Dreyfus
Emerging Markets
Fund
Annual Report
May 31, 1998
<PAGE>
Dreyfus Emerging Markets Fund
- ------------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
The last 12 months have been difficult for the emerging markets. The Dreyfus
Emerging Markets Fund declined 18.11% for the fiscal year ended May 31, 1998.*
This compares favorably to the Morgan Stanley Capital International Emerging
Market Free Index (MSCI EMF Index with gross dividends reinvested), which
declined 28.30%.** The investment philosophy and process have been beneficial
during this time of turmoil . Our value-oriented, research-driven approach has
enabled us to choose securities that have outperformed their respective local
stock market indices. As a reminder, we focus on value securities with
below-average price-to-earnings ratios, price-to-book value ratios and
price-to-cash flow ratios. Our bottom-up research-driven process identifies what
we believe are value companies with strong fundamentals and improving business
prospects. As a result, we have been able to avoid some of the recent pitfalls
in emerging markets. For example, we have felt that Russia is too risky an
investment for our Fund at this time. Since the Fund does not hold any Russian
stocks it was able to sidestep the recent major decline in the Russian stock
market.
ECONOMIC AND MARKET OVERVIEW
The emerging markets' difficulties began last July with the devaluation of
the Thai baht and subsequent devaluation of the Korean won, Philippine peso,
Indonesian rupiah and Malaysian ringgit. These devaluations have led to a more
competitive position for exporters but have had severe consequences for the
banking system, consumer spending and the overall domestic economy. The Asian
crisis is having an impact elsewhere. Weak commodity prices have put pressure on
currencies and current account balances in Russia, Mexico, Chile and South
Africa, which are dependent on oil, copper and other metals. Currency concerns
are evident in Brazil and China as well.
The variation of return in emerging markets was extreme during the past
year. The best performing emerging equity markets for the last 12 months
included Greece (39.3%), Hungary (31.6%), and Israel (29.2%). The worst
performing markets were in Asia with Indonesia, Malaysia, and Thailand
down 87.2%, 68.2%, and 65.6% respectively.
PORTFOLIO FOCUS
Because it is so difficult to determine which of the emerging markets and
sectors will be the best or worst going forward, our view is to stay diversified
by country and sector and continue to search for value and strong fundamentals.
For example, during the period under review, we owned three Indonesian companies
representing 1.2% of the portfolio as of May 31, 1998. All these stocks have
outperformed the local Indonesian index and in fact, two of the stocks (Daya
Guna Samudera, a fishing company, and PT Indah Kait Pulp & Paper, a paper and
pulp company), appreciated during the reporting period, while the Jakarta Index
fell. These companies were purchased because the currency devaluation has been
beneficial to their earnings as their costs are in Rupiah and their selling
prices are denominated in U.S. dollars. Margins and profits are rising and the
stocks' valuations are inexpensive.
We continue to be underweighted in Asia (26.5% vs 29.7% in the MSCI EMF
Index), as we have been since the inception of the Fund on July 1, 1996. Though
we own exporters, like those mentioned above, and electrical and telephone
utilities, we have not been able to find many attractive banking and consumer
issues and therefore we are under-represented in Asia. Valuations are getting
very attractive but the economic situation is continuing to deteriorate. In
Latin America, we continue to be overweighted, given this region's reasonable
valuation and good fundamentals. We are diversified across a broad range of
sectors in attractively valued companies. We are overweighted in Chile (8.2% vs
3.7% in the index) but underweighted in Brazil (11.0% vs 15.6% in the index).
In the emerging European, Mediterranean and African regions, we are neutrally
weighted. Overweightings in Israel and Hungary offset limited exposure to Turkey
and no holdings in Russia. On a recent trip to Russia, we came back feeling that
one has to be very selective with Russian investments and that the risk was
still high short-term, but in the long term Russia has a lot of potential
because of substantial natural resources and a well-educated population.
<PAGE>
We try to pick stocks in each market that we believe will outperform their
respective local market. Countries where we have added value in the past 12
months include Portugal, Philippines, South Korea, Israel, and Indonesia.
