Value. . . . . . . . . . . . . B-20
Dividends, Distributions and Taxes. . . . . . . . . . . . B-21
Performance Information . . . . . . . . . . . . . . . . . B-22
Portfolio Transactions. . . . . . . . . . . . . . . . . . B-23
Information About the Fund. . . . . . . . . . . . . . . . B-24
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . B-24
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . B-26
Financial Statements. . . . . . . . . . . . . . . . . . . B-32
Report of Independent Auditors. . . . . . . . . . . . . . B-41
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Description of the
Fund."
Portfolio Securities
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are
required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation (the "FDIC").
Domestic banks organized under state law are supervised and examined by
state banking authorities but are members of the Federal Reserve System only
if they elect to join. In addition, state banks whose certificates of
deposit ("CDs") may be purchased by the Fund are insured by the FDIC
(although such insurance may not be of material benefit to the Fund,
depending on the principal amount of the CDs of each bank held by the Fund)
and are subject to Federal examination and to a substantial body of Federal
law and regulation. As a result of Federal or state laws and regulations,
domestic branches of domestic banks whose CDs may be purchased by the Fund
generally are required, among other things, to maintain specified levels of
reserves, are limited in the amounts which they can loan to a single
borrower and are subject to other regulation designed to promote financial
soundness. However, not all of such laws and regulations apply to the
foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as
CDs and time deposits ("TDs"), may be general obligations of the parent
banks in addition to the issuing branch, or may be limited by the terms of a
specific obligation and governmental regulation. Such obligations are
subject to different risks than are those of domestic banks. These risks
include foreign economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and interest on
the obligations, foreign exchange controls and foreign withholding and other
taxes on interest income. These foreign branches and subsidiaries are not
necessarily subject to the same or similar regulatory requirements that
apply to domestic banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial recordkeeping
requirements. In addition, less information may be publicly available about
a foreign branch of a domestic bank or about a foreign bank than about a
domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by Federal or state
regulation as well as governmental action in the country in which the
foreign bank has its head office. A domestic branch of a foreign bank with
assets in excess of $1 billion may be subject to reserve requirements
imposed by the Federal Reserve System or by the state in which the branch is
located if the branch is licensed in that state.
In addition, Federal branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State Branches") may be required
to: (1) pledge to the regulator, by depositing assets with a designated
bank within the state, a certain percentage of their assets as fixed from
time to time by the appropriate regulatory authority; and (2) maintain
assets within the state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The deposits of Federal
and State Branches generally must be insured by the FDIC if such branches
take deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches
of foreign banks, the Manager carefully evaluates such investments on a
case-by-case basis.
The Fund may purchase CDs issued by banks, savings and loan associations
and similar thrift institutions with less than $1 billion in assets, which
are members of the FDIC, provided the Fund purchases any such CD in a
principal amount of not more than $100,000, which amount would be fully
insured by the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the FDIC. Interest payments on such a CD are not insured by
the FDIC. The Fund will not own more than one such CD per such issuer.
Municipal Obligations
Municipal obligations generally include debt obligations issued to obtain
funds for various public purposes as well as certain industrial development
bonds issued by or on behalf of public authorities. Municipal obligations
are classified as general obligation bonds, revenue bonds and notes.
General obligations bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. Revenue
bonds are payable from the revenue derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise
or other specific revenue source, but not from the general taxing power.
Industrial development bonds, in most cases, are revenue bonds and generally
do not carry the pledge of the credit of the issuing municipality, but
generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the
issuing municipalities or agencies and are sold in anticipation of a bond
sale, collection of taxes or receipt of other revenues. Municipal
obligations include municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment issued by
municipalities. Municipal obligations bear fixed, floating or variable
rates of interest.
Mortgage-Related Securities
Government-Agency Securities. Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed
as to the timely payment of principal and interest by GNMA and such
guarantee is backed by the full faith and credit of the United States. GNMA
is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee.
Government-Related Securities. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of the FNMA and are not backed by or entitled to the
full faith and credit of the United States. The FNMA is a government-
sponsored organization owned entirely by private stockholders. Fannie Maes
are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). The FHLMC is a corporate
instrumentality of the United States created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank and do not
constitute a debt or obligation of the United States or of any Federal Home
Loan Bank. Freddie Macs entitle the holder to timely payment of interest,
which is guaranteed by the FHLMC. The FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
Repurchase Agreements. The Fund's custodian or sub-custodian will have
custody of, and will hold in a segregated account, securities acquired by
the Fund under a repurchase agreement. Repurchase agreements are considered
by the staff of the Securities and Exchange Commission to be loans by the
Fund. In an attempt to reduce the risk of incurring a loss on a repurchase
agreement, the Fund will enter into repurchase agreements only with domestic
banks with total assets in excess of one billion dollars, or primary
government securities dealers reporting to the Federal Reserve Bank of New
York, with respect to securities of the type in which the Fund may invest,
and will require that additional securities be deposited with it if the
value of the securities purchased should decrease below the resale price.
The Manager will monitor on an ongoing basis the value of the collateral to
assure that it always equals or exceeds the repurchase price. The Fund will
consider on an ongoing basis the creditworthiness of the institutions with
which it enters into repurchase agreements.
Commercial Paper and Other Short-Term Corporate Obligations. Variable rate
demand notes include variable amount master demand notes, which are
obligations that permit the Fund to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. As mutually agreed between the parties, the Fund may increase the
amount under the notes at any time up to the full amount provided by the
note agreement, or decrease the amount, and the borrower may repay up to the
full amount of the note without penalty. Because these obligations are
direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value, plus accrued interest, at any time.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the Fund's right to redeem is dependent
on the ability of the borrower to pay principal and interest on demand. In
connection with floating and variable rate demand obligations, the Manager
will consider, on an ongoing basis, earning power, cash flow and other
liquidity ratios of the borrower, and the borrower's ability to pay
principal and interest on demand. Such obligations frequently are not rated
by credit rating agencies, and the Fund may invest in them only if at the
time of an investment the borrower meets the criteria set forth in the
Fund's Prospectus for other commercial paper issuers.
Illiquid Securities. When purchasing securities that have not been
registered under the Securities Act of 1933, as amended, and are not readily
marketable, the Fund will endeavor to obtain the right to registration at
the expense of the issuer. Generally, there will be a lapse of time between
the Fund's decision to sell any such security and the registration of the
security permitting sale. During any such period, the price of the
securities will be subject to market fluctuations. However, if a
substantial market of qualified institutional buyers develops pursuant to
Rule 144A under the Securities Act of 1933, as amended, for certain
unregistered securities held by the Fund, the Fund intends to treat certain
unregistered securities as liquid securities in accordance with procedures
approved by the Fund's Board of Directors. Because it is not possible to
predict with assurance how the market for restricted securities pursuant to
Rule 144A will develop, the Fund's Board of Directors has directed the
Manager to monitor carefully the Fund's investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, the Fund's investing in such securities
may have the effect of increasing the level of illiquidity in the Fund's
portfolio during such period.
Management Policies
The Fund engages in the following practices in furtherance of its
objective.
Lending Portfolio Securities. To a limited extent, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided it receives cash collateral which at all times is maintained in an
amount equal to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, the Fund can increase its
income through the investment of the cash collateral. For purposes of this
policy, the Fund considers collateral consisting of U.S. Government
securities or irrevocable letters of credit issued by banks whose securities
meet the standards for investment by the Fund to be the equivalent of cash.
From time to time, the Fund may return to the borrower or a third party
which is unaffiliated with the Fund, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must
be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any interest or other
distributions payable on the loaned securities, and any increase in market
value; and (5) the Fund may pay only reasonable custodian fees in connection
with the loan. These conditions may be subject to future modification.
