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PROSPECTUS MARCH 15, 1996
DREYFUS INVESTMENT GRADE BOND FUNDS, INC.
DREYFUS SHORT TERM INCOME FUND
DREYFUS INTERMEDIATE TERM INCOME FUND
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DREYFUS INVESTMENT GRADE BOND FUNDS, INC. IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY (THE "COMPANY"), KNOWN AS A MUTUAL FUND. THE COMPANY
PERMITS YOU TO INVEST IN TWO SEPARATE SERIES WHICH ARE DESCRIBED IN THIS
PROSPECTUS (EACH, A "FUND" AND, COLLECTIVELY, THE "FUNDS")--DREYFUS SHORT
TERM INCOME FUND ("SHORT TERM INCOME FUND"), A NON-DIVERSIFIED SERIES, AND
DREYFUS INTERMEDIATE TERM INCOME FUND ("INTERMEDIATE TERM INCOME FUND"), A
DIVERSIFIED SERIES. EACH FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE YOU WITH
AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH THE PRESERVATION OF
CAPITAL.
EACH FUND INVESTS PRINCIPALLY IN A BROAD RANGE OF INVESTMENT GRADE
DEBT SECURITIES OF DOMESTIC AND FOREIGN ISSUERS. UNDER NORMAL MARKET
CONDITIONS, THE SHORT TERM INCOME FUND WILL INVEST IN A PORTFOLIO OF
SECURITIES THAT HAS AN EFFECTIVE DURATION AND AN EFFECTIVE AVERAGE PORTFOLIO
MATURITY OF THREE YEARS OR LESS. UNDER NORMAL MARKET CONDITIONS, THE
INTERMEDIATE TERM INCOME FUND WILL INVEST IN A PORTFOLIO OF SECURITIES THAT
HAS AN EFFECTIVE DURATION RANGING BETWEEN THREE AND EIGHT YEARS AND AN
EFFECTIVE AVERAGE PORTFOLIO MATURITY RANGING BETWEEN FIVE AND TEN YEARS.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY.
EACH FUND PROVIDES FREE REDEMPTION CHECKS, WHICH YOU CAN USE IN
AMOUNTS OF $500 OR MORE FOR CASH OR TO PAY BILLS. YOU CONTINUE TO EARN INCOME
ON THE AMOUNT OF THE CHECK UNTIL IT CLEARS. YOU CAN PURCHASE OR REDEEM SHARES
BY TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES EACH FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUNDS THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 15, 1996, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. FOR A FREE COPY, WRITE TO THE COMPANY AT
144 GLENN CURTISS BOULEVARD, UNIONDALE, NEW YORK 11556-0144, OR CALL
1-800-645-6561. WHEN TELEPHONING, ASK FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 4
CONDENSED FINANCIAL INFORMATION................... 5
DESCRIPTION OF THE FUNDS.......................... 5
MANAGEMENT OF THE FUNDS........................... 8
HOW TO BUY SHARES................................. 10
SHAREHOLDER SERVICES.............................. 12
HOW TO REDEEM SHARES ............................. 15
SHAREHOLDER SERVICES PLAN......................... 18
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 18
PERFORMANCE INFORMATION........................... 19
GENERAL INFORMATION............................... 20
APPENDIX.......................................... 22
Page 2
[This Page Intentionally Left Blank]
Page 3
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
DREYFUS DREYFUS
SHORT TERM INTERMEDIATE TERM
INCOME FUND INCOME FUND
--------------------- --------------------
<S> <C> <C> <C>
Management Fees .......................................... .35%* .75%
Other Expenses............................................ .45% .45%
Total Fund Operating
Expenses ................................................. .80%* 1.20%
*After expense reimbursement.
EXAMPLE:
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period:
DREYFUS DREYFUS
SHORT TERM INTERMEDIATE TERM
INCOME FUND INCOME FUND
--------------------- ---------------------
1 YEAR $ 8 $ 12
3 YEARS $26 $ 38
5 YEARS $44 $ 66
10 YEARS $99 $145
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST AND FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, A FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by each Fund, the payment of which will reduce
investors' annual return. Other Expenses for the Intermediate Term Income
Fund are based on estimated amounts for the current fiscal year. With respect
to the Short Term Income Fund, Total Fund Operating Expenses noted above have
been restated to reflect the Company's termination of its Rule 12b-1 plan and
an undertaking by The Dreyfus Corporation that if, in the fiscal year ending
July 31, 1996, certain Fund expenses, including the management fee, exceed
.80% of the value of the Fund's average net assets for the fiscal year, The
Dreyfus Corporation may waive its management fee or bear certain other
expenses to the extent of such excess expense. The expenses noted above for
the Short Term Income Fund, without reimbursement, would have been:
Management Fees - .50% and Total Fund Operating Expenses - .95%. The
information in the foregoing table does not reflect any other fee waivers or
expense reimbursement arrangements that may be in effect. You can purchase
Fund shares without charge directly from the Funds' distributor; you may be
charged a nominal fee if you effect transactions in Fund shares through a
Service Agent (as defined below). See "Management of the Funds," "How to Buy
Shares" and "Shareholder Services Plan."
Page 4
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, each Fund's independent auditors, whose report thereon appears in
the Statement of Additional Information. Further financial data and related
notes for the Short Term Income Fund are included in the Statement of
Additional Information, available upon request. No financial information is
provided for the Intermediate Term Income Fund which had not commenced
operations as of the date of the financial statements.
<TABLE>
<CAPTION>
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 the Short Term Income Fund for each
year indicated. This information has been derived from the Short Term Income
Fund's financial statements.
YEAR ENDED JULY 31,
---------------------------------
PER SHARE DATA: 1993(1) 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of year........................................ $12.50 $12.47 $11.94
------ ------ ------
INVESTMENT OPERATIONS:
Investment income--net ................................................... .89 .84 .85
Net realized and unrealized (loss) on investments......................... (.01) (.54) (.05)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS.......................................... .88 .30 .80
------ ------ ------
DISTRIBUTIONS:
Dividends from investment income-net...................................... (.89) (.83) (.85)
Dividends from net realized gain on investments........................... (.02) -- --
------ ------ ------
TOTAL DISTRIBUTIONS....................................................... (.91) (.83) (.85)
------ ------ ------
Net asset value, end of year.............................................. $12.47 $11.94 $11.89
======== ====== ======
TOTAL INVESTMENT RETURN 7.68%(2) 2.47% 7.05%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .................................. -- .24% .61%
Ratio of net investment income to average net assets...................... 7.58%(2) 6.79% 7.26%
Decrease reflected in above expense ratios due to undertakings
by The Dreyfus Corporation................................................ 1.12%(2) .71% .34%
Portfolio Turnover Rate................................................... 54.59%(3) 74.90% 511.62%
Net Assets, end of year (000's omitted)................................... $205,736 $277,028 $210,524
- ----------
(1) From August 18, 1992 (commencement of operations) to July 31, 1993.
(2) Annualized.
(3) Not annualized.
</TABLE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVE
Each Fund's investment objective is to provide you with as high a
level of current income as is consistent with the preservation of capital. It
cannot be changed as to a Fund without approval by the holders of a majority
(as defined in the Investment Company Act of 1940, as amended (the "1940
Act")) of the Fund's outstanding voting shares. There can be no assurance
that a Fund's investment objective will be achieved.
MANAGEMENT POLICIES
Under normal market conditions, each Fund invests at least 65% of its
net assets in investment grade debt securities and securities with debt-like
characteristics of domestic and foreign issuers. These securities include
bonds, debentures, notes, money market instruments, mortgage-related
securities, asset-backed securities, municipal obligations, warrants,
convertible debt obligations and convertible preferred stock (collectively,
"Fixed-Income Securities"). See "Appendix_Certain Portfolio Securities." The
issuers may include domestic and foreign corporations, partnerships or
trusts, and governments or their political subdivi-
Page 5
sions, agencies or instrumentalities. Each Fund may invest up to 30% of the
value of its total assets in securities of foreign issuers, including
securities of companies whose principal activities are in, or governments of,
emerging markets. See "Investment Considerations and Risks_Foreign
Securities."
Under normal market conditions, the Short Term Income Fund will
invest in a portfolio of securities that has an effective duration of three
years or less and the Intermediate Term Income Fund will invest in a
portfolio of securities that has an effective duration ranging between three
and eight years. As a measure of a fixed-income security's cash flow,
duration is an alternative to the concept of "term to maturity" in assessing
the price volatility associated with changes in interest rates. Generally,
the longer the duration, the more volatility an investor should expect. For
example, the market price of a bond with a duration of two years would be
expected to decline 2% if interest rates rose 1%. Conversely, the market
price of the same bond would be expected to increase 2% if interest rates
fell 1%. The market price of a bond with a duration of four years would be
expected to increase or decline twice as much as the market price of a bond
with a two-year duration. Duration is a way of measuring a security's
maturity in terms of the average time required to receive the present value
of all interest and principal payments as opposed to its term to maturity.
The maturity of a security measures only the time until final payment is due;
it does not take account of the pattern of a security's cash flows over time,
which would include how cash flow is affected by prepayments and by changes
in interest rates. Incorporating a security's yield, coupon interest
payments, final maturity and option features into one measure, duration is
computed by determining the weighted average maturity of a bond's cash flows,
where the present values of the cash flows serve as weights. In computing the
duration of the Funds, The Dreyfus Corporation will estimate the duration of
obligations that are subject to features such as prepayment or redemption by
the issuer, put options retained by the investor or other imbedded options,
taking into account the influence of interest rates on prepayments and coupon
flows. This method of computing duration is known as option-adjusted
duration.