Disappointingly, our stock selection has been poor in South Africa, Mexico and
Greece.
Emerging markets have been inexpensive compared to the U.S., Europe and
developed Asia. Presently, price-to-book values are 1.3x vs 3.4x in the U.S.
Price-to-earnings are 16.3x vs. 26.7x in the U.S. Exactly when the emerging
markets may begin to perform better is impossible to predict; however, we
believe that a portfolio of value stocks with positive fundamentals will be in a
better position to realize the benefits of any recovery in that region.
We continue to focus our resources on finding quality value securities with
good fundamentals for your portfolio. Our disciplined investment philosophy
seeks to manage the inherent risks associated with investing in emerging
markets. The portfolio currently is diversified over more than 25 countries and
is invested in 121 companies. We appreciate your business and look forward to
serving your investment needs in 1998-1999.
Sincerely,
/s/ D. Kirk Henry
D. Kirk Henry
Portfolio Manger
June 18, 1998
Boston, MA
* Total return includes reinvestment of dividends and any capital gains paid.
** The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index
(EMF) is a market capitalization weighted index composed of companies
representative of the market structure of 26 Emerging Market countries in
Europe, Latin America, and the Pacific Basin. The MSCI/EMF Index excludes
closed markets and those shares in otherwise free markets which are not
purchasable by foreigners.
<PAGE>
Dreyfus Emerging Markets Fund May 31, 1998
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS
EMERGING MARKETS FUND AND THE MORGAN STANLEY CAPITAL INTERNATIONAL
EMERGING MARKETS FREE INDEX
Dollars
$9,342
Dreyfus Emerging
Markets Fund
[LINE GRAPH HERE]
$7,678
Morgan Stanley
Capital International
Emerging Markets
Free Index*
*Source: Lipper Analytical Services, Inc.
Average Annual Total Returns
- -------------------------------------------------------------------------------
One Year Ended From Inception (6/28/96)
May 31, 1998 to May 31, 1998
-------------- ------------------------
(18.11%) (3.49%)
- -----------------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Emerging Markets
Fund on 6/28/96 (Inception Date) to a $10,000 investment made in the Morgan
Stanley Capital International Emerging Markets Free Index on that date. For
comparative purposes, the value of the Index on 6/30/96 is used as the
beginning value on 6/28/96. All dividends and capital gain distributions
are reinvested.
The Fund's performance shown in the line graph takes into account all
applicable fees and expenses. The Morgan Stanley Capital International
Emerging Markets Free Index, which is the property of Morgan Stanley & Co.
Incorporated, is a market capitalization weighted index composed of
companies representative of the market structure of 26 Emerging Market
countries in Europe, Latin America, and the Pacific Basin. The MSCI/EMF
Index excludes closed markets and those shares in otherwise free markets
which are not purchaseable by foreigners. The Index does not take into
account charges, fees and other expenses and includes gross dividends
reinvested. Further information relating to Fund performance, including expense
reimbursements, if applicable, is contained in the Financial Highlights section
of the Prospectus and elsewhere in this report.