Risk Factors
Lower Rated Securities. The Fund is permitted to invest in debt securities
rated Ba and below by Moody's Investors Service, Inc. ("Moody's") and BB and
below by Standard & Poor's Corporation ("S&P"), Fitch Investors Service,
Inc. ("Fitch") and Duff & Phelps Credit Ratings Co. ("Duff") and as low as
Caa by Moody's or CCC by S&P, Fitch or Duff. Such securities, though higher
yielding, are characterized by risk. See in the Prospectus "Description of
the Fund-Risk Factors-Lower Rated Securities" for a discussion of certain
risks and the Appendix for a general description of Moody's, S&P, Fitch and
Duff ratings. Although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk
of these securities. The Fund will rely on the Manager's judgment, analysis
and experience in evaluating the creditworthiness of an issuer. In this
evaluation, the Manager will take into consideration, among other things,
the issuer's financial resources, its sensitivity to economic conditions and
trends, the quality of the issuer's management and regulatory matters. It
also is possible that a rating agency might not in a timely fashion change
the rating on a particular issue to reflect subsequent events. Once the
rating of a debt security in the Fund's portfolio has been changed, the
Manager will consider all circumstances deemed relevant in determining
whether the Fund should continue to hold the security.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities. These securities are considered by S&P, Moody's, Fitch
and Duff, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation and generally will involve more credit risk than securities in
the higher rating categories.
Because there is no established retail secondary market for many of these
securities, the Fund anticipates that such securities could be sold only to
a limited number of dealers or institutional investors. To the extent a
secondary trading market for these securities does exist, it generally is
not as liquid as the secondary market for higher rated securities. The lack
of a liquid secondary market may have an adverse impact on market price and
yield and the Fund's ability to dispose of particular issues when necessary
to meet the Fund's liquidity needs or in response to a specific economic
event such as a deterioration in the creditworthiness of the issuer. The
lack of a liquid secondary market for certain securities also may make it
more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund's portfolio and calculating its net asset
value. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of these
securities. In such cases, judgment may play a greater role in valuation
because less reliable, objective data may be available.
These securities may be particularly susceptible to economic downturns. It
is likely, however, that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of
such securities. In addition, it is likely that any such economic downturn
could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon and increase the incidence of
default for such securities.
The Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with the Distributor or any other persons concerning the
acquisition of such securities, and the Manager will review carefully the
credit and other characteristics pertinent to such new issues.
Investment Restrictions
The Fund has adopted investment restrictions numbered 1 through 7 as
fundamental policies. These restrictions cannot be changed without approval
by the holders of a majority (as defined in the Investment Company Act of
1940, as amended (the "Act")) of the Fund's outstanding voting shares.
Investment restrictions numbered 8 through 13 are not fundamental policies
and may be changed by vote of a majority of the Directors at any time. The
Fund may not:
1. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to indexes, and options on
futures contracts or indexes.
2. Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Fund may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate. In particular, the Fund may purchase
mortgage-backed securities and real estate investment trust securities.
3. Borrow money, except to the extent permitted under the Act. For
purposes of this investment restriction, the entry into options, futures
contracts, including those relating to indexes, and options on futures
contracts or indexes shall not constitute borrowing.
4. Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, the Fund may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the
Fund's Board of Directors.
5. Act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities.
6. Invest more than 25% of its assets in the securities of issuers in any
single industry, provided there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
7. Issue any senior security (as such term is defined in Section 18(f) of
the Act), except to the extent the activities permitted in Investment
Restriction Nos. 1, 3 and 9 may be deemed to give rise to a senior security.
8. Invest in the securities of a company for the purpose of exercising
management or control, but the Fund will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with writing covered put and call
options and the purchase of securities on a when-issued or forward
commitment basis and collateral and initial or variation margin arrangements
with respect to options, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
10. Purchase, sell or write puts, calls or combinations thereof.
11. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of the Fund's net assets would be
so invested.
12. Invest in securities of other investment companies, except to the
extent permitted under the Act or as they may be acquired as part of a
merger, consolidation or acquisition of assets.
13. Sell securities short or purchase securities on margin, but the Fund
may make margin deposits in connection with transactions in futures,
including those relating to indexes, and options on futures or indexes.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions listed
above so as to permit the sale of Fund shares in certain states. Should the
Fund determine that a commitment is no longer in the best interest of the
Fund and its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of Fund shares in the state involved.
MANAGEMENT OF THE FUND
Directors and officers of the Fund, together with information as to their
principal business occupations during at least the last five years, are
shown below. Each Director who is deemed to be an "interested person" of
the Fund, as defined in the Act, is indicated by an asterisk.
Directors of the Fund
LUCY WILSON BENSON, Director. President of Benson and Associates,
consultants to business and government. Mrs. Benson is a director of
Communications Satellite Corporation, General Re Corporation, The Grumman
Corporation and Logistics Management Institute. She is also a trustee of
the Alfred P. Sloan Foundation, Vice Chairman of the Board of Trustees of
Lafayette College, Vice Chairman of the Citizens Network for Foreign
Affairs and a member of the Council on Foreign Relations. Mrs. Benson
served as a consultant to the U.S. Department of State and to SRI
International from 1980 to 1981. From 1977 to 1980, she was Under
Secretary of State for Security Assistance, Science and Technology. Her
address is 46 Sunset Avenue, Amherst, Massachusetts 01002.
*DAVID W. BURKE, Director. Consultant to the Manager since August 1994.
From October 1990 to August 1994, he was Vice President and Chief
Administrative Officer of the Manager. From 1977 to 1990, Mr. Burke was
involved in the management of national television news, as Vice President
and Executive Vice President of ABC News, and subsequently as President of
CBS News. His address is 200 Park Avenue, New York, New York 10166.
MARTIN D. FIFE, Director. President of Fife Associates, Inc. and other
companies engaged in the chemical and plastics industries. His address is
30 Rockefeller Plaza, New York, New York 10112.
WHITNEY I. GERARD, Director. Partner of the New York City law firm of
Chadbourne & Parke. His address is 30 Rockefeller Plaza, New York, New
York 10112.
ROBERT R. GLAUBER, Director. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard University
since January 1992. Mr. Glauber was Under Secretary of the Treasury for
Finance at the U.S. Treasury Department from May 1989 to January 1992. For
more than five years prior thereto, he was a Professor of Finance at the
Graduate School of Business Administration of Harvard University and, from
1985 to 1989, Chairman of its Advanced Management Program. He is also a
director of Mid Ocean Reinsurance Co. Ltd. and Cooke & Bieler, Inc.,
investment counselors. His address is 79 John F. Kennedy Street,
Cambridge, Massachusetts 02138.
ARTHUR A. HARTMAN, Director. Senior consultant with APCO Associates Inc.
From 1981 to 1987, he was United States Ambassador to the former Soviet
Union. He is a director of the Hartford Insurance Group and a member of
the advisory councils of several other companies, research institutes and
foundations. He is President of the Harvard Board of Overseers. His
address is 2738 McKinley Street, N.W., Washington, D.C. 20015.
GEORGE L. PERRY, Director. An economist and Senior Fellow at the Brookings
Institution since 1969. He is co-director of the Brookings Panel on
Economic Activity and editor of its journal, The Brookings Papers. He is
also a director of the State Farm Mutual Automobile Association and State
Farm Life Insurance Company. His address is 1775 Massachusetts Avenue,
N.W., Washington D.C. 20036.
PAUL D. WOLFOWITZ, Director. Dean of The Paul H. Nitze School of Advanced
International Studies at Johns Hopkins University. From 1989 to 1993, he
was Under Secretary of Defense for Policy. From 1986 to 1989, he was the
U.S. Ambassador to the Republic of Indonesia. From 1982 to 1986, he was
Assistant Secretary of State of East Asian and Pacific Affairs of the
Department of State. His address is 1740 Massachusetts Avenue, N.W.,
Washington, D.C. 20036.
