DREYFUS MIDCAP VALUE FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this annual report for Dreyfus
Midcap Value Fund. For the year ended August 31, 1997, your Fund produced a
total return of 55.45%.* This was solidly ahead of the total return of 34.08%
for the Russell Midcap Index, which serves as your Fund's benchmark index.**
Economic Review
The economy has maintained a strong growth trend since last fall,
gradually eroding expectations for a natural slowdown "just around the
corner." Inflation has held steady, even in the face of a substantially
tighter labor market. Corporate profits have continued to surprise on the
upside. Market interest rates have held within a now long-established trading
range. In this setting, monetary policy has remained benign: the Federal
budget is close to being in balance and the Federal Reserve Board (the "Fed")
has kept policy rates unchanged since March.
Real GDP grew at above a 4% rate in the nine months from the third
quarter of 1996 to midyear. Indeed, the initial estimate of near 2% growth in
this year's second quarter was raised to 3.6%, erasing the record of even a
temporarily slow period. Virtually all major economic sectors have
contributed to the economy's growth. In turn, the economy has provided
personal income that, in the prevailing low inflation environment, has
translated into strong real purchasing power. The strength in demand has begun
to raise imports, bolstering foreign economies. Inventories have also
started to accumulate at a faster pace, although inventory levels are
currently still quite lean in relation to sales.
The labor market has tightened substantially in recent months as the
pace of new hiring has consistently exceeded the increase in the labor force.
Despite this, wage growth has been moderate while overall compensation growth
has accelerated only modestly. In their determination to hold the line on
prices, companies have resorted to unconventional hiring methods that, so
far, have avoided the need for higher wage offers.
Consensus expectations for corporate profits have been ratcheted
upwards virtually every month for the last several months. So far, positive
surprises in reported profits have justified the market's higher estimates.
However, the strength of the dollar overseas and other factors could affect
future profits.
Market interest rates have been stable since early 1996, oscillating
within a fairly narrow range. Several factors have kept rates steady: the
absence of faster inflation, positive Federal budget developments and an
accommodating Federal Reserve. Although the Fed has not changed policy rates
since March, they have held a bias towards tightening since last summer.
Therefore a move to tighten interest rates should not come as a surprise.
Market Overview
After acting like a high-speed elevator for most of the past 12 months,
the stock markets performed more like a roller coaster as the fiscal year
drew to a close on August 31.
After a brief sinking spell in March, caused by higher interest rates,
the equity markets climbed to one record after another until stopped by
another retreat in August. The Dow Jones Industrial Average, which started
the 12-month period at 6448.27, ended it at 7622.42, a gain of 1174.15
points. However, along the way, the 30 Dow Industrials broke through two
thousand-point milestones, reaching a high of 8259.31 in early August. In
spite of the drop in the last three weeks of August, the DJIA registered a
gain of 35.72% (excluding income) for the year ended August 31.
Again, with income excluded, the broader Standard & Poor's 500
Composite Stock Price Index gained 37.96% for the 12 months even after
dropping 60.85 points from its high, and the Nasdaq Composite showed a year's
gain of 39.06% even though it stood 43.12 points below the year's high at the
end of August.
While the market was rising, investors appeared to favor the larger
capitalized stocks, which enjoyed the sharpest rise, and subsequently gave up
the most in prices. The smallest stocks, as measured by the Russell 2000
small cap index finished August at their high for the year.
Interest rates, and the anticipation of where they might go in the
future, were the dominant influences on the market. The rising elevator
effect came to a halt in March when investors were shaken by the Federal
Reserve's action raising interest rates by a quarter point, the first such
action in two years. Once that had been absorbed, however, the market resumed
its upward ride until fears of higher interest rates and their companion,
higher inflation, took hold again in August.
The August decline was prompted by several factors, including the
Teamsters strike against United Parcel Service, resulting in a settlement
considered favorable to the labor union. This revived all the dormant fears
that national wage levels might rise, thus reviving inflation, and giving the
Fed reason to step on the monetary brakes once again.