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Statement of Investments May 31, 1998
<TABLE>
<CAPTION>
Common Stocks--88.4% Shares Value
- ------------------------------------------------------------------------------- --------- -------------
<S> <C> <C> <C> <C>
Argentina--4.2% Banco Rio de la Plata, ADR.................... 96,000 $ 1,152,000
Mirgor S.A.C.I.F.I.A., ADR.................... 115,000 (a,b) 301,875
Telefonica de Argentina, ADS.................. 22,000 721,770
YPF Sociedad Anonima, ADS..................... 32,000 994,000
-------------
3,169,645
-------------
Brazil--6.3% Aracruz Celulose, ADS......................... 81,500 1,102,182
Companhia Brasileira de Distribuicao Grupo
Pao de Acucar, GDR......................... 25,100 586,712
Companhia Vale do Rio Doce, ADS............... 68,000 1,513,000
Telecomunicacoes Brasileiras, ADS............. 14,300 1,524,737
-------------
4,726,631
-------------
Chile--8.1% Administradora de Fondos de
Pensiones Provida, ADR..................... 48,500 815,406
Banco BHIF, ADS............................... 61,600 931,700
Compania de Telecomucicaciones de Chile, ADS.. 69,000 1,530,938
Cristalerias de Chile, ADS.................... 51,500 679,156
Linea Aerea Nacional de Chile, ADS............ 63,300 657,971
Quinenco, ADR................................. 91,900 873,050
Santa Isabel, ADR............................. 43,125 563,320
-------------
6,051,541
-------------
China--.2% China Southern Airlines, ADR.................. 17,880 (a) 157,567
-------------
Czech Republic--.6% Czeske energeticke zavody..................... 14,600 (a) 358,640
Komercni Banka, GDR........................... 12,000 (b) 130,200
-------------
488,840
-------------
Egypt--2.0% MISR INTERNATIONAL BANK, GDR.................. 54,000 (b) 638,820
Paints & Chemical Industry, GDR............... 91,000 (b) 841,750
-------------
1,480,570
-------------
Greece--2.4% AEGEK ........................................ 27,500 123,516
Hellenic Technodomiki......................... 30,000 305,390
Hellenic Telecommunication Organization....... 5,360 157,275
Hellenic Telecommunication Organization, GDR.. 68,000 (b) 977,500
Michaniki..................................... 24,000 133,762
National Bank of Greece....................... 440 63,248
-------------
1,760,691
-------------
Hong Kong--5.8% Beijing Datang Power Generation............... 400,000 140,658
China Hong Kong Photo Products Holdings....... 975,000 138,400
Guangshen Railway............................. 1,000,000 141,579
Guangshen Railway, ADR........................ 53,800 383,325
</TABLE>
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) May 31, 1998
<TABLE>
<CAPTION>
Common Stocks (continued) Shares Value
- ------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C> <C> <C>
Hong Kong (continued) Guoco Group................................... 231,000 $ 429,252
Henderson Investment.......................... 1,202,000 725,143
Hongkong Electric Holdings.................... 211,000 619,443
Huaneng Power International, ADR.............. 45,800 (a) 796,255
Jiangxi Copper................................ 1,700,000 144,787
QPL International Holdings.................... 775,000 182,016
Swire Pacific................................. 660,000 400,294
Tingyi Holding................................ 3,300,000 268,282
-------------
4,369,434
-------------
Hungary--3.1% Fotex......................................... 475,658 358,836
MOL Magyar Olaj-es Gazipari, GDR.............. 59,100 (b) 1,357,745
Pick Szeged................................... 3,000 148,086
Pick Szeged, GDR.............................. 46,800 (b) 468,000
-------------
2,332,667
-------------
India--7.2% BSES.......................................... 37,000 (b) 502,000
Mahanagar Telephone Nigam..................... 85,500 (a) 1,122,188
Mahindra & Mahindra........................... 62,000 (b) 308,450
Reliance Industries, GDR...................... 120,000 (b) 915,000
State Bank of India, GDR...................... 63,200 (b) 887,140
Steel Authority of India, GDR................. 94,500 (b) 413,910
Tata Engineering & Locomotive, GDR............ 24,100 (b) 129,658
Videsh Sanchar Nigam, GDR..................... 95,000 (b) 1,128,125
-------------
5,406,471
-------------
Indonesia--1.2% Daya Guna Samudera............................ 600,000 370,354
PT Indah Kiat Pulp & Paper.................... 2,160,000 353,628
PT Indorama Synthetics........................ 924,000 155,363
-------------
879,345
-------------
Israel--6.0% Bank Leumi Le-Israel.......................... 692,000 1,397,559
Blue Square Chain Investments & Properties.... 81,453 (a) 998,603
Blue Square-Israel............................ 48,500 703,250
Koor Industries............................... 6,400 800,394
Supersol, ADR................................. 32,400 564,975
-------------
4,464,781
-------------
Luxembourg--1.1% Quilmes Industrial, ADR....................... 82,400 793,100
-------------