Investment grade Fixed-Income Securities are those rated at least Baa
by Moody's Investors Service, Inc. ("Moody's") or at least BBB by Standard &
Poor's Ratings Group, a division of The McGraw Hill Companies, Inc. ("S&P"),
Fitch Investors Service, L.P. ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff"), or, if unrated, deemed to be of comparable quality by The Dreyfus
Corporation. Fixed-Income Securities rated Baa by Moody's and BBB by S&P,
Fitch and Duff are considered investment grade obligations which lack
outstanding investment characteristics and may have speculative
characteristics as well.
Each Fund may invest up to 35% of the value of its net assets in
Fixed-Income Securities rated lower than Baa by Moody's and BBB by S&P, Fitch
and Duff and as low as Caa by Moody's and CCC by S&P, Fitch and Duff, or, if
unrated, deemed to be of comparable quality by The Dreyfus Corporation.
Securities rated Caa by Moody's and CCC by S&P, Fitch and Duff are considered
to have predominantly speculative characteristics with respect to capacity to
pay interest and repay principal and to be of poor standing. Each Fund
currently intends to invest less than 35% of its net assets in Fixed-Income
Securities rated lower than investment grade or, if unrated, deemed to be of
comparable quality by The Dreyfus Corporation. See "Investment Considerations
and Risks_Lower Rated Securities" below for a discussion of certain risks,
and "Appendix" in the Statement of Additional Information.
Each Fund may invest in money market instruments consisting of U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as set forth under
"Appendix_Certain Portfolio Securities_Money Market Instruments." Under
normal market conditions, neither Fund expects to have a substantial portion
of its assets invested in money market instruments. However, when The Dreyfus
Corporation determines that adverse market conditions exist, a Fund may adopt
a temporary defensive posture and invest all of its assets in money market
instruments. Each Fund also may invest in money market instruments in
anticipation of investing cash positions.
Page 6
Annual portfolio turnover rate, under certain market conditions,
could exceed 200% for the Short Term Income Fund and is not expected to
exceed 100% for the Intermediate Term Fund. Higher portfolio turnover rates
usually generate additional brokerage commissions and expenses (which,
however, the Funds typically do not incur when they purchase portfolio
securities) and the short term gains realized from these transactions are
taxable to shareholders as ordinary income. Each Fund may engage in various
investment techniques, such as foreign currency transactions, options and
futures transactions, leveraging, and lending portfolio securities. The
Intermediate Term Income Fund also may engage in short-selling and interest
rate swaps. See "Investment Considerations and Risks" and
"Appendix_Investment Techniques" below and "Investment Objective and
Management Policies_Management Policies" in the Statement of Additional
Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL--Each Fund's net asset value per share should be expected to
fluctuate. Investors should consider a Fund as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objective and Management
Policies_Management Policies" in the Statement of Additional Information for
a further discussion of certain risks.
FIXED-INCOME SECURITIES--Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of Fixed-Income Securities also may be affected by changes in the credit
rating or financial condition of the issuer. Certain securities purchased by
a Fund, such as those rated Baa or lower by Moody's and BBB or lower by S&P,
Fitch and Duff, may be subject to such risk with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated fixed-income securities. Once the rating of a portfolio security has
been changed, the Fund will consider all circumstances deemed relevant in
determining whether to continue to hold the security. See "Lower Rated
Securities" and "Appendix_Certain Portfolio Securities_Ratings" below and
"Appendix" in the Statement of Additional Information.
LOWER RATED SECURITIES--Each Fund may invest up to 35% of its net assets in
higher yielding (and, therefore, higher risk) debt securities such as those
rated Ba by Moody's or BB by S&P, Fitch or Duff or as low as Caa by Moody's
or CCC by S&P, Fitch or Duff (commonly known as junk bonds). They generally
are not meant for short-term investing and may be subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. The retail
secondary market for these securities may be less liquid than that of higher
rated securities; adverse conditions could make it difficult at times for a
Fund to sell certain securities or could result in lower prices than those
used in calculating the Fund's net asset value. See "Appendix_Certain
Portfolio Securities_Ratings."
FOREIGN SECURITIES--Foreign securities markets generally are not as developed
or efficient as those in the United States. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the United States and, at times, volatility of price can be
greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, each Fund will be subject to additional risks
which include possible: adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
Page 7
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
FOREIGN CURRENCY TRANSACTIONS--Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad. See "Appendix_Investment
Techniques_Foreign Currency Transactions."
USE OF DERIVATIVES--Each Fund may invest in derivatives ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate.
The Derivatives each Fund may use include options and futures,
mortgage-related securities and asset-backed securities and, with respect to
the Intermediate Term Income Fund, interest rate swaps. While Derivatives can
be used effectively in furtherance of a Fund's investment objective, under
certain market conditions, they can increase the volatility of the Fund's net
asset value, can decrease the liquidity of the Fund's portfolio and make more
difficult the accurate pricing of the Fund's portfolio. See
"Appendix_Investment Techniques_Use of Derivatives" below and "Investment
Objective and Management Policies_Management Policies_Derivatives" in the
Statement of Additional Information.
NON-DIVERSIFIED STATUS (SHORT TERM INCOME FUND ONLY)--The classification of
the Short-Term Income Fund as a "non-diversified" investment company means
that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the 1940 Act. A "diversified"
investment company is required by the 1940 Act generally, with respect to 75%
of its total assets, to invest not more than 5% of such assets in the
securities of a single issuer and to hold not more than 10% of the
outstanding voting securities of a single issuer. Since a relatively high
percentage of the Fund's assets may be invested in the securities of a
limited number of issuers, some of which may be within the same industry, the
Fund's portfolio may be more sensitive to changes in the market value of a
single issuer or industry. However, to meet Federal tax requirements, at the
close of each quarter the Fund may not have more than 25% of its total assets
invested in any one issuer and, with respect to 50% of total assets, not more
than 5% of its total assets invested in any one issuer. These limitations do
not apply to U.S. Government securities.
SIMULTANEOUS INVESTMENTS--Investment decisions for each Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities as a Fund, available
investments or opportunities for sales will be allocated equitably to each
investment company. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by a Fund or the price paid
or received by a Fund.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER--The Dreyfus Corporation, located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as each Fund's investment
adviser. The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank,
N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of January 31, 1996, The Dreyfus Corporation managed or
administered approximately $82 billion in assets for more than 1.7 million
investor accounts nationwide.
Page 8
The Dreyfus Corporation supervises and assists in the overall
management of each Fund's affairs under a Management Agreement with the
Company, subject to the authority of the Company's Board in accordance with
Maryland law. Both the Short Term Income Fund's and the Intermediate Term
Income Fund's primary portfolio manager is Kevin M. McClintock. He has held
that position since February 1, 1996 with respect to the Short Term Income
Fund and since the inception of the Intermediate Term Income Fund, and has
been employed by The Dreyfus Corporation since November 1995. From 1993
through October 1995, Mr. McClintock was Managing Director, Fixed Income
Investments, for Aeltus Investment Management, Inc., a subsidiary of the
Aetna Corporation. Prior thereto, he was employed in various capacities by
the Aetna Corporation and its subsidiaries, including head of Separate
Account Portfolio Management for Aetna Investment Management. The Funds'
other portfolio managers are identified in the Statement of Additional
Information. The Dreyfus Corporation also provides research services for the
Funds and for other funds advised by The Dreyfus Corporation through a
professional staff of portfolio managers and securities analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed more than
$209 billion in assets as of September 30, 1995, including approximately $80
billion in proprietary mutual fund assets. As of September 30, 1995, Mellon,
through various subsidiaries, provided non-investment services, such as
custodial or administration services, for more than $717 billion in assets,
including approximately $55 billion in mutual fund assets.
Under the terms of the Management Agreement, the Company has agreed
to pay The Dreyfus Corporation a monthly fee at the annual rate of .50 of 1%
of the value of the Short Term Income Fund's average daily net assets and .75
of 1% of the value of the Intermediate Term Income Fund's average daily net
assets. From time to time, The Dreyfus Corporation may waive receipt of its
fees and/or voluntarily assume certain expenses of a Fund, which would have
the effect of lowering the expense ratio of the Fund and increasing yield to
investors. A Fund will not pay The Dreyfus Corporation at a later time for
any amounts it may waive, nor will the Fund reimburse The Dreyfus Corporation
for any amounts it may assume. For the fiscal year ended July 31, 1995, the
Short Term Income Fund paid The Dreyfus Corporation a monthly management fee
at the effective annual rate of .21 of 1% of the value of the Fund's average
daily net assets pursuant to undertakings by The Dreyfus Corporation.
In allocating brokerage transactions for the Funds, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of a Fund or other funds advised by The Dreyfus Corporation as
factors in the selection of broker-dealers to execute portfolio transactions
for the Fund. See "Portfolio Transactions" in the Statement of Additional
Information.