The "non-interested" Directors are also directors of Dreyfus Asset
Allocation Fund, Inc., The Dreyfus Fund Incorporated, Dreyfus California
Municipal Income, Inc., Dreyfus Municipal Income, Inc., Dreyfus New York
Municipal Income, Inc., Dreyfus Worldwide Dollar Money Market Fund, Inc. and
The 401(k) Fund, and trustees of Dreyfus Short-Intermediate Municipal Bond
Fund and Dreyfus Institutional Short Term Treasury Fund. The "non-
interested" Directors, except Mr. Glauber, are also directors of Dreyfus
Liquid Assets, Inc. and trustees of Dreyfus Short-Intermediate Government
Fund. Mrs. Benson also is a director of The Dreyfus Third Century Fund,
Inc. and The Dreyfus Socially Responsible Growth Fund, Inc. Mr. Glauber is
also a director of Dreyfus A Bonds Plus, Inc., Dreyfus Balanced Fund, Inc.,
Dreyfus Capital Growth Fund (A Premier Fund), Dreyfus Global Bond Fund,
Inc., Dreyfus Growth and Income Fund, Inc., Dreyfus Growth Opportunity Fund,
Inc., Dreyfus International Equity Fund, Inc., Dreyfus International
Recovery Fund, Inc. and Dreyfus Money Market Instruments, Inc., and a
trustee of Dreyfus Institutional Money Market Fund and Dreyfus Variable
Investment Fund.
For so long as the Fund's plan described in the section captioned "Service
Plan" remains in effect, the Directors of the Fund who are not "interested
persons" of the Fund, as defined in the Act, will be selected and nominated
by the Directors who are not "interested persons" of the Fund.
The Fund does not pay any remuneration to its officers and Directors other
than fees and expenses to "non-interested" Directors which totalled $24,203
for the fiscal year ended July 31, 1994 for all such Directors as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief Operating
Officer of the Distributor and an officer of other investment companies
advised or administered by the Manager. From December 1991 to July 1994,
she was President and Chief Compliance Officer of Funds Distributor, Inc.,
a wholly-owned subsidiary of The Boston Company, Inc. Prior to December
1991, she served as Vice President and Controller, and later as Senior Vice
President, of The Boston Company Advisors, Inc.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992 to
July 1994, he served as Counsel for The Boston Company Advisors, Inc. From
August 1990 to February 1992, he was employed as an Associate at Ropes &
Gray, and prior to August 1990, he was employed as an Associate at Sidley &
Austin.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment companies
advised or administered by the Manager. From 1988 to August 1994, he was
Manager of the High Performance Fabric Division of Springs Industries Inc.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate General
Counsel of the Distributor and an officer of other investment companies
advised or administered by the Manager. From September 1992 to August
1994, he was an attorney with the Board of Governors of the Federal Reserve
System.
JOSEPH F. TOWER,III, Assistant Treasurer. Senior Vice President, Treasurer
and Chief Financial Officer of the Distributor and an officer of other
investment companies advised or administered by the Manager. From July
1988 to August 1994, he was employed by The Boston Company, Inc. where he
held various management positions in the Corporate Finance and Treasury
areas.
JOHN J. PYBURN, Assistant Treasurer. Vice President of the Distributor and
an officer of other investment companies advised or administered by the
Manager. From 1984 to July 1994, he was Assistant Vice President in the
Mutual Fund Accounting Department of the Manager.
PAUL FURCINITO, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From January 1992 to July 1994, he was a
Senior Legal Product Manager for The Boston Company Advisors, Inc., and,
from January 1990 to January 1992, he was a mutual fund accountant for The
Boston Company Advisors, Inc. Prior thereto, he was employed as a licensed
realtor at Furcinito Real Estate, Inc.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From March 1992 to July 1994, she was a
Compliance Officer for The Managers Funds, a registered investment company.
From March 1990 until September 1991, she was Development Director of The
Rockland Center for the Arts and, prior thereto, was employed as a Research
Assistant for the Bureau of National Affairs.
The address of each officer of the Fund is 200 Park Avenue, New York, New
York 10166.
Directors and officers of the Fund, as a group, owned less than 1% of the
Fund's shares of Common Stock outstanding on November 14, 1994.
MANAGEMENT AGREEMENT
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Management of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board of Directors or (ii) vote
of a majority (as defined in the Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance also is approved
by a majority of the Directors who are not "interested persons" (as defined
in the Act) of the Fund or the Manager, by vote cast in person at a meeting
called for the purpose of voting on such approval. The Agreement was
approved by shareholders at a meeting of shareholders held on August 4,
1994, and was last approved by the Fund's Board of Directors, including a
majority of the Directors who are not "interested persons" of any party to
the Agreement, at a meeting held on May 12, 1994. The Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board of
Directors or by vote of the holders of a majority of the Fund's shares, or,
on not less than 90 days' notice, by the Manager. The Agreement will
terminate automatically in the event of its assignment (as defined in the
Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; Julian M.
Smerling, Vice Chairman of the Board of Directors; Joseph S. DiMartino,
President and a director; W. Keith Smith, Chief Operating Officer and a
director; Paul H. Snyder, Vice President and Chief Financial Officer; Daniel
C. Maclean, Vice President and General Counsel; Elie M. Genadry, Vice
President-Institutional Sales; Henry D. Gottmann, Vice President-Retail
Sales and Service; Jeffrey N. Nachman, Vice President-Mutual Fund
Accounting; Diane M. Coffey, Vice President-Corporate Communications; Jay R.
DeMartine, Vice President-Retail Marketing; Barbara E. Casey, Vice
President-Retirement Services; Lawrence S. Kash, Vice Chairman-Distribution;
Philip L. Toia, Vice Chairman-Operations and Administration; Katherine C.
Wickham, Vice President-Human Resources; Mark N. Jacobs, Vice President-Fund
Legal and Compliance, and Secretary; Christine Pavalos, Assistant Secretary;
Maurice Bendrihem, Controller; and Mandell L. Berman, Frank V. Cahouet,
Alvin E. Friedman, Lawrence M. Greene and David B. Truman, directors.
The Manager manages the Fund's portfolio of investments in accordance with
the stated policies of the Fund, subject to the approval of the Fund's Board
of Directors. The Manager is responsible for investment decisions, and
provides the Fund with portfolio managers who are authorized by the Board of
Directors to execute purchases and sales of securities. The Fund's
portfolio managers are Joseph S. DiMartino, Garitt Kono and Gerald
Thunelius. The Manager also maintains a research department with a
professional staff of portfolio managers and securities analysts who provide
research services for the Fund as well as for other funds advised by the
Manager. All purchases and sales are reported for the Directors' review at
the meeting subsequent to such transactions.
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by the Manager. The expenses
borne by the Fund include: organizational costs, taxes, interest, loan
commitment fees, brokerage fees and commissions, if any, fees of Directors
who are not officers, directors, employees or holders of 5% or more of the
outstanding voting securities of the Manager, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory fees, charges
of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, outside auditing and legal
expenses, costs of maintaining the Fund's existence, costs of independent
pricing services, costs attributable to investor services (including,
without limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, and any extraordinary expenses.
Pursuant to the Fund's Service Plan, the Fund bears expenses for
advertising, marketing and distributing the Fund's shares and servicing
shareholder accounts and also bears the cost of preparing and printing
prospectuses and statements of additional information and costs associated
with implementing and operating such plan. See "Service Plan."
The Manager maintains office facilities on behalf of the Fund, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services. The Manager also may make such advertising and promotional
expenditures, using its own resources, as it from time to time deems
appropriate.
As compensation for the Manager's services, the Fund has agreed to pay the
Manager a monthly fee at the annual rate of .50 of 1% of the value of the
Fund's average daily net assets. All fees and expenses are accrued daily
and deducted before declaration of dividends to investors. For the period
August 18, 1992 (commencement of operations) through
July 31, 1993 and for the fiscal year ended July 31, 1994, no management fee
was paid by the Fund pursuant to an undertaking by the Manager.