Malaysia--3.5% Jaya Tiasa Holdings........................... 313,000 411,060
Kwantas....................................... 251,000 165,798
</TABLE>
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) May 31, 1998
<TABLE>
<CAPTION>
Common Stocks (continued) Shares Value
- ------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C> <C> <C>
Malaysia (continued) Pacific & Orient.............................. 259,000 $ 136,730
Petronas Dagangan............................. 553,000 575,247
Sime Darby.................................... 902,000 717,791
Telekom Malaysia.............................. 10,000 23,091
Tenaga Nasional............................... 373,000 615,960
-------------
2,645,677
-------------
Mexico--11.1% ALFA, Ser. A.................................. 145,000 679,405
ARA........................................... 219,000 (a) 873,518
Apasco........................................ 138,000 842,855
Cintra........................................ 825,900 676,630
Controladora Comercial Mexicana, GDS.......... 28,300 558,925
Desc, Ser. B.................................. 122,000 681,541
Desc, Ser. C.................................. 750 4,249
Empaques Ponderosa, Ser. B.................... 452,000 (a) 297,065
Grupo Financiero Banorte, Ser. B.............. 436,000 (a) 592,861
Grupo Financiero Inbursa, Ser. B.............. 387,300 1,022,560
Sistema Argos, Ser. B......................... 816,000 776,703
Tablex........................................ 37,108 74,174
Telefonos de Mexico, Cl. L, ADR............... 12,500 598,459
Tubes de Acero de Mexico, ADR................. 41,400 619,013
-------------
8,297,958
-------------
Pakistan--.6% Hub Power..................................... 880,000 (a) 430,179
-------------
Panama--1.2% Banco Latinoamericano de Exportaciones........ 27,100 907,850
-------------
Peru--2.3% Telefonica del Peru, ADS...................... 80,000 1,729,350
-------------
Philippines--2.5% First Philippine Holdings..................... 771,360 572,108
Philippine Long Distance Telephone, ADS....... 34,400 873,010
Universal Robina.............................. 2,356,600 421,898
-------------
1,867,016
-------------
Poland--1.8% Bank Handlowy W Warszawie..................... 46,000 790,604
KREDYT BANK................................... 30,800 (a,b) 523,600
-------------
1,314,204
-------------
Portugal--1.1% Mota e Companhia.............................. 49,000 857,299
-------------
Singapore--2.1% Development Bank of Singapore................. 201,600 1,214,530
United Overseas Bank.......................... 82,000 320,370
-------------
1,534,900
-------------
</TABLE>
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) May 31, 1998
<TABLE>
<CAPTION>
Common Stocks (continued) Shares Value
- ------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C> <C> <C>
South Africa--8.8% Anglo American................................ 8,000 $ 383,093
Barlow........................................ 118,534 970,931
Barlow, ADR................................... 11,332 (a) 94,906
Edgars Stores................................. 28,000 439,705
Engen ........................................ 210,700 788,876
Ingwe Coal.................................... 329,500 1,162,641
Iscor......................................... 1,259,300 366,218
Nedcor........................................ 8,300 222,063
Polifin....................................... 268,300 338,105
Pretoria Portland Cement...................... 75,600 926,313
Sasol......................................... 115,500 918,951
-------------
6,611,802
-------------
South Korea--2.8% Kookmin Bank.................................. 32,212 (a) 159,058
Kookmin Bank, ADR............................. 94,263 490,170
Pohang Iron & Steel........................... 16,400 648,543
SK Telecom.................................... 556 251,829
SK Telecom, ADR............................... 77,169 491,957
Samsung Display Devices....................... 530 18,790
-------------
2,060,347
-------------
Taiwan--.0% China Steel, ADR.............................. 50 (b) 614
-------------
Thailand--.6% Ayudhya Insurance Public...................... 11,000 36,767
Hana Microelectronics......................... 65,100 (a) 225,650
Saha-Union.................................... 300,000 207,972
-------------
470,389
-------------
Turkey--.8% Uzel Makina Sanayii, ADR...................... 13,500 (b) 563,625
-------------
United Kingdom--1.0% Billiton...................................... 298,000 748,728
-------------
TOTAL COMMON STOCKS
(cost $78,753,673)......................... $ 66,121,221
=============
</TABLE>
<TABLE>
Preferred Stocks--5.1%
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Brazil--4.7% Brasmotor..................................... 4,100 $ 417,022
Companhia Cemento Portland Itau............... 1,800 328,610
Companhia Energetica de Minas Gerais.......... 22,517 743,876
Companhia Paranaense de Energia-Copel......... 31,000 315,309