EXPENSES--All expenses incurred in the operation of the Company are borne by
the Company, except to the extent specifically assumed by The Dreyfus
Corporation. The expenses borne by the Company include: organizational
costs, taxes, interest, loan commitment fees, interest and distributions paid
on securities sold short, brokerage fees and commissions, if any, fees of
Board members who are not officers, directors, employees or holders of 5% or
more of the outstanding voting securities of The Dreyfus Corporation or any
of its affiliates, Securities and Exchange Commission fees, state Blue Sky
Page 9
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of independent
pricing services, costs of maintaining the Company's existence, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders, costs of shareholders' reports and
meetings, and any extraordinary expenses. Expenses attributable to a Fund are
charged against the assets of the Fund; other expenses of the Company are
allocated between the Funds on the basis determined by the Board, including,
but not limited to, proportionately in relation to the net assets of
each Fund.
The Dreyfus Corporation may pay the Funds' distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fees paid by the Funds. The
Funds' distributor may use part or all of such payments to pay Service Agents
in respect of these services.
DISTRIBUTOR--The Funds' distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at One Exchange Place, Boston, Massachusetts
02109. The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN--Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671, is the Funds' Transfer and Dividend
Disbursing Agent (the "Transfer Agent"). The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Funds' Custodian.
HOW TO BUY SHARES
Fund shares are sold without a sales charge. You may be charged a
nominal fee if you effect transactions in Fund shares through a securities
dealer, bank or other financial institution (collectively, "Service Agents").
Stock certificates are issued only upon your written request. No certificates
are issued for fractional shares. Each Fund reserves the right to reject any
purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at least
$100. However, the minimum initial investment for Dreyfus-sponsored Keogh
Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant is $750,
with no minimum for subsequent purchases. Individuals who open an IRA also
may open a non-working spousal IRA with a minimum initial investment of $250.
Subsequent investments in a spousal IRA must be at least $250. The initial
investment must be accompanied by the Account Application. For full-time or
part-time employees of The Dreyfus Corporation or any of its affiliates or
subsidiaries, directors of The Dreyfus Corporation, Board members of a fund
advised by The Dreyfus Corporation, including members of the Company's Board,
or the spouse or minor child of any of the foregoing, the minimum initial
investment is $1,000. For full-time or part-time employees of The Dreyfus
Corporation or any of its affiliates or subsidiaries who elect to have a
portion of their pay directly deposited into their Fund account, the minimum
initial investment is $50. Each Fund reserves the right to offer Fund shares
without regard to minimum purchase requirements to employees participating in
certain qualified or non-qualified employee benefit plans or other programs
where contributions or account information can be transmitted in a manner and
form acceptable to the Fund. Each Fund reserves the right to vary further the
initial and subsequent investment minimum requirements at any time. Fund
shares also are offered without regard to the minimum initial investment
requirements through Dreyfus-Automatic Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan pursuant to the
Dreyfus Step Program described under "Shareholder Services." These services
enable you to make regularly scheduled investments and may provide you with a
convenient way to invest for long-term financial
Page 10
goals. You should be aware, however, that periodic investment plans do not
guarantee a profit and will not protect an investor against loss in a
declining market.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian" and should specify the Fund in which
you are investing. Payments to open new accounts which are mailed should be
sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence, Rhode Island
02940-9387, together with your Account Application. For subsequent
investments, your Fund account number should appear on the check and an
investment slip should be enclosed and sent to The Dreyfus Family of Funds,
P.O. Box 105, Newark, New Jersey 07101-0105. For Dreyfus retirement plan
accounts, both initial and subsequent investments should be sent to The
Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence, Rhode Island
02940-6427. Neither initial nor subsequent investments should be made by
third party check. Purchase orders may be delivered in person only to a
Dreyfus Financial Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND WILL
BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the nearest
Dreyfus Financial Center, please call one of the telephone numbers listed
under "General Information."
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, together with the applicable
Fund's DDA# as shown below, for purchase of Fund shares in your name: DDA#
8900117028/Dreyfus Investment Grade Bond Funds, Inc./Dreyfus Short Term
Income Fund; or DDA#8900275944/Dreyfus Investment Grade Bond Funds, Inc./
Dreyfus Intermediate Term Income Fund. The wire must include your Fund account
number (for new accounts, your Taxpayer Identification Number ("TIN") should
be included instead), account registration and dealer number, if applicable.
If your initial purchase of Fund shares is by wire, you should call
1-800-645-6561 after completing your wire payment to obtain your Fund account
number. Please include your Fund account number on the Account Application
and promptly mail the Account Application to the Fund, as no redemptions will
be permitted until the Account Application is received. You may obtain
further information about remitting funds in this manner from your bank. All
payments should be made in U.S. dollars and, to avoid fees and delays, should
be drawn only on U.S. banks. A charge will be imposed if any check used for
investment in your account does not clear. Each Fund makes available to
certain large institutions the ability to issue purchase instructions through
compatible computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other agent. Net asset value per share is determined as of
the close of trading on the floor of the New York Stock Exchange (currently
4:00 p.m., New York time), on each day the New York Stock Exchange is open
for business. For purposes of determining net asset value, options and
futures contracts will be valued 15 minutes after the close of trading on the
floor of the New York Stock Exchange. Net asset value per share is computed
by dividing the value of a Fund's net assets (i.e., the value of its assets
less liabilities) by the total number of Fund shares outstanding. A Fund's
investments are valued generally by using available market quotations or at
fair value which may be determined by one or more pricing services approved
by the Company's Board. Each pricing services' procedures are reviewed under
the general supervision of the Board. For
Page 11
further information regarding the methods employed in valuing a Fund's
investments, see "Determination of Net Asset Value" in the Statement of
Additional Information.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by the Distributor
to such plans or programs exceeds $1,000,000 ("Eligible Benefit Plans").
Shares of funds in the Dreyfus Family of Funds then held by Eligible Benefit
Plans will be aggregated to determine the fee payable. The Distributor
reserves the right to cease paying these fees at any time. The Distributor
will pay such fees from its own funds, other than amounts received from a
Fund, including past profits or any other source available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Account Application for further information concerning this requirement.
Failure to furnish a certified TIN to a Fund could subject you to a $50
penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE--You may purchase shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between the bank account designated in one of these documents
and your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
A Fund may modify or terminate this Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by telephoning
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES
FUND EXCHANGES
You may purchase, in exchange for shares of a Fund, shares of certain
other funds managed or administered by The Dreyfus Corporation, to the extent
such shares are offered for sale in your state of residence. These funds have
different investment objectives which may be of interest to you. If you
desire to use this service, you should consult your Service Agent or call
1-800-645-6561 to determine if it is available and whether any conditions are
imposed on its use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling
1-800-645-6561. Except in the case of personal retirement plans, the shares
being exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have
a value of at least the minimum initial investment required for the fund into
which the exchange is being made. The ability to issue exchange instructions
by telephone is given to all Fund shareholders automatically, unless you
check the applicable "No" box on the Account Application, indicating that you
specifically refuse this Privilege. The Telephone Exchange Privilege may be
established for an existing account by written request, signed by all
shareholders on the account, or by a separate
Page 12
signed Shareholder Services Form, also available by calling 1-800-645-6561.
If you have established the Telephone Exchange Privilege, you may telephone
exchange instructions by calling 1-800-645-6561 or, if you are calling from
overseas, call 516-794-5452. See "How to Redeem Shares_Procedures." Upon an
exchange into a new account, the following shareholder services and
privileges, as applicable and where available, will be automatically carried
over to the fund into which the exchange is made: Telephone Exchange
Privilege, Check Redemption Privilege, Wire Redemption Privilege, Telephone
Redemption Privilege, Dreyfus TELETRANSFER Privilege and the dividend/capital
gain distribution option (except for Dreyfus Dividend Sweep) selected by the
investor.
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares of the fund from
which you are exchanging were: (a) purchased with a sales load, (b) acquired
by a previous exchange from shares purchased with a sales load, or (c)
acquired through reinvestment of dividends or distributions paid with respect
to the foregoing categories of shares. To qualify, at the time of the
exchange you must notify the Transfer Agent or your Service Agent must notify
the Distributor. Any such qualification is subject to confirmation of your
holdings through a check of appropriate records. See "Shareholder Services"
in the Statement of Additional Information. No fees currently are charged
shareholders directly in connection with exchanges, although each Fund
reserves the right, upon not less than 60 days' written notice, to charge
shareholders a nominal fee in accordance with rules promulgated by the
Securities and Exchange Commission. Each Fund reserves the right to reject
any exchange request in whole or in part. The availability of Fund Exchanges
may be modified or terminated at any time upon notice to shareholders. See
"Dividends, Distributions and Taxes."