Yet the economic environment for the equity market remained favorable.
Many commentators used the phrase "Goldilocks economy" - not too hot and not
too cold - to describe the economy's performance.
Stock price volatility, much of it on the down side, took over
especially in the last three weeks of August. From the start of the calendar
year through the end of August, 30% of stock trading sessions ended with the
Dow rising or falling 1% or more. Much to the relief of investors, the
volatility on September 2, the day after Labor Day, was all on the up side
with the Dow rising 3.38% for the day, the S&P 500 up 3.13%, the Nasdaq
Composite up 1.94% and the Russell 2000 gaining 1.09%.
Some of the August selling, no doubt, was prompted by the reduction in
the capital gains tax for securities held more than 18 months. How long that
will continue to impact the market is an open question.
Until now, the porridge on which the equity markets have been feeding
has been not too hot and not too cold. At these levels, of course, any
unexpected development can bring sharp reactions, particularly in view of the
market's spectacular gains since August, 1996. Looking ahead, much depends on
whether the economy can maintain its "Goldilocks" condition and not bring on
another dose of anti-inflation actions from the monetary authorities.
Portfolio Focus
Our investment philosophy remains focused on identifying inexpensive
stocks with positive short-term business trends and solid long-term
fundamentals. We examine many measures to identify these stocks.
Price-to-earnings, price-to-book, and price-to-sales ratios, enterprise
value/EBITDA (Earnings Before Interest, Taxes and Depreciation Allowance) and
breakup value are the most prevalent. We also pay close attention to
normalized values for cyclical industries. Our focus is on stocks that,
identified by the measure just mentioned, are cheap compared to their peers,
to their own historical valuation ranges and to the market as a whole. But we
do not just invest in cheap stocks, since some stocks deserve to be cheap.
Instead, we try to identify positive catalysts that can drive stocks higher.
They can come in the form of rising earnings estimates, improving income
statements and balanced sheets, and management action unlocking hidden
values. We look for strong long-term fundamentals, namely, high return on
assets and return on equity, free cash flow, dependable business franchises
and quality of management.
Transportation
Our holding of less-than-truckload (LTL) trucking stocks contributed
substantially to investment results over the past year. Two of our larger
holdings, Yellow and Caliber System, have more than doubled from their
initial purchase prices. When we first accumulated positions in the fall of
1996, valuations were extremely depressed following several years of
very poor operating performance. More importantly, our analysis indicated
that the operating environment was poised to improve, as demand for trucking
was accelerating, pricing was better and the excess capacity situation that
had plagued the industry for several years was returning to a more balanced
position. Because trucking is a business of very thin profit margins,
positive business trends can have a very profound impact on the bottom line.
Additionally, although trucking will remain competitive over the long term,
many companies are behaving more rationally than in the past. For example,
Yellow is aggressively cutting costs and paying down debt. And Caliber
recently exited several regional markets where it could not make adequate
returns.
Finance
Within finance, our investments in west coast thrifts proved very
rewarding over the past year. We introduced the positions because the group
was among the cheapest in finance, the California economy was getting better
and consolidation seemed likely. We benefited substantially when Great
Western Financial, which was one of the largest holdings in the portfolio,
was acquired at a material premium. While we maintain a meaningful commitment
to finance, we have reduced our holdings in the sector because valuations are
not as attractive as they have been following several years of strong
performance.
Technology
Technology continues to be one of the most volatile sectors in the
market. At times, this volatility has enabled us to purchase stocks in high
growth companies at artificially depressed prices. As an example, the growth
rates of networking companies decelerated in the first quarter due to product
transitions and difficult sales conditions in Europe. However, the sector
offers better growth prospects than the market as a whole and our analysis
demonstrated that the slowdown would be temporary. But growth investors fled
the group as earnings disappointments seemed probable. The selloff in 3Com
shares allowed us to purchase the stock at very favorable prices. Shortly
after purchasing 3Com, business trends improved, causing the stock to
increase in price significantly. We have recently sold our position,
realizing solid gains.
