DREYFUS U.S. TREASURY SHORT TERM FUND
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LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance of the Dreyfus U.S. Treasury Short
Term Fund. For the six-month reporting period ended June 30, 1998, your Fund
produced a total return, including share price changes and dividend income
generated, of 2.62% .* Income dividends paid from net investment income during
the period amounted to approximately $0.442 per share, representing an
annualized distribution rate per share of 6.06%.**
THE ECONOMY
In recent months, economic developments overseas began to assert a more
vigorous influence on the U.S. economy. The first quarter of the 1998 calendar
year saw the U.S. trade deficit rising to a new high. Exports contracted due to
reduced foreign demand for U.S. products, which resulted in a marked rise in
business inventories that could create a drag on future production as stockpiles
are depleted. At the same time, imports surged. Spurred by a strong U.S. dollar
and robust consumer spending, the increase in cheaper imports helped dampen
domestic inflation since American producers had to restrain their prices in
order to remain competitive. The suppressive effect of the trade deficit on both
domestic production and prices has been fortuitously in concert with the
direction of Federal Reserve Board (the Fed) monetary policy.
The financial difficulties that began in Asia last year have now spread to
Latin America and beyond. That tenuous situation and the continued economic
instability in Russia have contributed to the Fed' s status quo policy in
monetary matters since the Fed is concerned that any increase in short-term
interest rates would further unsettle world markets. The last increase in
short-term rates came in March 1997 when the Federal Open Market Committee (the
policy-making arm of the Fed) raised the target rate for Federal Funds by one
quarter of a percent to 5.5%. (The Federal Funds rate is the rate of interest
that banks charge each other for the use of Federal Funds.)
Consumers, spurred by real wage gains and a healthy job market, continued to
spend freely in the retail sector, giving retailers some of their best months in
a decade. In the early years of the current eight-year economic expansion, the
retail portion of our economy at times had lagged since consumers feared job
insecurity and a resurgence of inflation. The buoyant stock market, low
unemployment rate and absence of inflation, however, encouraged consumers to
spend. The market for so-called "big ticket" items has been strong: the housing
market was solid throughout the reporting period and continues to be, while car
and truck sales are at ten-year highs.
Unemployment (4.3% at the end of the reporting period) is at a 28-year low.
Inflation, at both consumer and producer levels, has been dormant. Workers are
benefiting from having their wages rise faster than inflation. The most recently
reported statistics on hourly wages (through April) revealed that over the
previous 12 months, wages rose 4.4% while the Consumer Price Index increased but
1.4% . The tight labor market and upward pressure on wages, because of their
potential for rekindling inflation, have been major concerns of the Federal
Reserve. The wage rate increase of 4.4%, compared to 3.7% and 3.1% in the two
previous years, illustrates the upward creep of wages.
Over the past few years, gains in worker productivity (output per hour of
work) have offset any incipient price pressures from rising wages. Enhanced by
the widespread use of technology, productivity rose 1.7% last year and 1.9% in
1996, compared to an average increase of only 1% for the period 1974-1995. These
gains are a key factor in the continuation of our high-growth, low-inflation
economy. However, productivity gains slowed to 1.1% during the first quarter,
the slowest pace in over a year. So far, our economy has been in a charmed
circle where even international financial crises have proven supportive of our
economic policies. As always, we remain alert for warning signs that the
delicate balance that now prevails in our economy might be disturbed.
MARKET ENVIRONMENT
The bond market has been very strong from a fundamental point of view.
Everything from reduced supply of U.S. Treasury debt, to the Asian crisis, to
falling commodity prices has worked in the bond market's favor.
At the time of this letter, it is very hard to find any sentiment regarding
the bond market that is not bullish. There are several themes which have
produced this optimism in the bond market. The first is that Japan may never put
forth a credible financial package, which is a key element to ending the Asian
crisis. Second, OPEC members may never actually adhere to any agreed-upon
cutbacks in oil production, which would keep oil prices from rising. Also,
yields remain very high on a global basis. On the domestic front, inflation is
viewed as nonexistent. And, the manufacturing sector of the U.S. economy is
already signaling much slower growth ahead.
The 30-year Treasury bond is trading in a range of 5.5% to 5.85%. Currently,
the yield is at the lower end of that range. The above-mentioned themes have
been talked about enough that one can assume that at the moment they already are
priced into yield levels.
