How big can an opportunistic fund be,
and still be opportunistic?
1
1
Is the fund
able to take a
high-conviction
position on smaller
bond issues?
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Is the fund able to take a high-conviction position on smaller bond issues?
The larger the fund, the less nimble it may be.

We believe the whole idea of an opportunistic bond fund is to capitalize on the most promising bond issues, unconstrained by geography, sector, and—just as importantly—size. There’s a universe of smaller bond issues out there with solid structural and performance characteristics that merit a place in opportunistic bond portfolios.

This can present a challenge for a mega-sized fund, because it would need to acquire most (or all) of a small issue in order to take a high-conviction position, say 2% or more of a fund’s total net assets.

Dreyfus Opportunistic Fixed Income Fund’s size readily allows its managers to invest with conviction and capture meaningful exposure to smaller bond issues—while also allowing for participation in much larger issues.

The graphic above is intended to illustrate the allocation impact a hypothetical $20 million bond investment (represented by the white boxes) would have in two portfolios of differing asset size.

2
2
Are the drivers of
fund performance
transparent and clear?
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Are the drivers of performance transparent and clear?
The larger the fund, the less “bond-centric” it may be.

When you buy into an opportunistic bond portfolio, it’s logical to expect that most of that portfolio is invested in bonds.

Derivatives can be an important and valuable part of effective asset management, and (to an extent) a source of total return. Beyond a certain size threshold, it may become difficult to transact in the cash bond market. Larger-asset funds may need to gain exposure to certain parts of the market through derivative contracts, introducing special counterparty and liquidity risks that must be managed. That is why we think it is important for investors to understand: (1) to what extent derivatives are part of the portfolio, (2) how much derivatives are driving the pursuit of income and total return, and (3) how much derivatives are used to manage risk.

So consider an unconstrained bond fund that’s truly bond-centric — a fund like DSTRX, where bonds have been the primary source of historical performance, and where derivatives are primarily used for hedging and risk management, and not as a primary source of alpha.

The chart above is hypothetical and for illustrative purposes only. It does not represent the fund’s, or any, actual portfolio.

3
3
Is the fund flexible
enough to pursue
positive returns
regardless of the rate
environment?
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Is the fund flexible enough to pursue positive returns regardless of the rate environment?
An opportunistic fund no matter the market or interest rate environment.

It’s not hard to find a bond fund that has performed well when interest rates were low or in decline. But a bond fund that has the ability to achieve positive returns when rates are rising, such as in 2013? That’s more difficult to find.1

They do exist, however, and DSTRX has been one of them. For example, between 2011 and 2013 (a period largely characterized by rising rates), DSTRX has outperformed the broad bond market index as well as the Morningstar Nontraditional Bond Funds category average. More specifically, it outperformed throughout most of the nine rising rate episodes within this time period.2

The fund’s performance is driven by the flexibility and latitude to search for the best opportunities across the full spectrum of the global bond and currency markets.

For illustrative purposes only. Does not represent the fund’s, or any, actual portfolio.

1 Source: Morningstar, based on the cumulative returns of the Morningstar Intermediate-Term Bond Funds category average during rising rate periods for the three-year period ended 2013. Returns for individual mutual funds that compose the category would vary. The fund is not part of the category. Past performance is no guarantee of future results. There can be no guarantee that these trends would occur in the future.

2 Source: Barclays, Morningstar, for three-year period ended 2013. Broad bond market represented by the Barclays U.S. Aggregate Index, a widely used, unmanaged fixed income proxy. Returns for individual mutual funds that compose the Morningstar Nontraditional Bond Funds category would vary. Past performance is no guarantee of future results. Period reflects implementation of the fund’s current strategy which became effective October 29, 2010, at which time the fund also changed its name from Dreyfus Strategic Income Fund and implemented an absolute-return investment strategy (similar to its current approach).

Meet Dreyfus Opportunistic Fixed Income Fund.

CLASS I DSTRX
Overall Morningstar Rating™

Able to take high-conviction positions in bond issues, large or small. Transparent in its drivers of performance. And a favorable track record of historical performance whether rates were up or down.

Read more
Meet Dreyfus Opportunistic Fixed Income Fund.
CLASS I DSTRX
Overall Morningstar Rating™ among 170 funds in the Morningstar Nontraditional Bond Funds category as of 6/30/14.
Designed to take advantage of every opportunity.

Strong Results. DSTRX is a bond fund designed to seek positive returns regardless of market conditions and interest-rate movements. As shown in the chart below, the fund has achieved favorable historical returns relative to the broad fixed income universe, in aggregate, and through most of the nine rising rate episodes over the same time period.3

DSTRX Has Outperformed During Rising Rate Periods, and in Aggregate
12/31/10 - 3/31/14

3 The performance data quoted represents past performance, which is no guarantee of future results. Yield, share price, and investment return fluctuate, and an investor’s shares may be worth more or less than original cost upon redemption. Current performance may be lower or higher than the performance quoted. Go to Dreyfus.com for the fund’s most recent month-end returns. The Dreyfus Corporation has contractually agreed to waive receipt of its fees and/or assume the expenses of the fund until March 1, 2015, so that annual direct fund operating expenses (excluding Rule 12b-1 fees, shareholder services fees, taxes, brokerage commissions, commitment fees on borrowings, and extraordinary expenses) do not exceed 0.65% of the fund’s average daily net assets. Total Expense Ratio: Class A 1.13% (Net Expense Ratios with Expense Cap: Class A 0.90%).