Consumer Durables
During the year, we increased our holdings of homebuilders for several
reasons. Interest rates remain favorable for new construction, new home order
comparisons are turning positive after several down quarters, and the
industry is very cheap on valuations. Kaufman and Broad Home, our largest
position, will also benefit from the upturn in its largest market,
California. And the company is modifying its operating practices to lower
speculative building and to improve its return on assets. Another favorable
stock in the sector is Pulte. The company is trading below book value and
earnings estimates appear too low.
Consumer Services/Consumer Non-Durables
Periodically, we were able to take advantage of significant declines in
the prices of high growth, consumer brand franchises where there are
temporary concerns about the growth prospects. Tommy Hilfiger (TOM) is one
such example, where the stock price was depressed due to questions about the
growth rate of its key menswear lines. While it is true that TOM's growth
rate has slowed from the past because it is a larger company, there are still
very solid growth prospects ahead. We initially purchased the stock at about
13 times 1998 earnings estimates, which is a significant discount to the
market and TOM's own growth rate. We believed that the market was unfairly
penalizing TOM and that its price decline reflected overly pessimistic
viewpoints. Separately, we took advantage of the decline in the price of MGM
Grand, among the higher quality casino stocks, to establish positions after
determining that capacity addition comparisons in Las Vegas would turn
favorable by late 1997.
Energy
Energy service stocks, particularly drillers, added substantially to
investment performance over the past two years. While business momentum for
the sector remains very favorable, valuations for many participants are at
ten-year highs. Given our strict value discipline, we have substantially
reduced our exposure to energy service stocks.
We very much appreciate your continued participation in Dreyfus Midcap
Value Fund. You may rest assured that we devote our full attention to
bringing you superior returns on your investment.
Sincerely,
[Peter I. Higgins signature logo]
Peter I. Higgins
Portfolio Manager
September 17, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** SOURCE: LIPPER ANALYTICAL SERVICES, INC. - The Russell Midcap Index
consists of the bottom 800 securities in the Russell 1000 Index as ranked by
total market capitalization and is a widely accepted measure of medium-cap
stock market performance.
DREYFUS MIDCAP VALUE FUND AUGUST 31, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS MIDCAP VALUE
FUND AND
THE RUSSELL MIDCAP INDEX
[Exhibit A:
$19,724
Dreyfus Midcap
Value Fund
Dollars
$14,827
Russell Midcap Index*]
*Source: Lipper Analytical Services, Inc.
<TABLE>
<CAPTION>
Average Annual Total Returns
One Year Ended From Inception (9/29/95)
August 31, 1997 to August 31, 1997
-------------------- ----------------------
<S> <C>
55.45% 42.44%
</TABLE>
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Midcap Value
Fund on 9/29/95 (Inception Date) to a $10,000 investment made in the Russell
Midcap Index on that date. 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 Russell Midcap Index consists of the bottom
800 securities in the Russell 1000 Index as ranked by total market
capitalization and is a widely accepted measure of medium-cap stock market
performance. The Index does not take into account charges, fees and other
expenses. Further information relating to Fund performance, including expense
reimbursements, if applicable, is contained in the Financial Highlights
section of the Prospectus and elsewhere in this report.