The Manager has agreed that if in any fiscal year the aggregate expenses of
the Fund, exclusive of taxes, brokerage, interest on borrowings and (with
the prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed the expense
limitation of any state having jurisdiction over the Fund, the Fund may
deduct from the payment to be made to the Manager under the Agreement, or
the Manager will bear, such excess expense to the extent required by state
law. Such deduction or payment, if any, will be estimated daily, and
reconciled and effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
PURCHASE OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor pursuant
to an agreement which is renewable annually. The Distributor also acts as
distributor for the other funds in the Dreyfus Family of Funds and for
certain other investment companies.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders may
be made between the hours of 8:00 a.m. and 4:00 p.m., New York time, on any
business day that The Shareholder Services Group, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York Stock
Exchange are open. Such purchases will be credited to the shareholder's
Fund account on the next bank business day. To qualify to use the Dreyfus
TeleTransfer Privilege, the initial payment for purchase of Fund shares must
be drawn on, and redemption proceeds paid to, the same bank and account as
are designated on the Account Application or Shareholder Services Form on
file. If the proceeds of a particular redemption are to be wired to an
account at any other bank, the request must be in writing and signature-
guaranteed. See "Redemption of Fund Shares-Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year the account is closed or during the following calendar year,
provided the information on the old Account Application is still applicable.
SERVICE PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Service Plan."
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission
under the Act provides, among other things, that an investment company may
bear expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. Because some or all of the fees paid by the Fund
for advertising or marketing the Fund's shares and the fees paid to certain
financial institutions (which may include banks), securities dealers and
other financial industry professionals (collectively, "Service Agents")
could be deemed to be payment of distribution expenses, the Fund's Board of
Directors has adopted such a plan (the "Plan"). The Fund's Board of
Directors believes that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. In some states, banks or other
financial institutions effecting transactions in Fund shares may be required
to register as dealers pursuant to state law.
A quarterly report of the amounts expended under the Plan, and the purposes
for which such expenditures were incurred, must be made to the Board of
Directors for its review. In addition, the Plan provides that it may not be
amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Plan without shareholder approval and that
other material amendments of the Plan must be approved by the Board of
Directors, and by the Directors who are not "interested persons" (as defined
in the Act) of the Fund and have no direct or indirect financial interest in
the operation of the Plan or in the related service agreements, by vote cast
in person at a meeting called for the purpose of considering such
amendments. The Plan and the related service agreements are subject to
annual approval by such vote of the Directors cast in person at a meeting
called for the purpose of voting on the Plan. The Plan was so approved by
the Board of Directors at a meeting held on May 12, 1994. The Plan may be
terminated at any time by vote of a majority of the Directors who are not
"interested persons" and have no direct or indirect financial interest in
the operation of the Plan or in any of the related service agreements or by
vote of a majority of the Fund's outstanding voting shares. Any service
agreement may be terminated without penalty, at any time, by such vote of
the Directors or, upon not more than 60 days' written notice to the Service
Agent, by vote of the holders of a majority of the Fund's outstanding voting
shares. Each service agreement will terminate automatically in the event of
its assignment (as defined in the Act).
During the fiscal year ended July 31, 1994, the total amount chargeable to
the Fund under the Plan was $672,744, of which $572,744 was charged for
advertising, marketing and servicing the Fund's shares and $100,000 was
charged for preparing, printing and distributing prospectuses and statements
of additional information and operating the Plan. Pursuant to undertakings
in effect, the amount chargeable to the Fund pursuant to the Plan was
reduced by $407,531, resulting in a net amount paid of $265,213.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Fund
Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only to
the registered owner(s) of the account and only to the address of record.
The Account Application or later written request must be manually signed by
the registered owner(s). Checks may be made payable to the order of any
person in an amount of $500 or more. When a Check is presented to the
Transfer Agent for payment, the Transfer Agent, as the investor's agent,
will cause the Fund to redeem a sufficient number of shares in the
investor's account to cover the amount of the Check. Dividends are earned
until the Check clears. After clearance, a copy of the Check will be
returned to the investor. Investors generally will be subject to the same
rules and regulations that apply to checking accounts, although election of
this Privilege creates only a shareholder-transfer agent relationship with
the Transfer Agent.
If the amount of the Check is greater than the value of the shares in an
investor's account, the Check will be returned marked insufficient funds.
Checks should not be used to close an account.
Wire Redemption Privilege By using this Privilege, the investor authorizes
the Transfer Agent to act on wire or telephone redemption instructions from
any person representing himself or herself to be the investor, or a
representative of the investor's Service Agent, and reasonably believed by
the Transfer Agent to be genuine. Ordinarily, the Fund will initiate
payment for shares redeemed pursuant to this Privilege on the next business
day after receipt if the Transfer Agent receives the redemption request in
proper form. Redemption proceeds will be transferred by Federal Reserve
wire only to the commercial bank account specified by the investor on the
Account Application or Shareholder Services Form. Redemption proceeds, if
wired, must be in the amount of $1,000 or more and will be wired to the
investor's account at the bank of record designated in the investor's file
at the Transfer Agent, if the investor's bank is a member of the Federal
Reserve System, or to a correspondent bank if the investor's bank is not a
member. Fees ordinarily are imposed by such bank and usually are borne by
the investor. Immediate notification by the correspondent bank to the
investor's bank is necessary to avoid a delay in crediting the funds to the
investor's bank account.
Investors with access to telegraphic equipment may wire redemption requests
to the Transfer Agent by employing the following transmittal code which may
be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
---------------- ----------------
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may have
the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171,
toll free. Investors should advise the operator that the above transmittal
code must be used and should also inform the operator of the Transfer
Agent's answer back sign.
To change the commercial bank or account designated to receive redemption
proceeds, a written request must be sent to the Transfer Agent. This
request must be signed by each shareholder, with each signature guaranteed
as described below under "Stock Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus TeleTransfer transaction through
the Automated Clearing House ("ACH") system unless more prompt transmittal
specifically is requested. Redemption proceeds will be on deposit in the
investor's account at an ACH member bank ordinarily two business days after
receipt of the redemption request. See "Purchase of Fund Shares--Dreyfus
TeleTransfer Privilege."
Stock Certificates; Signatures. Any certificates representing Fund shares
to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each
holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York Stock
Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP"), and the Stock Exchanges Medallion Program.
Guarantees must be signed by an authorized signatory of the guarantor and
"Signature-Guaranteed" must appear with the signature. The Transfer Agent
may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular
verification. For more information with respect to signature-guarantees,
please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record, limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the value of the Fund's
net assets at the beginning of such period. Such commitment is irrevocable
without the prior approval of the Securities and Exchange Commission. In
the case of requests for redemption in excess of such amount, the Board of
Directors reserves the right to make payments in whole or in part in
securities or other assets in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In such event, the securities would be valued in the
same manner as the Fund's portfolio is valued. If the recipient sold such
securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended or the
date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit to
protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales load
will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged for
shares of other funds sold with a sales load, and the applicable sales load
will be deducted.
C. Shares of funds purchased with a sales load may be exchanged without a
sales load for shares of other funds sold without a sales load.
D. Shares of funds purchased with a sales load, shares of funds acquired
by a previous exchange from shares purchased with a sales load and
additional shares acquired through reinvestment of dividends or
distributions of any such funds (collectively referred to herein as
"Purchased Shares") may be exchanged for shares of other funds sold with a
sales load (referred to herein as "Offered Shares"), provided that, if the
sales load applicable to the Offered Shares exceeds the maximum sales load
that could have been imposed in connection with the Purchased Shares (at the
time the Purchased Shares were acquired), without giving effect to any
reduced loads, the difference will be deducted.
To accomplish an exchange under item D above, shareholders must notify the
Transfer Agent of their prior ownership of fund shares and their account
number.