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
a Fund, in shares of certain other funds in the Dreyfus Family of Funds of
which you are currently an investor. The amount you designate, which can be
expressed either in terms of a specific dollar or share amount ($100
minimum), will be exchanged automatically on the first and/or fifteenth day
of the month according to the schedule you have selected. Shares will be
exchanged at the then-current net asset value; however, a sales load may be
charged with respect to exchanges into funds sold with a sales load. See
"Shareholder Services" in the Statement of Additional Information. The right
to exercise this Privilege may be modified or canceled by a Fund or the
Transfer Agent. You may modify or cancel your exercise of this Privilege at
any time by mailing written notification to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. A Fund may charge a service
fee for the use of this Privilege. No such fee currently is contemplated. See
"Dividends, Distributions and Taxes." For more information concerning this
Privilege and the funds in the Dreyfus Family of Funds eligible to participate
in this Privilege, or to obtain a Dreyfus Auto-Exchange Authorization Form,
please call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring funds
from the bank account designated by you. At your option, the account
designated by you will be debited in the specified amount, and Fund shares
will be purchased, once a month, on either the first or fifteenth day, or
twice a month, on both days. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. To establish a Dreyfus-AUTOMATIC Asset Builder account, you must
file an authorization form with the Transfer Agent. You may obtain the
necessary authorization form by calling 1-800-645-6561. You may cancel
Page 13
your participation in this Privilege or change the amount of purchase at any
time by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. A Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into your
Fund account. You may deposit as much of such payments as you elect. To
enroll in Dreyfus Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment that
you desire to include in this Privilege. The appropriate form may be obtained
by calling 1-800-645-6561. Death or legal incapacity will terminate your
participation in this Privilege. You may elect at any time to terminate your
participation by notifying in writing the appropriate Federal agency. A Fund
may terminate your participation upon 30 days' notice to you.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have part or all of your
paycheck transferred to your existing Dreyfus account electronically through
the Automated Clearing House system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form
with your employer's payroll department. Your employer must complete the
reverse side of the form and return it to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may change the amount of
purchase or cancel the authorization only by written notification to your
employer. It is the sole responsibility of your employer, not the
Distributor, The Dreyfus Corporation, a Fund, the Transfer Agent or any other
person, to arrange for transactions under the Dreyfus Payroll Savings Plan. A
Fund may modify or terminate this Privilege at any time or charge a service
fee. No such fee currently is contemplated.
DREYFUS STEP PROGRAM
Dreyfus Step Program enables you to purchase Fund shares without
regard to the Fund's minimum initial investment requirements through
Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government Direct Deposit Privilege
or Dreyfus Payroll Savings Plan. To establish a Dreyfus Step Program account,
you must supply the necessary information on the Account Application and file
the required authorization form(s) with the Transfer Agent. For more
information concerning this Program, or to request the necessary
authorization form(s), please call toll free 1-800-782-6620. You may
terminate your participation in this Program at any time by discontinuing
your participation in Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the case may be,
as provided under the terms of such Privilege(s). A Fund may modify or
terminate this Program at any time. Investors who wish to purchase Fund
shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plan may do so only for IRAs, SEP-IRAs and IRA
"Rollover Accounts."
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by a Fund in
shares of another fund in the Dreyfus Family of Funds of which you are a
shareholder. Shares of the other fund will be purchased at the then-current
net asset value; however, a sales load may be charged with respect to
investments in shares of a fund sold with a sales load. If you are investing
in a fund that charges a sales load, you may qualify for share prices which do
Page 14
not include the sales load or which reflect a reduced sales load. If you
are investing in a fund that charges a contingent deferred sales charge, the
shares purchased will be subject on redemption to the contingent deferred
sales charge, if any, applicable to the purchased shares. See "Shareholder
Services" in the Statement of Additional Information. Dreyfus Dividend ACH
permits you to transfer electronically dividends or dividends and capital
gain distributions, if any, from a Fund to a designated bank account. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. Banks may charge a fee for this
service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To select a new
fund after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three business
days following receipt. These privileges are available only for existing
accounts and may not be used to open new accounts. Minimum subsequent
investments do not apply for Dreyfus Dividend Sweep. A Fund may modify or
terminate these privileges at any time or charge a service fee. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans are not eligible for Dreyfus Dividend Sweep.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $5,000 minimum account. An application for the Automatic
Withdrawal Plan can be obtained by calling 1-800-645-6561. There is a service
charge of 50cents for each withdrawal check. The Automatic Withdrawal Plan
may be ended at any time by you, a Fund or the Transfer Agent. Shares for
which certificates have been issued may not be redeemed through the Automatic
Withdrawal Plan.
RETIREMENT PLANS
Each Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k)
Salary Reduction Plans and 403(b)(7) Plans. Plan support services also are
available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566;
for IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; for
SEP-IRAs, 401(k) Salary Reduction Plans and 403(b)(7) Plans, please call
1-800-322-7880.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
Neither Fund imposes any charges when shares are redeemed. Service
Agents may charge their clients a nominal fee for effecting redemptions of
Fund shares. Any certificates representing Fund shares being redeemed must be
submitted with the redemption request. The value of the shares redeemed may
be more or less than their original cost, depending upon the Fund's
then-current net asset value.
Each Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUNDS WILL NOT HONOR REDEMPTION CHECKS UNDER THE CHECK
REDEMPTION
Page 15
PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR
TELEPHONE OR PURSUANT TO THE DREYFUS TELETRANSFER PRIVILEGE, FOR A PERIOD OF
EIGHT BUSINESS DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE
CHECK, THE DREYFUS TELETRANSFER PURCHASE OR THE DREYFUS-AUTOMATIC ASSET
BUILDER ORDER AGAINST WHICH SUCH REDEMPTION IS REQUESTED. THESE PROCEDURES
WILL NOT APPLY IF YOUR SHARES WERE PURCHASED BY WIRE PAYMENT, OR IF YOU
OTHERWISE HAVE A SUFFICIENT COLLECTED BALANCE IN YOUR ACCOUNT TO COVER THE
REDEMPTION REQUEST. PRIOR TO THE TIME ANY REDEMPTION IS EFFECTIVE, DIVIDENDS
ON SUCH SHARES WILL ACCRUE AND BE PAYABLE, AND YOU WILL BE ENTITLED TO
EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP. Fund shares will not be
redeemed until the Transfer Agent has received your Account Application.
Each Fund reserves the right to redeem your account at its option
upon not less than 45 days' written notice if your account's net asset value
is $500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or, if you have checked the appropriate box and
supplied the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent, through the Check
Redemption Privilege, the Wire Redemption Privilege, the Telephone Redemption
Privilege or the Dreyfus TELETRANSFER Privilege. Other redemption procedures
may be in effect for clients of certain Service Agents. Each Fund makes
available to certain large institutions the ability to issue redemption
instructions through compatible computer facilities. Each Fund reserves the
right to refuse any request made by wire or telephone, including requests
made shortly after a change of address, and may limit the amount involved or
the number of such requests. A Fund may modify or terminate any redemption
Privilege at any time or charge a service fee upon notice to shareholders. No
such fee currently is contemplated.
You may redeem shares by telephone if you have checked the
appropriate box on the Account Application or have filed a Shareholder
Services Form with the Transfer Agent. If you select a telephone redemption
privilege or telephone exchange privilege (which is granted automatically
unless you refuse it), you authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be you, and
reasonably believed by the Transfer Agent to be genuine. Each Fund will
require the Transfer Agent to employ reasonable procedures, such as requiring
a form of personal identification, to confirm that instructions are genuine
and, if it does not follow such procedures, the Fund or the Transfer Agent
may be liable for any losses due to unauthorized or fraudulent instructions.
Neither the Funds nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION--Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered
Page 16
securities associations, clearing agencies and savings associations, as well
as from participants in the New York Stock Exchange Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP") and the
Stock Exchanges Medallion Program. If you have any questions with respect to
signature-guarantees, please call one of the telephone numbers listed under
"General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE--You may write Redemption Checks drawn on your
Fund account. Redemption Checks may be made payable to the order of any
person in the amount of $500 or more. Potential fluctuations in the net asset
value of the Fund's shares should be considered in determining the amount of
the check. Redemption Checks should not be used to close your account.
Redemption Checks are free, but the Transfer Agent will impose a fee for
stopping payment of a Redemption Check upon your request or if the Transfer
Agent cannot honor a Redemption Check due to insufficient funds or other
valid reason. You should date your Redemption Checks with the current date
when you write them. Please do not postdate your Redemption Checks. If you
do, the Transfer Agent will honor upon presentment, even if presented before
the date of the check, all postdated Redemption Checks which are dated within
six months of presentment for payment, if they are otherwise in good order.
Shares for which certificates have been issued may not be redeemed by
Redemption Check. Shares held under Keogh Plans, IRAs or other Dreyfus
retirement plans are not eligible for this Privilege. This Privilege will be
terminated immediately, without notice, with respect to any account which is,
or becomes, subject to backup withholding on redemptions (see "Dividends,
Distributions and Taxes"). Any Redemption Check written on an account which
has become subject to backup withholding on redemptions will not be honored
by the Transfer Agent.
WIRE REDEMPTION PRIVILEGE--You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. You also may direct that redemption proceeds be paid by
check (maximum $150,000 per day) made out to the owners of record and mailed
to your address. Redemption proceeds of less than $1,000 will be paid
automatically by check. Holders of jointly registered Fund or bank accounts
may have redemption proceeds of not more than $250,000 wired within any
30-day period. You may telephone redemption requests by calling
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452. The
Statement of Additional Information sets forth instructions for transmitting
redemption requests by wire. Shares held under Keogh Plans, IRAs or other
retirement plans, and shares for which certificates have been issued, are not
eligible for this Privilege.
TELEPHONE REDEMPTION PRIVILEGE--You may request by telephone that redemption
proceeds (maximum $150,000 per day) be paid by check and mailed to your
address. You may telephone redemption instructions by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452. Shares held under
Keogh Plans, IRAs or other retirement plans, and shares for which
certificates have been issued, are not eligible for this Privilege.
DREYFUS TELETRANSFER PRIVILEGE--You may request by telephone that redemption
proceeds (minimum $500 per day) be transferred between your Fund account and
your bank account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request or, at your request, paid by check (maximum $150,000 per
day) and mailed to your address. Holders of jointly registered Fund or bank
accounts may redeem through the Dreyfus TELETRANSFER Privilege for transfer
to their bank account not more than $250,000 within any 30-day period.