<TABLE>
<CAPTION>
DREYFUS MIDCAP VALUE FUND
STATEMENT OF INVESTMENTS AUGUST 31, 1997
Common Stocks-97.4% Shares Value
------- ------
<S> <C> <C> <C>
Basic Industries-10.6% Albemarle.......................... 30,000 $ 736,875
British Steel, A.D.S. ................. 25,000 714,062
Crown Cork & Seal...................... 21,000 1,068,375
FMC......................................... (a) 17,000 1,412,062
Fort James............................. 18,000 756,000
IMC Global............................. 28,000 985,250
Pechiney, A.D.S. ...................... 38,000 821,750
Potash...................................... 8,500 628,468
Titanium Metals...................... (a) 12,000 429,000
Unisource Worldwide.................... 20,000 362,500
Wellman................................ 32,000 728,000
-------
8,642,342
-------
Capital Goods-4.3% Elsag Baily Process Automation, N.V (a) 32,000 632,000
Fluor....................................... 23,000 1,290,875
Jacobs Engineering Group............. (a) 17,000 544,000
Litton Industries.................... (a) 16,000 798,000
Newport News Shipbuilding.............. 13,000 251,875
-------
3,516,750
-------
Computer Services-.6% American Pad & Paper............ (a) 20,000 460,000
-------
Consumer Cyclical-2.1% American Greetings, Cl. A 13,500 469,125
Pierce Leahy........................... 2,600 70,850
Reebok International................... 26,500 1,164,343
-------
1,704,318
-------
Consumer Durables-6.0% AGCO.................. 29,000 942,500
Black & Decker......................... 8,000 306,500
Dynatech............................. (a) 20,000 765,000
Hollinger International, Cl. A......... 65,000 836,875
Kaufman & Broad Home................... 77,000 1,540,000
Pulte....................................... 14,000 512,750
-------
4,903,625
-------
Consumer Non-Durables-16.2% Ball.......................... 25,000 821,875
Case........................................ 11,000 737,687
Department 56........................ (a) 30,000 819,375
Dole Food.............................. 14,000 546,875
Fruit of the Loom, Cl. A............. (a) 4,000 107,000
Guilford Mills......................... 50,400 1,096,200
Harcourt General....................... 48,000 2,283,000
Harland (John H.)...................... 13,000 257,562
Hasbro................................. 40,000 1,075,000
Hudson Foods, Cl. A.................... 10,000 162,500
Oakley............................... (a) 40,000 487,500
Phillips-Van Heusen.................... 13,000 186,875
Polaroid............................... 20,000 1,056,250
DREYFUS MIDCAP VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Common Stocks (continued) Shares Value
------- ------
Consumer
Non-Durables (continued) Tommy Hilfiger........................ (a) 26,000 $ 1,134,250
Vitro, A.D.S. ......................... 100,000 1,287,500
Young Broadcasting, Cl. A............ (a) 31,800 1,148,775
-------
13,208,224
-------
Consumer Services-10.9% ACNielsen........................ 95,000 2,161,250
H&R Block.............................. 30,000 1,177,500
Boise Cascade Office Products........ (a) 5,700 120,056
Circus Circus Enterprises............ (a) 17,000 406,937
CMP Media, Cl. A....................... 8,900 238,075
Footstar............................. (a) 36,000 893,250
Galileo International.................. 20,000 528,750
Gymboree............................. (a) 27,000 661,500
MGM Grand............................ (a) 17,000 682,125
Saks Holdings.......................... 18,000 418,500
Sunglass Hut International........... (a) 60,000 435,000
True North Communications.............. 45,000 1,130,625
-------
8,853,568
-------
Energy-4.2% Cal Dive International........... (a) 3,300 112,200
Houston Exploration.................. (a) 20,000 376,250
Oryx Energy.......................... (a) 30,000 793,125
Santa Fe International................. 9,300 416,175
Tosco....................................... 34,000 1,124,125