To request an exchange, an investor or the investor's Service Agent acting
on the investor's behalf must give exchange instructions to the Transfer
Agent in writing or by telephone. The ability to issue exchange
instructions by telephone is given to all Fund shareholders, automatically,
unless the investor checks the relevant "NO" box on the Account Application,
indicating that the investor specifically refuses this Privilege. By using
the Telephone Exchange Privilege, the investor authorizes the Transfer Agent
to act on telephonic instructions from any person representing himself or
herself to be the investor or a representative of the investor's Service
Agent, and reasonably believed by the Transfer Agent to be genuine.
Telephone exchanges may be subject to limitations as to the amount involved
or the number of telephone exchanges permitted. Shares issued in
certificate form are not eligible for telephone exchange.
To establish a Personal Retirement Plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. For Dreyfus-
sponsored Keogh Plans, IRAs and IRAs set up under a Simplified Employee
Pension Plan ("SEP-IRAs") with only one participant, the minimum initial
investment is $750. To exchange shares held in Corporate Plans, 403(b)(7)
Plans and SEP-IRAs with more than one participant, the minimum initial
investment is $100 if the plan has at least $2,500 invested among the funds
in the Dreyfus Family of Funds. To exchange shares held in Personal
Retirement Plans, the shares exchanged must have a current value of at least
$100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege permits
an investor to purchase, in exchange for shares of the Fund, shares of
another fund in the Dreyfus Family of Funds. This Privilege is available
only for existing accounts. Shares will be exchanged on the basis of
relative net asset value as described above under "Fund Exchanges."
Investors may cancel this Privilege at any time by writing to The Dreyfus
Family of Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671.
Enrollment in or modification or cancellation of this Privilege is effective
three business days following notification by the investor. An investor
will be notified if his account falls below the amount designated to be
exchanged under this Privilege. In this case, an investor's account will
fall to zero unless additional investments are made in excess of the
designated amount prior to the next Auto-Exchange transaction. Shares held
under IRA and other retirement plans are eligible for this Privilege.
Exchanges of IRA shares may be made between IRA accounts and from regular
accounts to IRA accounts, but not from IRA accounts to regular accounts.
With respect to all other retirement accounts, exchanges may be made only
among those accounts.
Fund exchanges and Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between accounts
having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject
any exchange request in whole or in part. The Fund Exchanges service or
Dreyfus Auto-Exchange Privilege may be modified or terminated at any time
upon notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the
yield on the shares. If withdrawal payments exceed reinvested dividends and
distributions, the investor's shares will be reduced and eventually may be
depleted. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the Fund
or the Transfer Agent. Shares for which certificates have been issued may
not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to invest
on the payment date their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the
Dreyfus Family of Funds of which the investor is a shareholder. Shares of
other funds purchased pursuant to this privilege will be purchased on the
basis of relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested without
imposition of a sales load in shares of other funds that are offered without
a sales load.
B. Dividends and distributions paid by a fund which does not charge a
sales load may be invested in shares of other funds sold with a sales load,
and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales load
may be invested in shares of other funds sold with a sales load (referred to
herein as "Offered Shares"), provided that, if the sales load applicable to
the Offered Shares exceeds the maximum sales load charged by the fund from
which dividends or distributions are being swept, without giving effect to
any reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in shares
of other funds which impose a contingent deferred sales charge ("CDSC") and
the applicable CDSC, if any, will be imposed upon redemption of such shares.
Corporate Pension/Profit-Sharing and Personal Retirement Plans. The Fund
makes available to corporations a variety of prototype pension and profit-
sharing plans including a 401(k) Salary Reduction Plan. In addition, the
Fund makes available Keogh Plans, IRAs, including SEP-IRAs and IRA "Rollover
Accounts," and 403(b)(7) Plans. Plan support services also are available.
Investors who wish to purchase Fund shares in conjunction with a Keogh
Plan, a 403(b)(7) Plan or an IRA, including a SEP-IRA, may request from the
Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or IRAs may
charge a fee, payment of which could require the liquidation of shares. All
fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans may
not be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction Plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, is $2,500 with
no minimum on subsequent purchases. The minimum initial investment for
Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only
one participant, is normally $750, with no minimum on subsequent purchases.
Individuals who open an IRA may also open a non-working spousal IRA with a
minimum investment of $250.
The investor should read the Prototype Retirement Plan and the appropriate
form of Custodial Agreement for further details on eligibility, service fees
and tax implications, and should consult a tax adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Fund Shares."
Valuation of Portfolio Securities. Substantially all of the Fund's
investments (including short-term investments) are valued each business day
by one or more independent pricing services (the "Service") approved by the
Board of Directors. Securities valued by the Service for which quoted bid
prices in the judgment of the Service are readily available and are
representative of the bid side of the market are valued at the mean between
the quoted bid prices (as obtained by the Service from dealers in such
securities) and asked prices (as calculated by the Service based upon its
evaluation of the market for such securities). Other investments valued by
the Service are carried at fair value as determined by the Service, based on
methods which include consideration of: yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. Short-term investments are not
valued by the Service and are valued at the mean price or yield equivalent
for such securities or for securities of comparable maturity, quality and
type as obtained from market makers. Other investments that are not valued
by the Service are valued at the average of the most recent bid and asked
prices in the market in which such investments are primarily traded, or at
the last sales price for securities traded primarily on an exchange or the
national securities market. In the absence of reported sales of investments
traded primarily on an exchange or the national securities market, the
average of the most recent bid and asked prices is used. Bid price is used
when no asked price is available. Any assets or liabilities initially
expressed in terms of foreign currency will be translated into dollars at
the midpoint of the New York interbank market spot exchange rate as quoted
on the day of such translation by the Federal Reserve Bank of New York or if
no such rate is quoted on such date, at the exchange rate previously quoted
by the Federal Reserve Bank of New York or at such other quoted market
exchange rate as may be determined to be appropriate by the Manager.
Expenses and fees, including the management fee and fees under the Service
Plan (reduced by the expense limitation, if any), are accrued daily and
taken into account for the purpose of determining the net asset value of
Fund shares.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Board of Directors, are valued at fair value as
determined in good faith by the Board of Directors. The Board of Directors
will review the method of valuation on a current basis. In making their
good faith valuation of restricted securities, the Directors generally will
take the following factors into consideration: restricted securities which
are, or are convertible into, securities of the same class of securities for
which a public market exists usually will be valued at market value less the
same percentage discount at which purchased. This discount will be revised
periodically by the Board of Directors if the Directors believe that it no
longer reflects the value of the restricted securities. Restricted
securities not of the same class as securities for which a public market
exists usually will be valued initially at cost. Any subsequent adjustment
from cost will be based upon considerations deemed relevant by the Board of
Directors.
New York Stock Exchange Closings. The holidays (as observed) on which the
New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Dividends, Distributions
and Taxes."
Management believes that the Fund qualified as a "regulated investment
company" under the Code for the fiscal year ended July 31, 1994 and the Fund
intends to continue to so qualify if such qualification is in the best
interests of its shareholders. Qualification as a regulated investment
company relieves the Fund from any liability for Federal income taxes to the
extent its earnings are distributed in accordance with the applicable
provisions of the Code. The term "regulated investment company" does not
imply the supervision of management or investment practices or policies by
any government agency.
Any dividend or distribution paid shortly after an investor's purchase may
have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a dividend or distribution would be
a return on investment in an economic sense, although taxable as stated
above. In addition, the Code provides that if a shareholder holds shares of
the Fund for six months or less and has received a capital gain distribution
with respect to such shares, any loss incurred on the sale of such shares
will be treated as a long-term capital loss to the extent of the capital
gain distribution received.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gains and losses. However, a portion of the gain or loss
realized from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial futures and options, and
certain preferred stock) may be treated as ordinary income or loss under
Section 988 of the Code. In addition, all or a portion of any gains
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276 of the Code. Finally,
all or a portion of the gain realized from engaging in "conversion
transactions" may be treated as ordinary income under Section 1258 of the
Code. "Conversion transactions" are defined to include certain forward,
futures, option and straddle transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulation to
be issued in the future.