Ericsson Telecomunicacoes..................... 32,000 649,570
Petroleo Brasileiro........................... 5,400 1,042,163
-------------
3,496,550
-------------
</TABLE>
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Statement of Investments (continued) May 31, 1998
<TABLE>
<CAPTION>
Preferred Stocks (continued) Shares Value
- ------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C> <C>
Portugal--.4% Lusomundo..................................... 23,642 $ 355,470
-------------
TOTAL PREFERRED STOCKS
(cost $5,146,438).......................... $ 3,852,020
=============
</TABLE>
<TABLE>
<CAPTION>
Principal
Short-Term Investments--7.4% Amount
- ------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
U.S. Treasury Bills: 4.97%, 7/2/98................................. $ 608,000 $ 605,617
4.93%, 7/23/98................................ 3,731,000 3,705,331
4.90%, 7/30/98................................ 301,000 298,649
4.93%, 8/6/98................................. 236,000 233,914
4.94%, 8/27/98................................ 709,000 700,619
-------------
TOTAL SHORT-TERM INVESTMENTS
(cost $5,542,819).......................... $ 5,544,130
=============
TOTAL INVESTMENTS (cost $89,442,930)........................................... 100.9% $ 75,517,371
======= =============
LIABILITIES, LESS CASH AND RECEIVABLES......................................... (.9%) $ (689,383)
======= =============
NET ASSETS..................................................................... 100.0% $ 74,827,988
======= =============
Notes to Statement of Investments:
- -------------------------------------------------------------------------------
<FN>
(a) Non-income producing.
(b) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At May 31, 1998,
these securities amounted to $10,088,012 or approximately 13.5% of
net assets.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Statement of Assets and Liabilities May 31, 1998
<TABLE>
<CAPTION>
Cost Value
----------- -----------
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments $89,442,930 $75,517,371
Cash................................................... 732,957
Receivable for investment securities sold.............. 953,861
Cash denominated in foreign currencies................. 894,467 885,177
Dividends receivable................................... 274,868
Net unrealized appreciation on forward currency
exchange contracts--Note 4(a)........................ 422
Prepaid expenses....................................... 9,368
------------
78,374,024
------------
LIABILITIES: Due to The Dreyfus Corporation and affiliates.......... 83,644
Due to Distributor..................................... 16,384
Payable for investment securities purchased............ 3,297,655
Payable for shares of Common Stock redeemed............ 53,498
Accrued expenses....................................... 94,855
------------
3,546,036
------------
NET ASSETS...................................................................... $74,827,988
============
REPRESENTED BY: Paid-in capital........................................ $89,448,343
Accumulated undistributed investment income--net....... 390,262
Accumulated distributions in excess of net realized
gain (loss) on investments........................... (1,068,299)
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions..... (13,942,318)
------------
NET ASSETS...................................................................... $74,827,988
============
SHARES OUTSTANDING
(100 million shares of $.001 par value Common Stock authorized)................. 6,690,593
NET ASSET VALUE, offering and redemption price per share--Note 3(d)............. $11.18
=======
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Statement of Operations Year Ended May 31, 1998
INVESTMENT INCOME
<TABLE>
<S> <C> <C> <C>
INCOME: Cash dividends (net of $146,214 foreign taxes
withheld at source)........................ $ 1,372,476
Interest..................................... 308,226
-------------
Total Income............................... $ 1,680,702
EXPENSES: Management fee--Note 3(a).................... 847,691
Shareholder servicing costs--Note 3(b)....... 190,433
Custodian fees............................... 173,960
Registration fees............................ 37,483
Professional fees............................ 25,874
Directors' fees and expenses--Note 3(c)...... 23,603
Prospectus and shareholders' reports......... 9,225
Loan commitment fees--Note 2................. 314
Miscellaneous................................ 5,507
-------------
Total Expenses............................. 1,314,090
Less reduction in management fee due to
undertaking--Note 3(a)..................... (595)
-------------
Net Expenses............................... 1,313,495
-------------
INVESTMENT INCOME--NET..................................................... 367,207
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments and