Weatherford Enterprises.............. (a) 13,000 598,812
-------
3,420,687
-------
Finance-11.8% Ahmanson (H.F.) & Co........... 30,000 1,522,500
Allmerica Financial.................... 48,000 1,986,000
City National.......................... 22,000 614,625
Dun & Bradstreet....................... 30,000 840,000
Equitable.............................. 15,500 674,250
Everest Reinsurance Holdings........... 45,000 1,628,446
Hartford Life, Cl. A................... 5,000 186,562
Nationwide Financial Services, Cl. A... 25,000 693,750
Safeco...................................... 25,000 1,228,125
Washington Mutual...................... 3,600 215,550
-------
9,589,808
-------
Health Care-8.6% Bard (C.R.)................. 12,000 414,000
Bausch & Lomb.......................... 10,000 410,625
Foundation Health.................... (a) 36,000 1,145,250
Mid Atlantic Medical Services........ (a) 17,000 262,437
PacifiCare Health Systems, Ser. B.... (a) 6,000 410,250
Quest Diagnostics...................... 100,000 1,868,750
Trigon Healthcare.................... (a) 32,000 764,000
DREYFUS MIDCAP VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Common Stocks (continued) Shares Value
------- ------
Health Care (continued) Vencor.............................. (a) 2,000 $ 80,250
Wellpoint Health Networks............ (a) 30,000 1,631,250
-------
6,986,812
-------
Mining And Metals-1.4% Cypress Semiconductor (a) 26,000 461,500
Reynolds Metals........................ 10,400 735,150
-------
1,196,650
-------
Retail-3.8% Nine West Group.................. (a) 34,000 1,436,500
OfficeMax............................ (a) 40,000 592,500
Talbots..................................... 40,000 1,057,500
-------
3,086,500
-------
Technology-11.4% ANTEC....................... (a) 26,000 351,000
Applied Magnetics.................... (a) 10,000 369,375
Cabletron Systems.................... (a) 24,000 726,000
Commscope.............................. 9,000 155,250
General Semiconductor................ (a) 6,750 95,343
Imation................................ 11,800 319,337
NCR (a) 23,000 815,062
Nextlevel Systems...................... 22,000 441,375
Oak Industries....................... (a) 15,000 434,062
Read-Rite............................ (a) 18,000 516,375
Scientific-Atlanta..................... 46,000 1,000,500
Silicon Graphics..................... (a) 40,000 1,097,500
Silicon Valley Group................. (a) 13,300 448,875
Storage Technology................... (a) 14,000 713,125
Symantec............................. (a) 43,000 1,034,687
Vishay Intertechnology............... (a) 30,000 800,625
-------
9,318,491
-------
Transportation-5.2% Atlas Air................ (a) 20,000 555,000
Caliber System......................... 26,000 1,085,500
KLM Royal Dutch Air.................... 18,222 596,778
USFreightways.......................... 25,000 750,000
Yellow.................................... (a) 40,000 1,255,000
-------
4,242,278
-------
Utilities-.3% New England Electric System.... 6,700 256,275
-------
TOTAL COMMON STOCKS
(cost $73,198,922)................... $79,386,328
=======
DREYFUS MIDCAP VALUE FUND
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Short-Term Investments-2.9% Amount Value
------- ------
U.S. Treasury Bills: 5.27%, 9/18/97.......... $..1,703,000 $ 1,698,164
5.08%, 10/16/97...................... (b) 701,000 696,380
-------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,395,314).................... $ 2,394,544
=======
TOTAL INVESTMENTS (cost $75,594,236)........................................ 100.3% $81,780,872
==== =======
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (.3%) $ (286,733)
==== =======
NET ASSETS.................................................................. 100.0% $81,494,139
==== =======
Notes to Statement of Investments:
(a) Non-income producing.
(b) Partially held by broker as collateral for open short positions.