When viewing the above bond market themes, you can see that they are somewhat
intertwined. If one of them were to change, the others would be modified as
well. The Japanese fiscal reform or policy change could have the biggest effect
on the direction of the others. While it may take years for recoveries to be in
place for Asia, the direction is important. If the fiscal package from Japan is
credible and sizable, the financial markets will begin to assume that the worst
is behind. This will in turn lift commodity prices as people anticipate a
greater need in the future. The "zero inflation" scenario could be hindered by
any rise in commodity prices. In fact, core inflation in the U.S. has been
moving up. If it were not for the Asian crisis' impact on commodity prices,
fewer people would be proclaiming that inflation is dead.
While only time will tell, the external pressure being exerted on Japan to
reform is great by any historical standards. It is our opinion that Japan will
reform sooner than the markets are anticipating (albeit it could take years to
work through), but we are less enthusiastic about the prediction that rates will
fall precipitously further without more defining news on the bond market themes
discussed above.
PORTFOLIO OVERVIEW
In light of our apprehension about a continued bond market rally, we believe
that a neutral stance in duration is warranted. Going forward, the target
duration will be in the area of 2.3 years. Over the last 12 months the duration
of the fund has been as high as 2.7 years, which has worked out well as rates
have declined over that time.
During the reporting period, we have positioned the Fund to take advantage of
a flatter yield curve, which has worked well. However, we believe that
positioning the Fund for a steepening yield curve might be warranted in the
future. The reasons for this are twofold. First, if inflation picks up, even
minimally, we expect 30-year Treasury bonds to underperform shorter maturity
Treasuries. (Inflation will eat away at longer maturities.) Or, if the economy
really does slow down, the Fed will remove their tightening bias which will help
shorter maturities to outperform longer-term Treasuries. Second, in economic
slowdowns banks could tend to invest capital because loan demand slows. This
would mean increased interest in purchasing of shorter maturity securities. So
the yield curve steepening structure should perform well in both scenarios.
We have allocated resources to "Treasury Inflation Protected Securities"
(TIPS) . TIPS represent value on a very simple basis: right now 30-year Treasury
bonds yield 5.63% , and 30-year TIPS yield 3.68%. This means that if inflation
comes in at 2% or higher for the year then TIPS have better relative value. We
plan on acquiring approximately a 15% position in this product.
Now that this Fund is allowed to purchase government-guaranteed agency
securities, we have started to make these types of purchases. We plan on
bringing that position to its maximum, which would be 35%, as the opportunities
to do so arise. The yield advantage is between 18 to 20 basis points over
comparable-maturity Treasuries. This will help to keep a slightly higher income
stream.
Very truly yours,
[Gerald E. Thunelius, logo signature]
Portfolio Manager
June 18, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
** Distribution rate per share is based upon dividends per share paid from net
investment income during the period (annualized), divided by the net asset
value per share at the end of the period.
<TABLE>
DREYFUS U.S. TREASURY SHORT TERM FUND
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STATEMENT OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
Principal
Bonds and Notes--82.4% Amount Value
- ------------------------------------------------------- _____________ _____________
U.S. Government Agencies--18.0%
Federal National Mortgage Association,
Medium-Term Notes:
<S> <C> <C>
5.91%, 2/25/2000 $ 20,000,000 $ 20,067,200
6.94%, 9/5/2007 13,000,000 13,429,520
_____________
33,496,720
_____________
U.S. Treasury Bonds--13.8%
11.75%, 2/15/2001 5,000,000 5,764,650
13.125%, 5/15/2001 5,850,000 7,029,594
11.875%, 11/15/2003 10,000,000 12,891,300
_____________
25,685,544
_____________
U.S. Treasury Inflation Protection Securities--4.3%
3.635%, 7/15/2002 5,000,000 (a) 5,018,505
3.625%, 4/15/2028 3,000,000 (a) 2,978,778
_____________
7,997,283
_____________
U.S. Treasury Notes--46.3%
5.625%, 12/31/1999 40,000,000 40,070,400
8.50%, 11/15/2000 23,400,000 24,933,168
5.375%, 2/15/2001 5,000,000 4,983,300
8%, 5/15/2001 15,000,000 15,978,150
_____________
85,965,018
_____________
TOTAL BONDS AND NOTES
(cost $154,307,083) $153,144,565
=============
</TABLE>
<TABLE>
DREYFUS U.S. TREASURY SHORT TERM FUND