Under Section 1256 of the Code, any gain or loss the Fund realizes from
certain forward transactions will be recognized as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. Gain or loss will
arise upon exercise or lapse of such forward transactions as well as from
closing transactions. In addition, any such forward transactions remaining
unexercised on October 31 and at the end of the Fund's taxable year will be
treated as sold for their fair market value, resulting in additional gain or
loss recognized by the Fund characterized in the manner described above.
Offsetting positions held by the Fund involving certain forwards may
constitute "straddles." "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Sections 1092 and 1258 of the Code, which, in
certain circumstances, overrides or modifies the provisions of Sections 1256
and 988. As such, all or a portion of any short-term or long-term capital
gain from certain "straddle" transactions may be recharacterized to ordinary
income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in certain forward transactions, such "straddles" would be
characterized as "mixed straddles" if the forwards comprising a part of such
"straddles" were governed by Section 1256. The Fund may make one or more
elections with respect to "mixed straddles." Depending on which election is
made, if any, the results to the Fund may differ. If no election is made,
if the "straddle" rules apply to positions established by the Fund, losses
realized by the Fund will be deferred to the extent of unrealized gain in
the offsetting position. Moreover, as a result of the "straddle" and
conversion transaction rules, short-term capital loss on "straddle"
positions may be recharacterized to long-term capital loss, and long-term
capital gain may be recharacterized to short-term capital gain or ordinary
income.
Investment by the Fund in securities issued or acquired at a discount, or
providing for deferred interest or for payment of interest in the form of
additional obligations could under special tax rules affect the amount,
timing and character of distributions to shareholders by causing the Fund to
recognize income prior to the receipt of cash payments. For example, the
Fund could be required to accrue a portion of the discount (or deemed
discount) at which the securities were issued each year and to distribute
such income in order to maintain its qualification as a regulated investment
company. In such case, the Fund may have to dispose of securities which it
might otherwise have continued to hold in order to generate cash to satisfy
these distribution requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Performance
Information."
The Fund's current yield for the 30-day period ended July 31, 1994 was
6.47%, which reflects the absorption of expenses pursuant to expense
limitations in effect. See "Management of the Fund" in the Prospectus. Had
expenses not been absorbed, current yield for the same period would have
been 5.97%. Current yield is computed pursuant to a formula which operates
as follows: The amount of the Fund's expenses accrued for the 30-day period
(net of reimbursements) is subtracted from the amount of the dividends and
interest earned (computed in accordance with regulatory requirements) by the
Fund during the period. That result is then divided by the product of:
(a) the average daily number of shares outstanding during the period that
were entitled to receive dividends, and (b) the net asset value per share on
the last day of the period less any undistributed earned income per share
reasonably expected to be declared as a dividend shortly thereafter. The
quotient is then added to 1, and that sum is raised to the 6th power, after
which 1 is subtracted. The current yield is then arrived at by multiplying
the result by 2.
The Fund's average annual total return for the 1 and 1.953 year periods
ended July 31, 1994 was 2.47% and 4.99%, respectively. Average annual total
return is calculated by determining the ending redeemable value of an
investment purchased at net asset value per share with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
The Fund's total return for the period August 18, 1992 (commencement of
operations) to July 31, 1994 was 9.97%. Total return is calculated by
subtracting the amount of the Fund's net asset value per share at the
beginning of a stated period from the net asset value per share at the end
of the period (after giving effect to the reinvestment of dividends and
distributions during the period), and dividing the result by the net asset
value per share at the beginning of the period.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Bank Rate Monitor TM, N. Palm Beach, Fla. 33408,
IBC/Donoghue's Money Fund Report, Money Magazine and other industry
publications. From time to time advertising materials for the Fund also may
refer to Morningstar ratings and related analysis supporting the rating.
From time to time, the Fund may compare its performance with the
performance of other instruments, such as certificates of deposit and bank
money market accounts which are FDIC-insured.
PORTFOLIO TRANSACTIONS
The Manager supervises the placement of orders on behalf of the Fund for
the purchase or sale of portfolio securities. Allocation of brokerage
transactions, including their frequency, is made in the best judgment of the
Manager and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders at the most favorable
net price. Subject to this consideration, the brokers selected include
those that supplement the Manager's research facilities with statistical
data, investment information, economic facts and opinions. Information so
received is in addition to, and not in lieu of, services required to be
performed by the Manager and the Manager's fee is not reduced as a
consequence of the receipt of such supplemental information. Such
information may be useful to the Manager in serving both the Fund and other
clients which it advises and, conversely, supplemental information obtained
by the placement of business of other clients may be useful to the Manager
in carrying out its obligation to the Fund. Brokers also are selected
because of their ability to handle special executions such as are involved
in large block trades or broad distributions, provided the primary
consideration is met. Large block trades, in certain cases, may result from
two or more clients the Manager might advise being engaged simultaneously in
the purchase or sale of the same security. Certain of the Fund's
transactions in securities of foreign issuers may not benefit from the
negotiated commission rates available to the Fund for transactions in
securities of domestic issuers. Foreign exchange transactions are made with
banks or institutions in the interbank market at prices reflecting a mark-up
or mark-down and/or commission. When transactions are executed in the over-
the-counter market, the Fund will deal with the primary market makers unless
a more favorable price or execution otherwise is obtainable.
Portfolio turnover may vary from year to year, as well as within a year.
High turnover rates are likely to result in comparatively greater brokerage
expenses. The overall reasonableness of brokerage commissions paid is
evaluated by the Manager based upon its knowledge of available information
as to the general level of commissions paid by other institutional investors
for comparable services.
In connection with its portfolio securities transactions for the period
August 18, 1992 (commencement of operations) through July 31, 1993 and for
the fiscal year ended July 31, 1994, no brokerage commissions were paid by
the Fund. Gross spreads and concessions on principal transactions which
where determinable amounted to $72,750 and $31,500 for the same periods,
none of which was paid to the Distributor.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "General Information."
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Fund
shares are of one class and have equal rights as to dividends and in
liquidation. Shares have no preemptive, subscription or conversion rights
and are freely transferable.
The Fund sends annual and semi-annual financial statements to all its
shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York 10286, is
the Fund's custodian. The Shareholder Services Group, Inc., a subsidiary of
First Data Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671,
is the Fund's transfer and dividend disbursing agent. Neither The Bank of
New York nor The Shareholder Services Group, Inc. has any part in
determining the investment policies of the Fund or which securities are to
be purchased or sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-2696,
as counsel for the Fund, has rendered its opinion as to certain legal
matters regarding the due authorization and valid issuance of the shares of
common stock being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX
Description of certain ratings assigned by Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch") and Duff & Phelps Credit Ratings Co.
("Duff").
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default,
and are dependent upon favorable business, financial and economic conditions
to meet timely payments of principal. In the event of adverse business,
financial or economic conditions, they are not likely to have the capacity
to pay interest and repay principal.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within
the major rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus sign (+) designation.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category.
The modifier 1 indicates a ranking for the security in the higher end of a
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to
other obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable
variability in risk may occur during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bond rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are
narrow and risk can be substantial with unfavorable economic or industry
conditions and/or with unfavorable company developments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by ample
asset protection. Risk factors are minor.