STATEMENT OF SECURITIES SOLD SHORT AUGUST 31, 1997
Common Stock Shares Value
---- ----
Bowne & Co.................................................................. 1,500 $43,406
OEA......................................................................... 800 29,750
Quanex...................................................................... 500 18,157
----
TOTAL SECURITIES SOLD SHORT
(proceeds $82,244)........................................................ $91,313
====
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS MIDCAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1997
Cost Value
------- ------
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $75,594,236 $81,780,872
Cash....................................... 874,873
Receivable for shares of Common Stock subscribed 462,444
Receivable from brokers for proceeds on
....................... securities sold short 82,244
Dividends and interest receivable.......... 39,899
Prepaid expenses........................... 35,924
-------
83,276,256
-------
LIABILITIES: Due to The Dreyfus Corporation and affiliates 41,480
Due to Distributor......................... 15,703
Payable for investment securities purchased 1,434,326
Securities sold short, at value
............ (proceeds $82,244)-see statement 91,313
Payable for shares of Common Stock redeemed 157,681
Accrued expenses........................... 41,614
-------
1,782,117
-------
NET ASSETS.................................................................. $81,494,139
=======
REPRESENTED BY: Paid-in capital............................ $70,590,039
Accumulated investment (loss).............. (39,242)
Accumulated net realized gain (loss) on investments and
....................... securities sold short 4,765,775
Accumulated net unrealized appreciation (depreciation) on
investments and securities sold short-Note 4(b) 6,177,567
-------
NET ASSETS.................................................................. $81,494,139
=======
SHARES OUTSTANDING
(100 million shares of $.001 par value Common Stock authorized)............. 3,666,284
NET ASSET VALUE, offering and redemption price per share-Note 3(d).......... $22.23
=======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS MIDCAP VALUE FUND
STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1997
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME: Cash dividends (net of $2,242 foreign taxes
withheld at source).................... $ 227,777
Interest................................... 53,823
-------
Total Income......................... $ 281,600
EXPENSES: Management fee-Note 3(a)................... 188,561
Shareholder servicing costs-Note 3(b)...... 91,817
Registration fees.......................... 46,093
Custodian fees-Note 3(b)................... 20,299
Professional fees.......................... 18,575
Prospectus and shareholders' reports....... 10,034
Directors' fees and expenses-Note 3(c)..... 3,136
Interest expense-Note 2.................... 1,361
Dividends on securities sold short......... 755
Loan commitment fees-Note 2................ 201
Miscellaneous.............................. 1,354
-------
Total Expenses....................... 382,186
Less-reduction in management fee due to
undertaking-Note 3(a).................. (66,302)
-------
Net Expenses......................... 315,884
-------
INVESTMENT LOSS............................................................. (34,284)
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments:
Long transactions...................... $ 4,893,855
Short sale transactions................ (30,958)
-------
Net Realized Gain (Loss)............. 4,862,897
Net unrealized appreciation (depreciation) on investments
and securities sold short.............. 6,128,925
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 10,991,822
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $10,957,538
=======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS MIDCAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
August 31, 1997 August 31, 1996*
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Investment income (loss)-net............................................. $ (34,284) $ 15,778
Net realized gain (loss) on investments.................................. 4,862,897 538,463
Net unrealized appreciation (depreciation) on investments................ 6,128,925 48,642
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations........ 10,957,538 602,883
------- -------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net.................................................... (14,466) (6,270)
Net realized gain on investments......................................... (632,898) (2,687)
------- -------
Total Dividends........................................................ (647,364) (8,957)
------- -------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................ 87,803,219 4,374,036
Dividends reinvested..................................................... 637,529 8,938
Cost of shares redeemed.................................................. (20,848,171) (1,385,512)
------- -------
Increase (Decrease) in Net Assets from Capital Stock Transactions...... 67,592,577 2,997,462
------- -------
Total Increase (Decrease) in Net Assets.............................. 77,902,751 3,591,388
NET ASSETS:
Beginning of Period...................................................... 3,591,388 ----
------- -------
End of Period............................................................ $ 81,494,139 $ 3,591,388
======= =======
Undistributed investment income (loss)-net................................. $ (39,242) $ 9,508
------- -------
Shares Shares
------- -------
CAPITAL SHARE TRANSACTIONS:
Shares sold.............................................................. 4,544,579 319,436
Shares issued for dividends reinvested................................... 37,348 682
Shares redeemed.......................................................... (1,142,930) (92,831)
------- -------
Net Increase (Decrease) in Shares Outstanding.......................... 3,438,997 227,287
======= =======
*From September 29, 1995 (commencement of operations) to August 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS MIDCAP VALUE 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.