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STATEMENT OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
Principal
Short-Term Investments--2.1% Amount Value
- ------------------------------------------------------- _____________ _____________
U.S. Government Agencies--1.2%
Federal Home Loan Banks,
<S> <C> <C>
5.85%, 7/1/1998 2,152,000 $ 2,152,000
_____________
U.S. Treasury Bills--.9%
4.88%, 8/27/1998 1,770,000 1,756,371
_____________
TOTAL SHORT-TERM INVESTMENTS
(cost $3,908,324) $ 3,908,371
=============
TOTAL INVESTMENTS
(cost $158,215,407) 84.5% $157,052,936
====== =============
CASH AND RECEIVABLES (NET) 15.5% $ 28,861,506
====== =============
NET ASSETS 100.0% $185,914,442
====== =============
Notes to Statement of Investments:
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(a) Variable rate security--base interest rate shown--adjustment to interest
rate linked to the Consumer Price Index.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS U.S. TREASURY SHORT TERM FUND
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STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 (UNAUDITED)
Cost Value
_____________ ____________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of Investments $158,215,407 $157,052,936
Receivable for investment securities sold 39,988,822
Interest receivable 1,796,465
Prepaid expenses and other assets 28,372
____________
198,866,595
____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates 72,382
Cash overdraft due to custodian 12,820,519
Payable for shares of Beneficial Interest redeemed 5,000
Accrued expenses 54,252
____________
12,952,153
____________
NET ASSETS $185,914,442
============
REPRESENTED BY: Paid-in capital $203,420,695
Accumulated net realized gain (loss) on investments (16,343,782)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 (1,162,471)
____________
NET ASSETS $185,914,442
============
SHARES OUTSTANDING
(UNLIMITED NUMBER OF $.001 PAR VALUE SHARES OF BENEFICIAL INTEREST AUTHORIZED) 12,641,502
NET ASSET VALUE, offering and redemption price per share $14.71
======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS U.S. TREASURY SHORT TERM FUND
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STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
INVESTMENT INCOME
<S> <C> <C>
INCOME Interest Income $6,429,135
EXPENSES: Management fee--Note 3(a) $ 564,628
Shareholder servicing costs--Note 3(b) 251,221
Professional fees 26,051
Trustees' fees and expenses--Note 3(c) 20,160
Registration fees 19,501
Prospectus and shareholders' reports 13,513
Custodian fees--Note 3(b) 8,737
Miscellaneous 3,762
___________
Total Expenses 907,573
Less--reduction in management fee due to
undertaking--Note 3(a) (168,532)
___________
Net Expenses 739,041
__________
INVESTMENT INCOME-NET 5,690,094
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments $ (55,880)
Net unrealized appreciation (depreciation) on investments (786,583)
___________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (842,463)
__________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,847,631
==========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS U.S. TREASURY SHORT TERM FUND
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STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) December 31, 1997
________________ _______________
OPERATIONS:
<S> <C> <C>
Investment income--net $ 5,690,094 $ 11,398,441
Net realized gain (loss) on investments (55,880) (717,246)
Net unrealized appreciation (depreciation) on investments (786,583) 78,906
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations 4,847,631 10,760,101
_____________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net (5,690,094) (11,398,441)
_____________ _____________
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold 19,530,211 75,922,946
Dividends reinvested 4,564,204 8,803,233
Cost of shares redeemed (32,735,271) (76,516,414)
_____________ _____________
Increase (Decrease) in Net Assets from Beneficial Interest Transactions (8,640,856) 8,209,765
_____________ _____________
Total Increase (Decrease) in Net Assets (9,483,319) 7,571,425
NET ASSETS:
Beginning of Period 195,397,761 187,826,336
_____________ _____________
End of Period $185,914,442 $195,397,761
============= =============
Shares Shares
_____________ _____________
CAPITAL SHARE TRANSACTIONS:
Shares sold 1,316,879 5,152,734
Shares issued for dividends reinvested 309,555 597,616
Shares redeemed (2,218,185) (5,194,788)
_____________ _____________
Net Increase (Decrease) in Shares Outstanding (591,751) 555,562
============= =============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
DREYFUS U.S. TREASURY SHORT TERM FUND
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FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Beneficial Interest 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.