<TABLE>
<CAPTION>
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF INVESTMENTS JULY 31, 1994
PRINCIPAL
BONDS AND NOTES-96.1% AMOUNT VALUE
------------ ------------
<S> <C> <C>
BANKING-8.0% Citicorp,
Sr. Medium-Term Notes, Ser. C, 8.57%, 1997.... $ 5,725,000 $ 5,961,271
Continental Bank,
Notes, 9 7/8%, 1996........................... 6,090,000 6,385,267
First USA Bank,
Bank Notes, 5.35%, 1996....................... 10,000,000 9,701,810
------------
22,048,348
============
BROKERAGE-4.1% Merrill Lynch & Co.,
Medium-Term Floating Rate Notes,
5.79%, 1997................................. 6,000,000(a) 6,004,806
Merrill Lynch International & Co.,
Deb., 8 1/4%, 1996............................ 5,000,000 5,251,000
------------
11,255,806
============
CONSUMER-8.1% Pep Boys-Manny, Moe & Jack,
Notes, 8 7/8%, 1996........................... 5,000,000 5,203,745
Safeway,
Sr. Medium-Term Notes, Ser. B, 8.07%, 1997.... 2,000,000(b) 1,983,800
Sears, Roebuck and Co., Notes:
8.55%, 1996................................... 5,000,000 5,187,600
9 1/4%, 1997.................................. 5,000,000 5,321,920
Tele-Communications,
Medium-Term Notes, Ser. B, 5.28%, 1996........ 5,000,000 4,842,975
------------
22,540,040
============
CONSUMER/
ENTERTAINMENT-6.0% Circus Circus Enterprises,
Sr. Sub. Notes, 10 5/8%, 1997................. 5,000,000 5,414,745
Time Warner, Notes:
6.05%, 1995................................... 3,000,000(b) 2,972,400
7.45%, 1998................................... 8,150,000 8,139,812
------------
16,526,957
============
FINANCE-19.5% Advanta,
Notes, 5 1/8%, 1996........................... 9,000,000 8,681,409
Chrysler Financial:
Medium-Term Notes, 5.55%, 1997................ 5,000,000 4,784,215
Reset Notes, 10.34%, 1996..................... 7,000,000 7,434,637
Farmers Group,
Notes, 8 1/4%, 1996........................... 2,000,000 2,067,090
Ford Motor Credit, Medium-Term Notes:
9.07%, 1996................................... 7,000,000 7,340,130
5.80%, 1998................................... 5,000,000 4,801,875
General Motors Acceptance:
Medium-Term Notes, 7 1/4%, 1997............... 5,000,000 5,042,600
Notes, 8 %, 1996.............................. 6,000,000 6,147,642
International Lease Finance,
Medium-Term Notes, Ser. E, 6.47%, 1997........ 4,000,000 3,983,712
SAFECO,
Notes, 10 3/4%, 1995.......................... 3,500,000 3,682,896
------------
53,966,206
============
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1994
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
------------ ------------
FINANCE/
ASSET BACKED-9.7% Daimler-Benz Vehicle Trust 1994-A,
Asset Backed Ctfs.,
Cl. A, 5.95%, 2000............................ $ 5,000,000 $ 5,014,063
IBM Credit Receivables Lease Asset Master Trust,
Lease Backed Ctfs.,
Ser. 1994-l, Cl. A-2, 6.55%, 2001............. 5,000,000 5,014,063
Premier Auto Trust,
Asset Backed Notes,
Ser. 1994-1, Cl. A-3, 4 3/4%, 2000............ 12,250,000 11,761,225
Standard Credit Card Master Trust 1,
Credit Card Participation Ctfs., Ser. 1991-4,
Cl. A, 8%, 1997............................... 5,000,000 5,145,500
------------
26,934,851
============
INDUSTRIAL-12.0% Alco Capital Resource,
Medium-Term Notes, Ser. A, 7.02%, 1997........ 5,000,000 4,989,063
Federal Express:
Notes, 6 1/4%, 1998........................... 7,000,000 6,775,748
Sr. Notes, 9 3/4%, 1996....................... 1,000,000 1,051,566
Grand Metropolitan Investment,
Notes (Gtd. by Grand Metropolitan),
7%, 1999...................................... 5,000,000 4,923,650
McDermott,
Notes, 10 1/4%, 1995.......................... 2,000,000 2,065,286
McDonnell Douglas,
Notes, 8 5/8%, 1997........................... 3,643,000 3,764,053
Tenneco Credit,
Notes, 9 1/4%, 1996........................... 4,500,000 4,720,896
USX,
Medium-Term Floating Rate Notes,
5.3125%, 1996................................. 5,000,000(a) 5,019,345
------------
33,309,607
============
TRANSPORTATION-6.6% Consolidated Rail,
Medium-Term Notes, 4.97%, 1996................ 5,000,000 4,903,325
Delta Air Lines,
Medium-Term Notes, Ser. B, 7.79%, 1998........ 8,000,000 7,779,176
QANTAS Airways,
Sr. Notes, 6 5/8%, 1998....................... 6,000,000(b) 5,676,000
------------
18,358,501
============
UTILITIES-8.3% Connecticut Light and Power,
First and Refunding Mortgage,
Ser. WW, 4 1/4%, 1994......................... 1,000,000 997,920
Houston Industries,
Deb., 7 1/4%, 1996............................ 6,450,000 6,530,838
Maxus Energy,
Medium-Term Notes, Ser. C, 6.0125%, 1994...... 5,000,000(a) 4,993,750
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1994
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
------------ ------------
UTILITIES (CONTINUED) Texas Gas Transmission,
Notes, 9 5/8%, 1997........................... $ 3,350,000 $ 3,450,500
Transcontinental Gas Pipe Line,
Extendible Notes, 6.21%, 1996................. 5,000,000 4,879,750
Triton Energy,
Sr. Sub. Discount Notes, Zero Coupon, 1997.... 3,000,000 2,175,000
------------
23,027,758
============
FOREIGN-4.8% Nacional Financiera S.N.C.,
Notes, 10%, 1996.............................. 3,000,000 3,071,250
Nippon Telegraph & Telephone,
Notes, 9 1/2%, 1998........................... 5,000,000 5,423,690
Union Bank of Finland,
Notes, 5 1/4%, 1996........................... 5,000,000 4,912,160
------------
13,407,100
============
U.S. GOVERNMENT AGENCY/ Federal Home Loan Mortgage Corp.,
MORTGAGE BACKED-3.6% Multi-Class Mortgage Participation Ctfs.:
Ser. 1350, Cl. 1350-C, 5.65%, 2011........ 1,967,686 1,968,198
Ser. 1616, Cl. 1616-A, 5 1/8%, 2006....... 8,440,122 7,971,959
------------
9,940,157
============
U.S. GOVERNMENT-5.4% U.S. Treasury Notes:
6 1/8%, 7/31/1996............................. 10,000,000 10,025,780
6 7/8%, 7/31/1999............................. 5,000,000 5,031,250
------------
15,057,030
============
TOTAL BONDS AND NOTES
(cost $274,169,233)........................... $266,372,361
============
SHORT-TERM INVESTMENTS-9.2%
TIME DEPOSITS: Bankers Trust Co. (London),
4 1/8%, 8/1/1994.............................. $ 5,390,000 $ 5,390,000
Chemical Bank (London),
4 1/4%, 8/1/1994.............................. 10,000,000 10,000,000
Republic National Bank (London),
4 1/8%, 8/1/1994.............................. 10,000,000 10,000,000
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $25,390,000)............................ $ 25,390,000
============
TOTAL INVESTMENTS (cost $299,559,233) ........................................... 105.3% $291,762,361
====== ============
LIABILITIES, LESS CASH AND RECEIVABLES............................................ (5.3%) $(14,734,257)
====== ============
NET ASSETS........................................................................ 100.0% $277,028,104
====== ============
NOTES TO STATEMENT OF INVESTMENTS:
(a) Variable rate security-interest rate subject to periodic change.
(b) Security 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 July 31,
1994, these securities amounted to $10,632,200 or 3.8% of net assets.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1994
ASSETS:
<S> <C> <C>
Investments in securities, at value
(cost $299,559,233)-see statement..................................... $291,762,361
Cash.................................................................... 921,568
Receivable for investment securities sold............................... 29,911,664
Interest receivable..................................................... 4,818,228
Receivable for subscriptions to Common Stock............................ 3,500
Prepaid expenses........................................................ 94,798
Due from The Dreyfus Corporation........................................ 84,497
------------
327,596,616
LIABILITIES:
Payable for investment securities purchased............................. $49,931,460
Payable for Common Stock redeemed....................................... 469,342
Accrued expenses........................................................ 167,710 50,568,512
----------- ------------
NET ASSETS ................................................................ $277,028,104
============
REPRESENTED BY:
Paid-in capital......................................................... $290,255,007
Accumulated undistributed investment income-net......................... 92,816
Accumulated net realized (loss) on investments.......................... (5,522,847)
Accumulated net unrealized (depreciation) on investments-Note 3......... (7,796,872)
------------
NET ASSETS at value applicable to 23,204,622 shares outstanding
(500 million shares of $.001 par value Common Stock authorized)......... $277,028,104
============
NET ASSET VALUE, offering and redemption price per share
($277,028,104 / 23,204,622 shares)...................................... $11.94
======
See notes to financial statements.