Year Ended August 31,
------------------------------
PER SHARE DATA: 1997 1996(1)
---- ----
<S> <C> <C>
Net asset value, beginning of period.................................... $15.80 $12.50
---- ----
Investment Operations:
Investment income (loss)-net............................................ (.01) .08
Net realized and unrealized gain (loss)
on investments........................................................ 8.23 3.28
---- ----
Total from Investment Operations........................................ 8.22 3.36
---- ----
Distributions:
Dividends from investment income-net.................................... (.04) (.04)
Dividends from net realized gain on investments......................... (1.75) (.02)
---- ----
Total Distributions..................................................... (1.79) (.06)
---- ----
Net asset value, end of period.......................................... $22.23 $15.80
==== ====
TOTAL INVESTMENT RETURN..................................................... 55.45% 26.88%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets....................... 1.25% 1.18%(2)
Ratio of interest expense, loan commitment fees and dividends on securities sold short
to average net assets................................................. .01% .01%(2)
Ratio of net investment income (loss)
to average net assets................................................. (.14%) .56%(2)
Decrease reflected in above expense ratios
due to undertaking by the Manager..................................... .26% 1.13%(2)
Portfolio Turnover Rate................................................. 154.92% 266.80%(2)
Average commission rate paid (3)........................................ $.0502 $.0478
Net Assets, end of period (000's Omitted)............................... $ 81,494 $3,591
(1) From September 29, 1995 (commencement of operations) to August 31, 1996.
(2) Not annualized.
(3) The Fund is required to disclose its average commission rate paid per share for purchases and sales of investment
securities.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS MIDCAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Midcap Value Fund (the "Fund") is a series of Dreyfus Growth and
Value Funds, Inc. (the "Company") which is registered under the Investment
Company Act of 1940 ("Act") as a diversified open-end management investment
company and operates as a series company currently offering eight series,
including the Fund. The Fund's investment objective is to provide investment
results that exceed the total return performance of publicly traded common
stocks in the aggregate, as represented by a recognized index of mid cap
stocks. The Dreyfus Corporation ("Manager") serves as the Fund's investment
adviser. The Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon").
Premier Mutual Fund Services, Inc. (the "Distributor") is the distributor of
the Fund's shares, which are sold to the public without a sales 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.
(b) Securities transactions and investment income: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(c) 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. To the extent that net realized
capital gain can be offset by capital loss carryovers, if any, it is the
policy of the Fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the 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:
Effective February 14, 1997, the Fund may borrow up to $10 million for
leveraging purposes under a short-term unsecured line of credit and
participates with other Dreyfus-managed funds in a $100 million unsecured
line of credit primarily to be utilized for temporary or emergency purposes,
including the financing of redemptions. Interest is charged
DREYFUS MIDCAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
to the Fund at rates which are related to the Federal Funds rate in effect at
the time of borrowings. Prior to February 14, 1997, the Fund participated
with other Dreyfus-managed funds in a $600 million redemption credit facility
to be utilized for temporary or emergency purposes, including the financing
of redemptions. In connection therewith, the Fund had agreed to pay
commitment fees on its pro rata portion of the Facility. Interest was charged
to the Fund at rates based on prevailing market rates in effect at the time
of borrowings. At August 31, 1997, there were no outstanding borrowings under
the lines of credit.
The average daily amount of borrowings outstanding during the period
ended August 31, 1997 was approximately $23,000, with a related weighted
average annualized interest rate of 5.84%. The maximum amount outstanding at
any time during the period ended August 31, 1997 was $1.0 million.