Period reflects implementation of the fund’s current strategy, which became effective October 29, 2010, and at which time the fund also changed its name from Dreyfus Strategic Income Fund and implemented an absolute-return investment strategy (similar to its current approach). Returns for rising rate period were not annualized. The Morningstar Intermediate Term Bond category and Morningstar Nontraditional Bond category averages were used for purposes of this example. Returns for individual mutual funds that compose each category would vary.



Flexible. DSTRX has the ability to take high-conviction positions among smaller bond issuers, as well as larger bond issues, across the global bond universe. We believe this is an important component of a truly “opportunistic” approach.

Transparent. The portfolio managers seek to build DSTRX bond by bond, to align with investor expectations of what a bond fund should be. Derivatives are utilized principally for hedging and risk management, not as a primary alpha source.

A new fixed income world needs a new core strategy.

We believe we may be in the midst of the most challenging fixed income environment in decades. The Barclays U.S. Aggregate Index now represents 33% more interest rate risk than it did just five years ago—and nearly 50% less yield.4 All while narrowing credit spreads are putting more pressure on the risk/return compensation of traditional bond funds.

For all the reasons above, DSTRX could serve as the new core to your fixed income strategy. Unconstrained. Transparent. Diversified. Risk-managed. Absolute return-oriented. We invite you to learn more here or by downloading the resources above.

About the fund managers.

Dreyfus Opportunistic Fixed Income Fund is managed by the investment professionals at Standish, a fixed income firm dedicated to serving the needs of sophisticated institutional investors.

Founded in 1933, Standish provides a wide variety of fixed income and credit solutions to achieve client-specific goals.

Their investment process strives to capture relative value opportunities created by market inefficiencies. They use both proprietary research to identify new and changing sources of excess return—and a mix of qualitative judgment and quantitative tools to formulate and implement their investment views.

4 Source: Barclays, March 31, 2014. Interest rate risk is commonly measured by duration, a measure of a bond’s sensitivity to interest-rate movements. Narrowing credit spreads claim based on option-adjusted spread data across high-yield, securitized and corporate bond indices for five-year period ended March 31, 2014. Portfolio composition is subject to change over time. There can be no guarantee that these trends will continue or occur in the future. Yields fluctuate.

Average Annual Total Returns as of 3/31/14
1-Yr 3-Yr 5-Yr 10-Yr/Since Inception
DSTAX (Class A @ NAV) 1.85% 4.13% 10.44% 6.27% (7/11/06)
DSTAX (w/4.5% max load) -2.73% 2.54% 9.44% 5.63% (7/11/06)
DSTRX (Class I) 2.11% 4.40% 10.73% 6.54% (7/11/06)
Barclays U.S. Aggregate Index -0.10% 3.75% 4.80% 4.46%
Morningstar Nontraditional Bond category average 0.34% 2.45% 6.85% 4.31%
Morningstar Intermediate-Term Bond category average 0.22% 3.99% 6.61% 4.28%

Source: Morningstar, FactSet, March 2014. The performance data quoted represents past performance, which is no guarantee of future results. Yield, share price, and investment return fluctuate, and an investor’s shares may be worth more or less than original cost upon redemption. Current performance may be lower or higher than the performance quoted. Go to Dreyfus.com for the fund’s most recent month-end returns. The Dreyfus Corporation has contractually agreed to waive receipt of its fees and/or assume the expenses of the fund until March 1, 2015, so that annual direct fund operating expenses (excluding Rule 12b-1 fees, shareholder services fees, taxes, brokerage commissions, commitment fees on borrowings, and extraordinary expenses) do not exceed 0.65% of the fund’s average daily net assets. Total Expense Ratio: Class A 1.13% (Net Expense Ratio with Expense Cap: Class A 0.90%).

Outperformance in Seven of the Last Nine Rising Rate Periods
Periods noted in shaded area in line graph above Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9
1/13/11-2/08/11 3/16/11-4/08/11 9/22/11-10/27/11 1/31/12-3/19/12 7/24/12-9/14/12 11/16/12-3/11/13 5/02/13-7/05/13 7/22/13-9/05/13 10/23/13-12/27/13
DSTAX (Class A @ NAV) (%) 0.90 1.26 -0.56 1.37 2.51 4.42 -2.09 0.14 1.64
DSTRX (Class I) 0.93 1.28 -0.53 1.42 2.55 4.52 -2.04 0.11 1.69
Mstar NonTrad Cat Avg (%) 0.42 0.99 0.08 1.57 1.52 2.00 -2.31 -0.88 0.39
Mstar Int Term Cat Avg (%) -0.68 -0.27 -0.87 -0.25 0.33 -0.01 -4.68 -1.87 -0.73
Barclays U.S Agg (%) -1.16 -0.70 -1.21 -1.03 -0.60 -0.88 -4.44 -1.88 -1.05
10-Year UST Yield Change (%) 0.42 0.36 0.68 0.57 0.30 0.48 1.09 0.49 0.52

Source: Morningstar, FactSet. Returns not annualized. Rising rate periods determined by value at market close of the 10-year U.S. Treasury yields rising by at least 30 basis points since December 31, 2010. Period reflects implementation of the fund’s current strategy. Effective October 29, 2010, the fund changed its name from Dreyfus Strategic Income Fund and implemented an absolute-return investment strategy (similar to its current approach) that used a blend of quantitative and fundamental analysis to allocate 0–70% of assets across four sectors. Since July 1, 2013, the fund has not been managed to a benchmark index and is not bound by benchmark-specific guidelines. Prior to this date, the fund’s benchmark was the Barclays U.S. Aggregate Index.

Our fund managers' perspectives