Page 17
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by telephoning
1-800-645-6561 or, if you are calling from overseas, call 516-794-5452.
Shares held under Keogh Plans, IRAs or other retirement plans, and shares
issued in certificate form, are not eligible for this Privilege.
SHAREHOLDER SERVICES PLAN
The Company has adopted a Shareholder Services Plan with respect to
each Fund, pursuant to which it pays the Distributor for the provision of
certain services to Fund shareholders a fee at the annual rate of .20 of 1%
of the value of the Short Term Income Fund's average daily net assets and .25
of 1% of the value of the Intermediate Term Income Fund's average daily net
assets. 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 in respect of these services. The Distributor determines the
amounts to be paid to Service Agents.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"),
each Fund is treated as a separate corporation for purposes of qualification
and taxation as a regulated investment company. Each Fund ordinarily declares
dividends from its net investment income on each day the New York Stock
Exchange is open for business. Dividends usually are paid on the last
business day of each month. Each Fund's earnings for Saturdays, Sundays and
holidays are declared as dividends on the next business day. If you redeem
all shares in your account at any time during the month, all dividends to
which you are entitled will be paid to you along with the proceeds of the
redemption. If you are an omnibus accountholder and indicate in a partial
redemption request that a portion of any accrued dividends to which such
account is entitled belongs to an underlying accountholder who has redeemed
all shares in his or her account, such portion of the accrued dividends will
be paid to you along with the proceeds of the redemption. Distributions from
net realized securities gains, if any, generally are declared and paid once a
year, but a Fund may make distributions on a more frequent basis to comply
with the distribution requirements of the Code, in all events in a manner
consistent with the provisions of the 1940 Act. Neither Fund will make
distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. You may choose
whether to receive dividends and distributions in cash or to reinvest in
additional shares at net asset value. All expenses are accrued daily and
deducted before declaration of dividends to investors.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by a Fund will be taxable to U.S. shareholders as
ordinary income whether received in cash or reinvested in additional shares.
No dividend paid by a Fund will qualify for the dividends received deduction
allowable to certain U.S. corporations. Distributions from net realized
long-term securities gains of a Fund will be taxable to U.S. shareholders as
long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Fund shares and whether such distributions
are received in cash or reinvested in Fund shares. The Code provides that the
net capital gain of an individual generally will not be subject to Federal
income tax at a rate in excess of 28%. Dividends and distributions may be
subject to state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by a Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by a
Fund to a
Page 18
foreign investor as well as the proceeds of any redemptions from a
foreign investor's account, regardless of the extent to which gain or loss
may be realized, generally will not be subject to U.S. nonresident
withholding tax. However, such distributions may be subject to backup
withholding, as described below, unless the foreign investor certifies his
non-U.S. residency status.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
Federal regulations generally require a Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify a Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Company believes that the Short Term Income Fund
has qualified for the fiscal year ended July 31, 1995 as a "regulated
investment company" under the Code. The Short Term Income Fund intends to
continue to so qualify if such qualification is in the best interests of its
shareholders. It is expected that the Intermediate Term Income Fund will
qualify as a "regulated investment company" under the Code so long as such
qualification is in the best interests of its shareholders. Qualification as
a regulated investment company relieves the Fund of any liability for Federal
income tax to the extent its earnings are distributed in accordance with
applicable provisions of the Code. Each Fund is subject to a non-deductible
4% excise tax, measured with respect to certain undistributed amounts of
taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to a Fund's annualized net investment income per
share over a 30-day period, expressed as a percentage of the net asset value
per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of current
yield may reflect absorbed expenses pursuant to any undertaking that may be
in effect. See "Management of the Funds."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions during
Page 19
the period. The return is expressed as a percentage rate which, if applied on
a compounded annual basis, would result in the redeemable value of the
investment at the end of the period. Advertisements of a Fund's performance
will include the Fund's average annual total return for one, five and ten
year periods, or for shorter periods depending upon the length of time during
which the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Under normal market conditions, the Intermediate Term Income Fund
will seek to provide performance results that equal or exceed the Lehman
Brothers Aggregate Bond Index, which is a broad investment grade bond index
that measures the total investment return (capital change plus income)
provided by a universe of over 6,000 fixed-income securities, weighted by the
market value outstanding of each security.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., the Lehman Brothers Aggregate Bond Index, Moody's Bond Survey
Bond Index, Bond Buyer's 20-Bond Index, Morningstar, Inc. and other industry
publications. Each Fund's yield should generally be higher than money market
funds (neither Fund, however, seeks to maintain a stabilized price per share
nor may it be able to return an investor's principal), and its price per
share should fluctuate less than long term bond funds (which generally have
somewhat higher yields).
GENERAL INFORMATION
The Company was incorporated under Maryland law on June 26, 1992, and
commenced operations on August 18, 1992. Before November 8, 1995, the
Company's name was Dreyfus Short-Term Income Fund, Inc. The Company is
authorized to issue one billion shares of Common Stock (with 500 million
shares allocated to each Fund), par value $.001 per share. Each share has one
vote.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for a Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of Board members or
the appointment of auditors. However, pursuant to the Company's By-Laws, the
holders of at least 10% of the shares outstanding and entitled to vote may
require the Company to hold a special meeting of shareholders for purposes of
removing a Board member from office or for any other purpose. Shareholders
may remove a Board member by the affirmative vote of a majority of the
Company's outstanding voting shares. In addition, the Board will call a
meeting of shareholders for the purpose of electing Board members if, at any
time, less than a majority of the Board members then holding office have been
elected by shareholders.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A shareholder of
one portfolio is not deemed to be a shareholder of any other portfolio. For
certain matters shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, shares of each Fund are being
offered. Other portfolios may be sold pursuant to other offering documents.
To date, the Board has authorized the creation of two series of
shares. All consideration received by
Page 20
the Company for shares of one of the series and all assets in which such
consideration is invested will belong to that series (subject only to the
rights of creditors of the Company) and will be subject to the liabilities
related thereto. The income attributable to, and the expenses of, one series
are treated separately from those of the other series. The Company has the
ability to create, from time to time, new series without shareholder approval.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Company at 144
Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll
free 1-800-645-6561. In New York City, call
1-718-895-1206; outside the U.S. and Canada, call 516-794-5452.
Page 21
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS--Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Fund has agreed to buy
or sell; or to hedge the U.S. dollar value of securities a Fund already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, a Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. A Fund's success in these transactions will depend principally on
The Dreyfus Corporation's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
LEVERAGE--Leveraging exaggerates the effect on net asset value of any
increase or decrease in the market value of a Fund's portfolio. Money
borrowed for leveraging will be limited to 33-1/3% of the value of the Fund's
total assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the return received on the securities
purchased.
Each Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund
of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal plus accrued
interest. Except for these transactions, each Fund's borrowings generally
will be unsecured.
SHORT-SELLING--(INTERMEDIATE TERM INCOME FUND ONLY) In these transactions,
the Fund sells a security it does not own in anticipation of a decline in the
market value of the security. To complete the transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund is obligated to
replace the security borrowed by purchasing it subsequently at the market
price at the time of replacement. The price at such time may be more or less
than the price at which the security was sold by the Fund, which would result
in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not sell short
the securities of any single issuer listed on a national securities exchange
to the extent of more than 5% of the value of the Fund's net assets. The Fund
may not make a short sale which results in the Fund having sold short in the
aggregate more than 5% of the outstanding securities of any class of an
issuer.
The Intermediate Term Income Fund also may make short sales "against
the box," in which the Fund enters into a short sale of a security it owns in
order to hedge an unrealized gain on the security. At no time will more than
15% of the value of the Fund's net assets be in deposits on short sales
against the box.
USE OF DERIVATIVES--Each Fund may invest in the types of Derivatives
enumerated under "Description of the Funds--Investment Considerations and
Risks--Use of Derivatives." These instruments and certain related risks are
described more specifically under "Investment Objective and Management
Policies_Management Policies_Derivatives" in the Statement of Additional
Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as a Fund can increase or decrease the level of
the risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Page 22
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on a Fund's performance.
If a Fund invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. A Fund also could experience losses if it were unable to
liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although neither Fund will be a commodity pool, Derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Fund can invest in certain Derivatives. Each Fund may
invest in futures contracts and options with respect thereto for hedging
purposes without limit. The Intermediate Term Income Fund may invest in
futures contracts and options thereon for other than hedging purposes.
However, the Intermediate Term Income Fund may not invest in such contracts
and options for other purposes if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceed 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Intermediate Term Income Fund also may invest up to 5% of its
assets, represented by the premium paid, in the purchase of call and put
options. The Intermediate Term Income Fund may write (i.e., sell) covered
call and put option contracts to the extent of 20% of the value of its net
assets at the time such option contracts are written. When required by the
Securities and Exchange Commission, the Fund will set aside permissible
liquid assets in a segregated account to cover its obligations relating to
its transactions in Derivatives. To maintain this required cover, the Fund
may have to sell portfolio securities at disadvantageous prices or times
since it may not be possible to liquidate a Derivative position at a
reasonable price.
LENDING PORTFOLIO SECURITIES--Each Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. In connection with such
loans, the Fund continues to be entitled to payments in amounts equal to the
interest, dividends or other distributions payable on the loaned securities.