foreign currency transactions............. $ 1,070,667
Net realized gain (loss) on forward currency
exchange contracts........................ (477,966)
-------------
Net Realized Gain (Loss).................. 592,701
Net unrealized appreication (depreciation) on
investments and foreign currency transactions (17,360,962)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.................... (16,768,261)
-------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................... $(16,401,054)
=============
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1998 May 31, 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Investment income--net................................................. $ 367,207 $ 144,385
Net realized gain (loss) on investments................................ 592,701 695,774
Net unrealized appreciation (depreciation) on investments.............. (17,360,962) 3,418,644
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations.. (16,401,054) 4,258,803
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net................................................. (96,386) (24,944)
Net realized gain on investments....................................... (1,261,036) (27,439)
In excess of net realized gains on investments......................... (1,068,299) --
------------- -------------
Total Dividends.................................................. (2,425,721) (52,383)
------------- -------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold.......................................... 59,365,899 53,106,244
Dividends reinvested................................................... 1,898,156 42,829
Cost of shares redeemed................................................ (18,067,726) (6,973,772)
Redemption fee......................................................... 76,713 --
------------- -------------
Increase (Decrease) in Net Assets from Capital Stock Transactions 43,273,042 46,175,301
------------- -------------
Total Increase (Decrease) in Net Assets....................... 24,446,267 50,381,721
NET ASSETS:
Beginning of Period.................................................... 50,381,721 --
------------- -------------
End of Period.......................................................... $74,827,988 $50,381,721
============= =============
Undistributed investment income--net...................................... $ 390,262 $ 119,441
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Shares Shares
------------- -------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................ 4,449,674 4,062,299
Shares issued for dividends reinvested................................. 167,386 3,508
Shares redeemed........................................................ (1,472,834) (519,440)
------------- -------------
Net Increase (Decrease) in Shares Outstanding.................... 3,144,226 3,546,367
============= =============
<FN>
- --------------
*From June 28, 1996 (commencement of operations) to May 31, 1997.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
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 period indicated. This information has been
derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------
PER SHARE DATA: 1998 1997(1)
------- -------
<S> <C> <C>
Net asset value, beginning of period........................................ $14.21 $12.50
------- -------
Investment Operations:
Investment income--net...................................................... .04 .05
Net realized and unrealized gain (loss) on investments...................... (2.62) 1.70
------- -------
Total from Investment Operations............................................ (2.58) 1.75
------- -------
Distributions:
Dividends from investment income--net....................................... (.02) (.02)
Dividends from net realized gain on investments............................. (.24) (.02)
Dividends in excess of net realized gain on investments..................... (.20) --
------- -------
Total Distributions......................................................... (.46) (.04)
------- -------
Redemption fee added to paid-in capital..................................... .01 --
------- -------
Net asset value, end of period.............................................. $11.18 $14.21
======= =======
TOTAL INVESTMENT RETURN........................................................ (18.11%) 14.07%(2)
RATIOS/SUPPLEMENTALDATA:
Ratio of expenses to average net assets..................................... 1.94% 1.85%(2)
Ratio of net investment income to average net assets........................ .54% .70%(2)
Decrease reflected in above expense ratios due to undertakings by the Manager .00%(3) .36%(2)
Portfolio Turnover Rate..................................................... 87.46% 52.52%(2)
Net assets, end of period (000's Omitted)................................... $74,828 $50,382
<FN>
- ------------
(1) From June 28, 1996 (commencement of operations) to May 31, 1997.