Six Months Ended
June 30, 1998 Year Ended December 31,
_____________ ____________________________________________________
PER SHARE DATA: (Unaudited) 1997 1996 1995 1994 1993
__________ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.77 $14.82 $15.14 $14.55 $15.75 $15.91
______ ______ ______ ______ ______ ______
Investment Operations:
Investment income--net .44 .93 .90 1.03 1.15 1.25
Net realized and unrealized gain (loss)
on investments (.06) (.05) (.32) .59 (1.20) (.16)
______ ______ ______ ______ ______ ______
Total from Investment Operations .38 .88 .58 1.62 (.05) 1.09
______ ______ ______ ______ ______ ______
Distributions:
Dividends from investment income--net (.44) (.93) (.90) (1.03) (1.15) (1.25)
______ ______ ______ ______ ______ ______
Net asset value, end of period $14.71 $14.77 $14.82 $15.14 $14.55 $15.75
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN 5.28%(1) 6.12% 4.07% 11.38% (.33%) 7.03%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .79%(1) .70% .70% .65% .35% .11%
Ratio of net investment income
to average net assets 6.05%(1) 6.29% 6.04% 6.90% 7.61% 7.82%
Decrease reflected in above expense ratios
due to undertakings by the Manager .18%(1) .31% .27% .29% .59% .85%
Portfolio Turnover Rate 325.94%(2) 563.77% 539.38% 480.44% 499.11% 322.62%
Net Assets, end of period (000's Omitted) $185,914 $195,398 $187,826 $188,726 $172,556 $188,300
- -----------------------------
(1) Annualized.
(2) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS U.S. TREASURY SHORT TERM FUND
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus U.S. Treasury Short Term Fund (the "Fund") is registered under the
Investment Company Act of 1940 ("Act") as a diversified open-end management
investment company. The Fund's investment objective is to provide investors with
as high a level of current income as is consistent with the preservation of
capital. 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. is the distributor of the Fund's shares,
which are sold to the public without a sales charge.
Effective May 15, 1998, the Fund changed its name from "Dreyfus 100% U.S.
Treasury Short Term Fund" to "Dreyfus U.S. Treasury Short Term Fund".
The Fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities (excluding short-term
investments other than U.S. Treasury Bills) are valued each business day by an
independent pricing service (" Service" ) approved by the Board of Trustees.
Investments for which quoted bid prices are readily available and are
representative of the bid side of the market in the judgment of the Service are
valued at the mean between the quoted bid prices (as obtained by the Service
from dealers in such securities) and asked prices (as calculated by the Service
based upon its evaluation of the market for such securities). Other investments
(which constitute a majority of the portfolio securities) are carried at fair
value as determined by the Service, based on methods which include consideration
of: yields or prices of securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions.
Short-term investments, excluding U.S. Treasury Bills, are carried at amortized
cost, which approximates value.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. 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 receives net earnings credits based on available cash balances left on
deposit.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain, if any, are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code. To the extent
that net realized capital gain can be offset by capital loss carryovers, it is
the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the applicable provisions of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes
The Fund has an unused capital loss carryover of approximately $16,288,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to December 31, 1997. If not
applied, $10,865,000 of the carryover expires in fiscal 2002, $2,004,000 expires
in fiscal 2003, $2,702,000 expires in fiscal 2004 and $717,000 expires in fiscal
2005.
NOTE 2--BANK LINE OF CREDIT:
The Fund participates with other Dreyfus-managed funds in a $100 million
unsecured line of credit primarily to be utilized for temporary or emergency
purposes, including the financing of redemptions. Interest is charged to the
Fund at rates which are related to the Federal Funds rate in effect at the time
of borrowings. During the period ended June 30, 1998, the Fund did not borrow
under the line of credit.
DREYFUS U.S. TREASURY SHORT TERM FUND
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 3--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement with the Manager, the management fee is
computed at the annual rate of .60 of 1% of the value of the Fund's average
daily net assets and is payable monthly. The Manager had undertaken from January
1, 1998 through June 30, 1998 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 and extraordinary expenses) exceeded specified annual
percentages of the value of the Fund's average daily net assets. The reduction
in management fee, pursuant to the undertaking, amounted to $168,532 during the
period ended June 30, 1998.
(B) Under the Shareholder Services Plan, the Fund reimburses Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager, an amount not to exceed
an annual rate of .25 of 1% of the value of the Fund's average daily net assets
for certain allocated expenses of providing personal services and/or maintaining
shareholder accounts. 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. During the period ended June
30, 1998, the Fund was charged $142,507 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 June 30, 1998, the Fund was charged $45,912 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended June 30, 1998, the Fund was
charged $8,737 pursuant to the custody agreement.
(C) Each trustee who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $250 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation and the Trustee Emeritus receives 50% of such compensation.
NOTE 4--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended June 30, 1998, amounted
to $572,824,412 and $611,269,138, respectively.
At June 30, 1998, accumulated net unrealized depreciation on investments was
$1,162,471, consisting of $66,343 gross unrealized appreciation and $1,228,814
gross unrealized depreciation.
At June 30, 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).
[reg.tm, logo signature]
[reg.tm, logo signature]
DREYFUS U.S. TREASURY
SHORT TERM 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. 081SA986
U.S. Treasury
Short Term Fund
Semi-Annual
Report
June 30, 1998