Loans of portfolio securities afford a Fund an opportunity to earn interest
on the amount of the loan and at the same time to earn income on the loaned
securities' collateral. Loans of portfolio securities may not exceed 331\3%
of the value of the Fund's total assets. In connection with such loans, the
Fund will receive collateral consisting of cash, U.S. Government securities
or irrevocable letters of credit which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. Such loans are terminable by the Fund at any time upon specified
notice. The Fund might experience risk of loss if the institution with which
it has engaged in a portfolio loan transaction breaches its agreement with
the Fund.
FORWARD COMMITMENTS--Each Fund may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate that will be received on a forward
commitment or when-issued security are fixed when a Fund enters into the
commitment, but a Fund does not make a payment until it receives delivery
from the counterparty. A Fund will commit to purchase such securities only
with the intention of actually acquiring the securities, but the Fund may
sell these securities before the settlement date if it is deemed advisable. A
segregated account of the Fund consisting of cash, cash equivalents or U.S.
Government securities or other high quality liquid debt securities at least
equal at all times to the amount of the commitments will be established and
maintained at the Fund's custodian bank.
FORWARD ROLL TRANSACTIONS--To enhance current income, each Fund may enter
into forward roll transactions with respect to mortgage-related securities.
In a forward roll transaction, the Fund sells a mortgage
Page 23
security to a financial institution, such as a bank or broker-dealer, and
simultaneously agrees to repurchase a similar security from the institution
at a later date at an agreed upon price. The mortgage securities that are
repurchased will bear the same interest rate as those sold, but generally will
be collateralized by different pools of mortgages with different pre-payment
histories than those sold. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on
the securities sold. Proceeds of the sale will be invested in short-term
instruments, particularly repurchase agreements, and the income from these
investments, together with any additional fee income received on the sale
will generate income for the Fund exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market value of the
securities sold by the Fund may decline below the purchase price of those
securities. A segregated account of the Fund consisting of cash, U.S.
Government securities or other high quality liquid debt securities at least
equal to the amount of the repurchase price (including accrued interest) will
be established and maintained at the Fund's custodian bank.
CERTAIN PORTFOLIO SECURITIES
MORTGAGE-RELATED SECURITIES--Mortgage-related securities are a form of
Derivative collateralized by pools of mortgages. The mortgage-related
securities which may be purchased include those with fixed, floating and
variable interest rates, those with interest rates that change based on
multiples of changes in interest rates and those with interest rates that
change inversely to changes in interest rates, as well as stripped
mortgage-backed securities. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions of interest
and principal distributions on a pool of mortgage-backed securities or whole
loans. A common type of stripped mortgage-backed security will have one class
receiving some of the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the interest and the
remainder of the principal. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value
of the security, which may fluctuate, is not secured. If a mortgage-related
security is purchased at a premium, all or part of the premium may be lost if
there is a decline in the market value of the security, whether resulting
from changes in interest rates or prepayments on the underlying mortgage
collateral. As with other interest-bearing securities, the prices of certain
of these securities are inversely affected by changes in interest rates.
However, although the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages underlying the security are more
likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to a Fund. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, a Fund may fail
to fully recoup its initial investment even if the securities are rated in
the highest rating category by a nationally recognized statistical rating
organization. For further discussion concerning the investment considerations
involved, see "Description of the Funds_Investment Considerations and
Risks_Fixed-Income Securities" and "Illiquid Securities" below.
ASSET-BACKED SECURITIES--Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. Each Fund may
invest in these and other types of asset-backed securities that may be
developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may provide a Fund
with a less effective security interest in the related collateral than do
mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
Page 24
CONVERTIBLE SECURITIES--Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities. Each Fund may invest in convertible preferred
stocks that offer enhanced yield features and higher dividend income than is
available on a company's common stock. The Short-Term Income Fund intends to
purchase only those convertible securities trading below the stated
conversion price.
WARRANTS--A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. Each Fund may
invest up to 5% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Fund that are sold in units with,
or attached to, other securities. Included in such amount, but not to exceed
2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York or American Stock Exchange.
MUNICIPAL OBLIGATIONS--Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities. Municipal obligations bear fixed,
floating or variable rates of interest. Certain municipal obligations are
subject to redemption at a date earlier than their stated maturity pursuant
to call options, which may be separated from the related municipal
obligations and purchased and sold separately. The Fund also may acquire call
options on specific municipal obligations. The Fund generally would purchase
these call options to protect the Fund from the issuer of the related
municipal obligation redeeming, or other holder of the call option from
calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are taxable
obligations, offering yields comparable to, and in some cases greater than,
the yields available on other permissible Fund investments. Dividends
received by shareholders on Fund shares which are attributable to interest
income received by the Fund from municipal obligations generally will be
subject to Federal income tax. Each Fund may invest in municipal obligations,
the ratings of which correspond with the ratings of other permissible Fund
investments. Each Fund currently intends to invest no more than 25% of its
assets in municipal obligations. However, this percentage may be varied from
time to time without shareholder approval.
ZERO COUPON SECURITIES--Each Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool
of underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and is sold at a discount to its face
value at maturity. The amount of the discount fluctuates with the market
price of the security. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
MONEY MARKET INSTRUMENTS--Each Fund may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities
Page 25
and times of issuance. Some obligations issued or guaranteed by U.S.
Government agencies and instrumentalities are supported by the full faith and
credit of the U.S. Treasury; others by the right of the issuer to borrow from
the Treasury; others by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others only
by the credit of the agency or instrumentality. These securities bear fixed,
floating or variable rates of interest. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies and
instrumentalities, no assurance can be given that it will always do so since
it is not so obligated by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon a Fund's ability to dispose of the underlying
securities. Each Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
BANK OBLIGATIONS. Each Fund may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, a Fund may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Funds_Investment Considerations and
Risks_Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by a Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's,
A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus
Corporation to be of comparable quality to those rated obligations which may
be purchased by the Fund.
ILLIQUID SECURITIES--Each Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Fund is subject to a risk that should
the Fund desire to sell them when a ready buyer is not available at a price
the Fund deems representative of their value, the value of the Fund's net
assets could be adversely affected.
RATINGS--Securities rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very
Page 26
moderate. Securities rated BB by S&P, Fitch or Duff are regarded as having
predominantly speculative characteristics and, while such obligations have
less near-term vulnerability to default than other speculative grade debt,
they face major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. Securities rated Caa by Moody's
are of poor standing and may be in default or there may be present elements
of danger with respect to principal or interest. S&P, Fitch and Duff
typically assign a CCC rating to debt which has a current identifiable
vulnerability to default and is dependent upon favorable business, financial
and economic conditions to meet timely payments of interest and repayment of
principal. Such securities, though high yielding, are characterized by great
risk. See "Appendix" in the Statement of Additional Information for a general
description of securities ratings.
The ratings of Moody's, S&P, Fitch and Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, The Dreyfus
Corporation also will evaluate these securities and the ability of the issuers
of such securities to pay interest and principal. A Fund's ability to
achieve its investment objective may be more dependent on The Dreyfus
Corporation's credit analysis than might be the case for a fund that invested
in higher rated securities.
The average distribution of investments of the Short Term Income Fund
in corporate bonds by ratings for the fiscal year ended July 31, 1995,
calculated monthly on a dollar weighted basis, was as follows:
<TABLE>
<CAPTION>
MOODY'S OR S&P, FITCH OR DUFF PERCENTAGE
------------- -------------------------- -----------------
<S> <C> <C>
Aaa AAA 27.9%
Aa AA 8.9%
A A 30.4%
Baa BBB 23.4%
Ba BB 4.9%
B B 3.1%
NR NR .9%*
99.5%**
</TABLE>
The actual distribution of the Short Term Income Fund's corporate
bond investments by ratings on any given date will vary. In addition, the
distribution of the Short Term Income Fund's investments by ratings as set
forth above should not be considered as representative of the Short Term
Income Fund's future portfolio composition.
- --------------------
* These unrated securities have been determined by The Dreyfus Corporation
to be of comparable quality to securities rated B.
**Approximately .5% of the Fund's assets were invested in cash or cash
equivalents.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS'
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Page 27
DREYFUS
Investment Grade Bond Funds, Inc.
* Dreyfus Short Term
Income Fund
* Dreyfus Intermediate
Term Income Fund
Prospectus
(LION LOGO)
Registration Mark
Copy Rights 1996, Dreyfus Service Corporation
082/083p031596
DREYFUS INVESTMENT GRADE BOND FUNDS, INC.
DREYFUS SHORT TERM INCOME FUND
DREYFUS INTERMEDIATE TERM INCOME FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
March 15, 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus
of the series named above (each, a "Fund" and, collectively, the "Funds")
of Dreyfus Investment Grade Bond Funds, Inc. (the "Company"), dated March
15, 1996, as it may be revised from time to time. To obtain a copy of the
Funds' Prospectus, please write to the Company at 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144, or call the following numbers:
Call Toll Free 1-800-645-6561
In New York City -- Call 1-718-895-1206
Outside the U.S. and Canada -- Call 516-794-5452
The Dreyfus Corporation (the "Manager") serves as each Fund's
investment adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the
distributor of each Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . . . . B-2
Management of the Company . . . . . . . . . . . . . . . . . . . B-13
Management Agreement. . . . . . . . . . . . . . . . . . . . . . B-17
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . B-19
Shareholder Services Plan . . . . . . . . . . . . . . . . . . . B-20
Redemption of Shares. . . . . . . . . . . . . . . . . . . . . . B-21
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . B-23
Determination of Net Asset Value. . . . . . . . . . . . . . . . B-26
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . B-27
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . B-29
Performance Information . . . . . . . . . . . . . . . . . . . . B-30
Information About the Funds . . . . . . . . . . . . . . . . . . B-31
Transfer and Dividend Disbursing Agent, Custodian,
Counsel and Independent Auditors. . . . . . . . . . . . . . . B-31
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-33
Financial Statements. . . . . . . . . . . . . . . . . . . . . . B-39
Report of Independent Auditors. . . . . . . . . . . . . . . . . B-49
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in
conjunction with the sections in the Funds' Prospectus entitled
"Description of the Funds" and "Appendix."