NOTE 3-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) Pursuant to a management agreement with the Manager, the management
fee is computed at the annual rate of .75 of 1% of the value of the Fund's
average daily net assets and is payable monthly. The Manager has undertaken
from September 1, 1996 through August 31, 1997 to reduce the management fee
paid by the Fund, to the extent that the Fund's aggregate expenses, exclusive
of taxes, brokerage, interest on borrowings (which in the view of Stroock &
Stroock & Lavan, counsel to the Fund, also contemplates loan commitment fees
and dividends accrued on securities sold short) and extraordinary expenses,
exceed an annual rate of 1.25% of the value of the Fund's average daily net
assets. The reduction in management fee, pursuant to the undertaking,
amounted to $66,302 during the period ended August 31, 1997.
(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 August 31, 1997, the Fund was charged an
aggregate of $62,854 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. Such
compensation amounted to $21,320 during the period ended August 31, 1997.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended August 31, 1997,
$20,299 was charged by Mellon pursuant to the custody agreement.
(c) Each director who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $5,000 and an attendance fee of
$500 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
(d) Effective March 3, 1997, a 1% redemption fee is charged 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
fifteen days following the date of issuance.
DREYFUS MIDCAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales of investment securities
and securities sold short, excluding short-term securities, during the period
ended August 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
Purchases Sales
-------- -------
<S> <C> <C>
Long transactions.................................................... $105,131,411 $40,126,681
Short sale transactions.............................................. 254,446 168,506
-------- -------
Total............................................................ $105,385,857 $40,295,187
======== =======
</TABLE>
The Fund is engaged in short-selling which obligates the Fund to replace
the security borrowed by purchasing the security at
current market value. The Fund would incur a loss if the price of the
security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. The Fund would realize a gain if the
price of the security declines between those dates. Until the Fund replaces
the borrowed security, the Fund will maintain daily, a segregated account
with a broker and the custodian, of cash and/or U.S. Government securities
sufficient to cover its short position. Securities sold short at August 31,
1997 and their related market values and proceeds are set forth in the
Statement of Securities Sold Short.
(b) At August 31, 1997, accumulated net unrealized appreciation on
investments and securities sold short was $6,177,567, consisting of
$6,930,026 gross unrealized appreciation and $752,459 gross unrealized
depreciation.
At August 31, 1997, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS MIDCAP VALUE FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Dreyfus Midcap Value Fund
We have audited the accompanying statement of assets and liabilities,
including the statements of investments and securities sold short, of Dreyfus
Midcap Value Fund (one of the Series constituting Dreyfus Growth and Value
Funds, Inc.) as of August 31, 1997, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and financial highlights for each of
the years indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures included
verification by examination of securities held as of August 31, 1997 and
confirmation of securities not held by the custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Midcap Value Fund at August 31, 1997, and 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 and Young LLP signature logo]
New York, New York
October 7, 1997
IMPORTANT TAX INFORMATION (UNAUDITED)
The Fund hereby designates 4.36% of the ordinary dividends paid during
the fiscal year ended August 31, 1997 as qualifying for the corporate
dividends received deduction. Shareholders will receive notification in
January 1998 of the percentage applicable to the preparation of their 1997
income tax returns.
Registration Mark
[Dreyfus lion "d" logo]
DREYFUS MIDCAP VALUE FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 258AR978
Registration Mark
[Dreyfus logo]
Midcap Value Fund
Annual Report
August 31, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN DREYFUS MIDCAP VALUE FUND
AND THE RUSSELL MIDCAP INDEX
EXHIBIT A:
DREYFUS
RUSSELL MIDCAP
PERIOD MIDCAP VALUE
INDEX * FUND
9/29/95 10,000 10,000
11/30/95 10,263 10,256
2/29/96 10,788 11,411
5/31/96 11,425 13,146
8/31/96 11,058 12,688
11/30/96 12,411 14,824
2/28/97 12,725 15,980
5/31/97 13,398 17,106
8/31/97 14,827 19,724
*Source: Lipper Analytical Services, Inc.