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1994
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 20,131,999
EXPENSES:
Management fee-Note 2(a).............................................. $ 1,431,860
Shareholder servicing costs-Note 2(b)................................. 949,060
Prospectus and shareholders' reports-Note 2(b)........................ 119,839
Registration fees..................................................... 65,273
Custodian fees........................................................ 47,514
Professional fees..................................................... 40,709
Directors' fees and expenses-Note 2(c)................................ 24,203
Miscellaneous......................................................... 27,869
-----------
2,706,327
Less-expense reimbursement from Manager due to
undertakings-Note 2(a)............................................ 2,019,382
-----------
TOTAL EXPENSES.................................................. 686,945
------------
INVESTMENT INCOME-NET........................................... 19,445,054
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $ (5,611,159)
Net unrealized (depreciation) on investments............................ (8,144,668)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (13,755,827)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $ 5,689,227
============
See notes to financial statements.
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
------------------------------
1993* 1994
------------ ------------
OPERATIONS:
Investment income-net................................................... $ 6,501,600 $ 19,445,054
Net realized gain (loss) on investments................................. 203,093 (5,611,159)
Net unrealized appreciation (depreciation) on investments for the year.. 347,796 (8,144,668)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 7,052,489 5,689,227
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................... (6,459,836) (19,394,002)
Net realized gain on investments........................................ (114,781) ---
------------ ------------
TOTAL DIVIDENDS....................................................... (6,574,617) (19,394,002)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 301,055,634 340,428,554
Dividends reinvested.................................................... 5,872,820 16,377,882
Cost of shares redeemed................................................. (101,769,908) (271,809,975)
------------ ------------
INCREASE IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS................ 205,158,546 84,996,461
------------ ------------
TOTAL INCREASE IN NET ASSETS...................................... 205,636,418 71,291,686
NET ASSETS:
Beginning of year....................................................... 100,000 205,736,418
------------ ------------
End of year (including undistributed investment income-net:
$41,764 in 1993 and $92,816 in 1994).................................. $205,736,418 $277,028,104
============ ============
SHARES SHARES
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 24,191,578 27,511,855
Shares issued for dividends reinvested.................................. 472,319 1,337,198
Shares redeemed......................................................... (8,171,405) (22,144,923)
------------ ------------
NET INCREASE IN SHARES OUTSTANDING.................................... 16,492,492 6,704,130
============ ============
- ---------------------
*From August 18, 1992 (commencement of operations) to July 31, 1993.
See notes to financial statements.
</TABLE>
DREYFUS SHORT-TERM INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Reference is made to page 2 of the Prospectus dated December 1, 1994,
DREYFUS SHORT-TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 ("Act")
as a non-diversified open-end management investment company. Dreyfus Service
Corporation acted as the distributor of the Fund's shares until August 24,
1994, which are sold to the public without a sales load. Dreyfus Service
Corporation is a wholly-owned subsidiary of The Dreyfus Corporation
("Manager"). Effective August 24, 1994, the Manager became a direct
subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services Inc. ("Premier") was
engaged as the Fund's distributor. Premier, located at One Exchange Place,
Boston, Massachusetts 02109, is a wholly-owned subsidiary of Institutional
Administration Services, Inc., a provider of mutual fund administration
services, the parent company of which is Boston Institutional Group, Inc.
(A) PORTFOLIO VALUATION: The Fund's investments (excluding short-term
investments and U.S. Government obligations) are valued each business day by
an independent pricing service ("Service") approved by the Board of
Directors. Investments for which quoted bid prices in the judgement of the
Service are readily available and are representative of the bid side of the
market are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Other investments (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 U.S. Government obligations are
valued at the mean between quoted bid and asked prices. Short-term
investments are carried at amortized cost, which approximates value.
Investments denominated in foreign currencies are translated to U.S. dollars
at the prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income including, where applicable, amortization of discount on investments
is recognized on the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, 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 interest of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of
taxable income sufficient to relieve it from substantially all Federal
income tax.
NOTE 2- MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the Management fee is computed at the annual rate of .50 of 1% of the
average daily value of the Fund's net assets and is payable monthly. The
Agreement provides for an expense reimbursement from the Manager should
the Fund's aggregate expenses, exclusive of taxes, brokerage, interest on
borrowings and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over the Fund. The most stringent state expense
limitation applicable to the Fund presently requires reimbursement of
expenses in any full
DREYFUS SHORT-TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fiscal year that such expenses (exclusive of distribution expenses and
certain expenses as described above) exceed 2 1/2% of the first $30 million,
2% of the next $70 million and 1 1/2% of the excess over $100 million of the
average value of the Fund's net assets in accordance with California
"blue-sky" regulations. The Manager has undertaken from August 1, 1993
through September 30, 1994, or until such time as the net assets of the Fund
exceed $350 million, regardless of whether they remain at that level, to
waive receipt of the management fee payable to it by the Fund. In addition
from August 1, 1993 through May 2, 1994, the Manager voluntarily assumed
other expenses of the Fund. The expense reimbursement, pursuant to the
undertaking and the voluntary assumption of other expenses, amounted to
$2,019,382 for the year ended July 31, 1994.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) The Fund has adopted a Service Plan (the "Plan") pursuant to which
the Fund pays Dreyfus Service Corporation, at an annual rate of .20 of 1% of
the value of the Fund's average daily net assets, for costs and expenses in
connection with advertising, marketing and distributing the Fund's shares and
for servicing shareholder accounts. Dreyfus Service Corporation may make
payments to one or more Service Agents (a securities dealer, financial
institution, or other industry professional) based on the value of the Fund's
shares owned by clients of the Service Agent. The Plan also separately
provides for the Fund to bear the costs of preparing, printing and
distributing certain of the Fund's prospectuses and statements of additional
information and costs associated with implementing and operating the Plan,
not to exceed the greater of $100,000 or .005 of 1% of the Fund's average
daily net assets for any full fiscal year. During the year ended July 31,
1994, $672,744 was charged to the Fund pursuant to the Plan, of which
$407,531 was waived pursuant to undertakings by the Manager (see Note 2(a)).
(C) Certain officers and directors of the Fund are "affiliated persons,"
as defined in the Act, of the Manager and/or Dreyfus Service Corporation.
Each director who is not an "affiliated person" receives an annual fee of
$2,500 and an attendance fee of $625 per meeting. Prior to August 26, 1993,
the annual fee was $1,000 and attendance fee was $250.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
other than short-term securities, during the year ended July 31, 1994,
amounted to $282,536,676 and $201,433,729, respectively.
At July 31, 1994, accumulated net unrealized depreciation on investments
was $7,796,872, consisting of $279,691 gross unrealized appreciation and
$8,076,563 gross unrealized depreciation.
At July 31, 1994, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
DREYFUS SHORT-TERM INCOME, INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS SHORT-TERM INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Dreyfus Short-Term Income Fund, Inc., including the statement of investments,
as of July 31, 1994, 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. Our procedures included confirmation of
securities owned as of July 31, 1994 by correspondence with the custodian and
brokers. 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 Income Fund, Inc. at July 31, 1994, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated years, in conformity with generally
accepted accounting principles.
(ERNST & YOUNG LLP, Signature Logo)
New York, New York
September 8, 1994