Portfolio Securities
Municipal Obligations. Municipal obligations generally include debt
obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities. Municipal obligations are classified as general obligation
bonds, revenue bonds and notes. General obligation bonds are secured by
the issuer's pledge of its faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue
source, but not from the general taxing power. Industrial development
bonds, in most cases, are revenue bonds and generally do not carry the
pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes
are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal obligations
include municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment issued by
municipalities.
Mortgage Related Securities.
Government-Agency Securities--Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are
guaranteed as to the timely payment of principal and interest by GNMA and
such guarantee is backed by the full faith and credit of the United States.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments
under its guarantee.
Government-Related Securities--Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the
full faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate
instrumentality of the United States created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Bank
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment
of interest, which is guaranteed by FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
Private Entity Securities--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can
be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies, so that if the issuers default on
their obligations the holders of the security could sustain a loss. No
insurance or guarantee covers the Funds or the price of the Funds' shares.
Mortgage-related securities issued by non-governmental issuers generally
offer a higher rate of interest than government-agency and government-
related securities because there are no direct or indirect government
guarantees of payment. Neither Fund will invest more than 5% of its assets
in such private entity securities issued by any one issuer, including any
one bank or savings and loan institution.
Foreign Government Obligations; Securities of Supranational Entities.
A Fund may invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Manager to be of comparable
quality to the other obligations in which the Fund may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank.
Repurchase Agreements. The Fund's custodian or sub-custodian will
have custody of, and will hold in a segregated account, securities acquired
by the Fund under a repurchase agreement. Repurchase agreements are
considered by the staff of the Securities and Exchange Commission to be
loans by the Fund. In an attempt to reduce the risk of incurring a loss on
a repurchase agreement, each Fund will enter into repurchase agreements
only with domestic banks with total assets in excess of $1 billion, or
primary government securities dealers reporting to the Federal Reserve Bank
of New York, with respect to securities of the type in which the Fund may
invest, and will require that additional securities be deposited with it if
the value of the securities purchased should decrease below the resale
price.
Commercial Paper and Other Short-Term Corporate Obligations. These
instruments include variable amount master demand notes, which are
obligations that permit a Fund to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at
face value, plus accrued interest, at any time. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies, and a Fund may invest
in them only if at the time of an investment the borrower meets the
criteria set forth in the Fund's Prospectus for other commercial paper
issuers.
Convertible Securities. Although to a lesser extent than with fixed-
income securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature,
the market value of convertible securities tends to vary with fluctuations
in the market value of the underlying common stock. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same
extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities
tend to rise as a reflection of the value of the underlying common stock.
While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in
common stock of the same issuer.
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stocks. There
can be no assurance of current income because the issuers of the
convertible securities may default on their obligations. A convertible
security, in addition to providing fixed income, offers the potential for
capital appreciation through the conversion feature, which enables the
holder to benefit from increases in the market price of the underlying
common stock. There can be no assurance of capital appreciation, however,
because securities prices fluctuate. Convertible securities, however,
generally offer lower interest or dividend yields than non-convertible
securities of similar quality because of the potential for capital
appreciation.
Each Fund may invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption Cumulative
Stock ("PERCS"), and higher dividend income than is available on a
company's common stock. PERCS are preferred stock which generally feature
a mandatory conversion date, as well as a capital appreciation limit that
is usually expressed in terms of a stated price. Each Fund also may invest
in other classes of enhanced convertible securities, such as ACES
(Automatically Convertible Equity Securities), PEPS (Participating Equity
Preferred Stock), PRIDES (Preferred Redeemable Increased Dividend Equity
Securities), SAILS (Stock Appreciation Income Linked Securities), TECONS
(Term Convertible Notes), QICS (Quarterly Income Cumulative Securities) and
DECS (Dividend Enhanced Convertible Securities). These securities are
company issued convertible preferred stock. Unlike PERCS, they do not have
a capital appreciation limit. They are designed to provide the investor
with high current income with some prospect of future capital appreciation,
issued with three or four-year maturities, and typically have some built-in
call protection. Investors have the right to convert them into shares of
common stock at a preset conversion ratio or hold them until maturity. Upon
maturity they will convert mandatorily into either cash or a specified
number of shares of common stock.
Zero Coupon Securities. Zero coupon U.S. Treasury securities are
Treasury Notes and Bonds that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons.
Receipts include "Treasury Receipts" ("TR's"), "Treasury Investment Growth
Receipts" ("TIGR's"), "Liquid Yield Option Notes" ("LYON's"), and
"Certificates of Accrual on Treasury Securities" ("CATS"). TIGR's, LYON's
and CATS are interests in private proprietary accounts while TR's are
interests in accounts sponsored by the U.S. Treasury.
Illiquid Securities. Where a substantial market of qualified
institutional buyers has developed for certain unregistered securities
purchased by a Fund pursuant to Rule 144A under the Securities Act of 1933,
as amended, the Fund intends to treat such securities as liquid securities
in accordance with procedures approved by the Company's Board. Because it
is not possible to predict with assurance how the market for specific
restricted securities sold pursuant to Rule 144A will develop, the
Company's Board has directed the Manager to monitor carefully the relevant
Fund's investments in such securities with particular regard to trading
activity, availability of reliable price information and other relevant
information. To the extent that, for a period of time, qualified
institutional buyers cease purchasing restricted securities pursuant to
Rule 144A, a Fund's investing in such securities may have the effect of
increasing the level of illiquidity in its investment portfolio during such
period.
Management Policies
Portfolio Maturity. Under normal market conditions, the average
effective portfolio maturity is expected to be three years to less for the
Short Term Income Fund and to range between five and ten years for the
Intermediate Term Income Fund. For purposes of calculating average
effective portfolio maturity, a security that is subject to redemption at
the option of the issuer on a particular date (the "call date") which is
prior to the security's stated maturity may be deemed to mature on the call
date rather than on its stated maturity date. The call date of a security
will be used to calculate average effective portfolio maturity when The
Dreyfus Corporation reasonably anticipates, based upon information
available to it, that the issuer will exercise its right to redeem the
security. The Dreyfus Corporation may based its conclusion on such factors
as the interest rate paid on the security compared to prevailing market
rates, the amount of cash available to the issuer of the security, events
affecting the issuer of the security, and other factors that may compel or
make it advantageous for the issuer to redeem a security prior to its
stated maturity.
Leverage. For borrowings for investment purposes, the Investment
Company Act of 1940, as amended (the "1940 Act"), requires a Fund to
maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the required coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio securities within three days to reduce the amount of its
borrowings and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that
time. The Fund also may be required to maintain minimum average balances
in connection with such borrowing or pay a commitment or other fee to
maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate. To the extent the Fund
enters into a reverse repurchase agreement, the Fund will maintain in a
segregated custodial account cash or U.S. Government securities or other
high quality liquid debt securities at least equal to the aggregate amount
of its reverse repurchase obligations, plus accrued interest, in certain
cases, in accordance with releases promulgated by the Securities and
Exchange Commission. The Securities and Exchange Commission views reverse
repurchase transactions as collateralized borrowings by the Fund.
Short-Selling. (Intermediate Term Income Fund only) Until the Fund
closes its short position or replaces the borrowed security, it will: (a)
maintain a segregated account, containing cash or U.S. Government
securities, at such a level that the amount deposited in the account plus
the amount deposited with the broker as collateral always equals the
current value of the security sold short; or (b) otherwise cover its short
position.
Lending Portfolio Securities. In connection with its securities
lending transactions, each Fund may return to the borrower or a third party
which is unaffiliated with the Fund, and which is acting as a "placing
broker," a part of the interest earned from the investment of collateral
received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of
the securities rises above the level of such collateral; (3) the Fund must
be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any interest or other
distributions payable on the loaned securities, and any increase in market
value; and (5) the Fund may pay only reasonable custodian fees in
connection with the loan.
Derivatives. A Fund may invest in Derivatives (as defined in the
Fund's Prospectus) for a variety of reasons, including to hedge certain
market risks, to provide a substitute for purchasing or selling particular
securities or to increase potential income gain. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest
than "traditional" securities would.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter
Derivatives. Exchange-traded Derivatives generally are guaranteed by the
clearing agency which is the issuer or counterparty to such Derivatives.
This guarantee usually is supported by a daily payment system (i.e., margin
requirements) operated by the clearing agency in order to reduce overall
credit risk. As a result, unless the clearing agency defaults, there is
relatively little counterparty credit risk associated with Derivatives
purchased on an exchange. By contrast, no clearing agency guarantees over-
the-counter Derivatives. Therefore, each party to an over-the-counter
Derivative bears the risk that the counterparty will default. Accordingly,
the Manager will consider the creditworthiness of counterparties to over-
the-counter Derivatives in the same manner as it would review the credit
quality of a security to be purchased by the Fund. Over-the-counter
Derivatives are less liquid than exchange-traded Derivatives since the
other party to the transaction may be the only investor with sufficient
understanding of the Derivative to be interested in bidding for it.