(2) Not annualized.
(3) Amount represents less than .01%.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Emerging Markets Fund (the "Fund") is a separate non-diversified
series of Dreyfus International Funds, Inc. (the "Company"), which is registered
under the Investment Company Act of 1940 ("Act") as an open-end management
investment company and operates as a series company currently offering two
series, including the Fund. The Fund's investment objective is long-term capital
appreciation. The Dreyfus Corporation ("Manager") serves as the Fund's
investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A.
Premier Mutual Fund Services, Inc. (the "Distributor") is the distributor of
the Fund's shares, which are sold to the public without a sales charge.
The Company accounts separately for the assets, liabilities and operations
of each fund. Expenses directly attributable to each fund are charged to that
fund's operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (including options and
financial futures) are valued at the last sales price on the securities exchange
on which such securities are primarily traded or at the last sales price on the
national securities market. Securities not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices, except for open
short positions, where the asked price is used for valuation purposes. Bid price
is used when no asked price is available. Investments denominated in foreign
currencies are translated to U.S. dollars at the prevailing rates of exchange.
Forward currency exchange contracts are valued at the forward rate.
(b) Foreign currency transactions: The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in the market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and maturities
of short-term securities, sales of foreign currencies, currency gains or losses
realized on securities transactions and the difference between the amount of
dividends, interest and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities, resulting from
changes in exchange rates. Such gains and losses are included with net realized
and unrealized gain or loss on investments.
(c) Securities transactions and investment income: Securities transactions
are recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income, including, where
applicable, amortization of discount on investments, is recognized on the
accrual basis. Under the terms of the custodian agreement, the Fund received net
earnings credits of $3,261 during the period ended May 31, 1998 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net and 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. This may result in distributions that
are in excess of net realized gain on a fiscal year basis. To the extent that
net realized capital gain can be offset by capital loss carryovers, if any, it
is the policy of the Fund not to distribute such gain.
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(e) Federal income taxes: It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the applicable provisions of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes.
NOTE 2--Bank Line of Credit:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility ("Facility") to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the Fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the Fund at rates based on prevailing
market rates in effect at the time of borrowings. During the period ended May
31, 1998, the Fund did not borrow under the Facility.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with the Manager, the management fee
is computed at the annual rate of 1.25% of the value of the Fund's average daily
net assets and is payable monthly. The Manager had undertaken from June 1, 1997
through May 31, 1998 to reduce the management fee paid by the Fund, to the
extent that the Fund's aggregate annual expenses, exclusive of taxes, brokerage,
interest on borrowings, commitment fees and extraordinary expenses, exceed an
annual rate of 2% of the value of the Fund's average daily net assets. The
reduction in management fee, pursuant to the undertaking, amounted to $595
during the period ended May 31, 1998.
(b) Under the Shareholder Services Plan, the Fund pays the Distributor at an
annual rate of .25 of 1% of the value of the Fund's average daily net assets for
the provision of certain services. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund and providing reports and other information, and
services related to the maintenance of shareholder accounts. The Distributor may
make payments to Service Agents (a securities dealer, financial institution or
other industry professional) in respect of these services. The Distributor
determines the amounts to be paid to Service Agents. During the period ended May
31, 1998, the Fund was charged $169,538 pursuant to the Shareholder Services
Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the
Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. During the period
ended May 31, 1998, the Fund was charged $18,814 pursuant to the transfer agency
agreement.
(c) Each director who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $2,500 and an attendance fee of $500
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
(d) A 1% redemption fee is charged and retained by the Fund on certain
redemptions of Fund shares (including redemptions through use of the Fund
Exchanges service) where the shares being redeemed were issued subsequent to a
specified effective date and the redemption or exchange occurs less than six
months following the date of issuance. During the period ended May 31, 1998,
redemption fees amounted to $76,713.
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4--Securities Transactions:
(a) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities and forward currency exchange contracts, during
the period ended May 31, 1998 amounted to $94,109,105 and $54,084,719,
respectively.
In addition, the following summarizes open forward currency exchange
contracts at May 31, 1998:
<TABLE>
<CAPTION>
Foreign Unrealized
Currency Appreciation
Forward Currency Exchange Contracts Amounts Proceeds Value (Depreciation)
- --------------------------------- ---------- --------- --------- ------------
Sales:
- -----
<S> <C> <C> <C> <C>
Portugal Escudo, expiring 6/1/98................ 33,747,635 $184,514 $184,514 $ --
Portugal Escudo, expiring 6/2/98................ 41,868,023 229,351 228,912 439
Portugal Escudo, expiring 6/3/98................ 32,173,738 175,890 175,909 (19)
South African Rand, expiring 6/2/98............. 30,845 5,982 5,980 2
-----
Total....................................... $422
=====
</TABLE>
The Fund enters into forward currency exchange contracts in order to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings and to settle foreign currency transactions. When executing
forward currency exchange contracts, the Fund is obligated to buy or sell a
foreign currency at a specified rate on a certain date in the future. With
respect to sales of forward currency exchange contracts, the Fund would incur
a loss if the value of the contract increases between the date the forward
contract is opened and the date the forward contract is closed. The Fund
realizes a gain if the value of the contract decreases between those dates. With
respect to purchases of forward currency exchange contracts, the Fund would
incur a loss if the value of the contract decreases between the date the forward
contract is opened and the date the forward contract is closed. The Fund
realizes a gain if the value of the contract increases between those dates. The
Fund is also exposed to credit risk associated with counter party nonperformance
on these forward currency exchange contracts which is typically limited to the
unrealized gain on each open contract.
(b) At May 31, 1998, accumulated net unrealized depreciation on investments
and forward currency exchange contracts was $13,925,137, consisting of
$2,481,904 gross unrealized appreciation and $16,407,041 gross unrealized
depreciation.
At May 31, 1998, the cost of investments for Federal income tax purposes was
substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Dreyfus Emerging Markets Fund
We have audited the accompanying statement of assets and liabilities of
Dreyfus Emerging Markets Fund, including the statement of investments, as of May
31, 1998, and the related statement of operations for the year 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 1998, 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 Emerging Markets Fund as of May 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the indicated
years, in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
July 2, 1998
<PAGE>
Dreyfus Emerging Markets Fund
- -------------------------------------------------------------------------------
Important Tax Information (Unaudited)
In accordance with Federal tax law, the Fund elects to provide each
shareholder with their portion of the Fund's foreign taxes paid and the income
sourced from foreign countries. Accordingly, the Fund hereby makes the following
designations regarding its fiscal year ended May 31, 1998:
-- the total amount of taxes paid to foreign countries was $142,214.
-- the total amount of income sourced from foreign countries was $867,438.
As required by Federal tax law rules, shareholders will receive notification
of their proportionate share of foreign taxes paid and foreign source income for
the 1998 calendar year with Form 1099-DIV which will be mailed by January 31,
1999.
For Federal tax purposes the Fund hereby designates $.0230 per share as a
long-term capital gain distribution (of which 52.17% is subject to the 20%
maximum Federal tax rate) of the $.4530 per share paid on December 18, 1997.
<PAGE>
Dreyfus Emerging Markets Fund
200 Park Avenue
New York, NY 10166
Investment Adviser
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 327AR985
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS EMERGING MARKETS FUND AND THE MORGAN
STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS
FREE INDEX
EXHIBIT A:
MORGAN STANLEY
DREYFUS CAPITAL
PERIOD EMERGING INTERNATIONAL
MARKETS EMERGING MARKETS
FUND FREE INDEX *
6/28/96 10,000 10,000
8/31/96 9,688 9,555
11/30/96 9,784 9,538
2/28/97 10,893 10,673
5/31/97 11,407 10,709
8/31/97 10,958 9,994
11/30/97 9,545 8,272
2/28/98 9,909 8,622
5/31/98 9,342 7,678
* Source: Lipper Analytical Services, Inc.