Futures Transactions--In General. A Fund may enter into futures contracts
in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or, with
respect to the Intermediate Term Income Fund only, on exchanges located
outside the United States, such as the London International Financial
Futures Exchange and the Sydney Futures Exchange Limited. Foreign markets
may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets,
however, may have greater risk potential than domestic markets. For
example, some foreign exchanges are principal markets so that no common
clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits the Fund might
realize in trading could be eliminated by adverse changes in the exchange
rate, or the Fund could incur losses as a result of those changes.
Transactions on foreign exchanges may include both commodities which are
traded on domestic exchanges and those which are not. Unlike trading on
domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the
Fund intends to purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could
move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Fund to substantial losses.
Successful use of futures by a Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant
market and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction
being hedged and the price movements of the futures contract. For example,
if the Fund uses futures to hedge against the possibility of a decline in
the market value of securities held in its portfolio and the prices of such
securities instead increase, the Fund will lose part or all of the benefit
of the increased value of securities which it has hedged because it will
have offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. The Fund may have
to sell such securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities
and Exchange Commission, each Fund may be required to segregate cash or
high quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting
the Fund's ability otherwise to invest those assets.
Specific Futures Transactions. Each Fund may purchase and sell interest
rate futures contracts. An interest rate future obligates the Fund to
purchase or sell an amount of a specific debt security at a future date at
a specific price.
The Intermediate Term Income Fund may purchase and sell currency
futures. A currency future obligates the Fund to purchase or sell an
amount of a specific currency at a future date at a specific price.
Interest Rate Swaps. (Intermediate Term Income Fund only) Interest rate
swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest (for example, an exchange
of floating rate payments for fixed-rate payments). The exchange
commitments can involve payments to be made in the same currency or in
different currencies. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio security
transactions. If the Manager is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment
performance of the Fund would diminish compared with what it would have
been if these investment techniques were not used. Moreover, even if the
Manager is correct in its forecasts, there is a risk that the swap position
may correlate imperfectly with the price of the asset or liability being
hedged. There is no limit on the amount of interest rate swap transactions
that may be entered into by the Fund. These transactions do not involve
the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is
limited to the net amount of interest payments that the Fund is
contractually obligated to make. If the other party to an interest rate
swap defaults, the Fund's risk of loss consists of the net amount of
interest payments that the Fund contractually is entitled to receive.
Options--In General. (Intermediate Term Income Fund only) The
Intermediate Term Income Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security or securities at the exercise price at any time
during the option period, or at a specific date. Conversely, a put option
gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price
at any time during the option period.
A covered call option written by the Fund is a call option with
respect to which the Fund owns the underlying security or otherwise covers
the transaction by segregating cash or other securities. A put option
written by the Fund is covered when, among other things, cash or liquid
securities having a value equal to or greater than the exercise price of
the option are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken. The principal reason for writing
covered call and put options is to realize, through the receipt of
premiums, a greater return than would be realized on the underlying
securities alone. The Fund receives a premium from writing covered call or
put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher
than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the clearing facilities
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the timely
execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If,
as a covered call option writer, the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or it otherwise covers its position.
Specific Options Transactions. (Intermediate Term Income Fund only) The
Intermediate Term Income Fund may purchase and sell call and put options on
foreign currency. These options convey the right to buy or sell the
underlying currency at a price which is expected to be lower or higher than
the spot price of the currency at the time the option is exercised or
expires.
The Intermediate Term Income Fund may purchase cash-settled options on
interest rate swaps and interest rate swaps denominated in foreign currency
in pursuit of its investment objective. A cash-settled option on a swap
gives the purchaser the right, but not the obligation, in return for the
premium paid, to receive an amount of cash equal to the value of the
underlying swap as of the exercise date. These options typically are
purchased in privately negotiated transactions from financial institutions,
including securities brokerage firms.
Successful use by the Fund of options will be subject to the Manager's
ability to predict correctly movements in foreign currencies or interest
rates. To the extent the Manager's predictions are incorrect, the Fund may
incur losses.
Future Developments. A Fund may take advantage of opportunities in
the area of options and futures contracts and options on futures contracts
and any other Derivatives which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed,
to the extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Before entering
into such transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus or Statement of Additional
Information.
Forward Commitments. Securities purchased on a forward commitment or
when-issued basis are subject to changes in value (generally changing in
the same way, i.e., appreciating when interest rates decline and
depreciating when interest rates rise) based upon the public's perception
of the creditworthiness of the issuer and changes, real or anticipated, in
the level of interest rates. Securities purchased on a forward commitment
or when-issued basis may expose a Fund to risks because they may experience
such fluctuations prior to their actual delivery. Purchasing securities on
a when-issued basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. Purchasing securities
on a forward commitment or when-issued basis when a Fund is fully or almost
fully invested may result in greater potential fluctuation in the value of
the Fund's net assets and its net asset value per share.
Investment Considerations and Risks
Lower Rated Securities. A Fund is permitted to invest in debt
securities rated Ba by Moody's Investors Service, Inc. ("Moody's") or BB by
Standard & Poor's Ratings Group, a division of The McGraw Hill Companies,
Inc. ("S&P"), Fitch Investors Service, L.P. ("Fitch") or Duff & Phelps
Credit Ratings Co. ("Duff" and with Moody's, S&P and Fitch, the "Rating
Agencies") and as low as Caa by Moody's or CCC by S&P, Fitch or Duff. Such
securities, though higher yielding, are characterized by risk. See in the
Funds' Prospectus "Description of the Funds--Investment Considerations and
Risks--Lower Rated Securities" for a discussion of certain risks and the
"Appendix" for a general description of the Rating Agencies' ratings.
Although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of these
securities. Each Fund will rely on the Manager's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities. These securities generally are considered by the Rating
Agencies to be, on balance, predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms
of the obligation and generally will involve more credit risk than
securities in the higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with the higher rated
securities. For example, during an economic downturn or a sustained period
of rising interest rates, highly leveraged issuers of these securities may
not have sufficient revenues to meet their interest payment obligations.
The issuer's ability to service its debt obligations also may be affected
adversely by specific corporate developments, forecasts, or the
unavailability of additional financing. The risk of loss because of
default by the issuer is significantly greater for the holders of these
securities because such securities generally are unsecured and often are
subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher rated
securities. The lack of a liquid secondary market may have an adverse
impact on market price and yield and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio and
calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play
a greater role in valuation because less reliable, objective data may be
available.
These securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely
the market for such securities and may have an adverse impact on the value
of such securities. In addition, it is likely that any such economic
downturn could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon and increase the
incidence of default for such securities.
A Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with any persons concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon securities and pay-in-kind bonds, in which
the Fund may invest up to 5% of its total assets. Pay-in-kind bonds pay
interest through the issuance of additional securities. Zero coupon
securities and pay-in-kind bonds carry an additional risk in that, unlike
bonds which pay interest throughout the period to maturity, the Fund will
realize no cash until the cash payment date unless a portion of such
securities are sold and, if the issuer defaults, the Fund may obtain no
return at all on its investment.
Investment Restrictions
Each Fund has adopted investment restrictions numbered 1 through 7 as
fundamental policies. In addition, Dreyfus Intermediate Term Income Fund
has adopted investment restrictions numbered 14 and 15 as fundamental
policies. These restrictions cannot be changed, as to a Fund, without
approval by the holders of a majority (as defined in the 1940 Act) of such
Fund's outstanding voting shares. Investment restrictions numbered 8
through 13 are not fundamental policies and may be changed by vote of a
majority of the Company's Board members at any time. Neither Fund may:
1. Invest in commodities, except that the Fund may purchase and
sell futures contracts, including those relating to indices, and options on
futures contracts or indices.
2. Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but the Fund may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate. In particular, the Fund may
purchase mortgage-backed securities and real estate investment trust
securities.
3. Borrow money, except to the extent permitted under the 1940 Act
(which currently limits borrowing to no more than 33-1/3% of the value of
the Fund's total assets). For purposes of this Investment Restriction, the
entry into options, futures contracts, including those relating to indices,
and options on futures contracts or indices shall not constitute borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, the Fund
may lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange
Commission and the Company's Board.
5. Act as an underwriter of securities of other issuers, except to
the extent the Fund may be deemed an underwriter under the Securities Act
of 1933, as amended, by virtue of disposing of portfolio securities.
6. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
7. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 1, 3, and 9 may be deemed to give rise to a
senior security.
8. Invest in the securities of a company for the purpose of
exercising management or control, but the Fund will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, futures contracts, including those relating to indices,
and options on futures contracts or indices.
10. Purchase, sell or write puts, calls or combinations thereof,
except as described in the Prospectus and Statement of Additional
Information.
11. Enter into repurchase agreements providing for settlement in
more than seven days after notice or purchase securities which are illiquid, if,
in the aggregate, more than 15% of the value of the Fund's net assets would
be so invested.
12. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act or as they may be acquired as part of a
merger, consolidation or acquisition of assets.
13. Purchase securities on margin, but the Fund may make margin
deposits in connection with transactions in futures, including those
relating to indices, and options on futures or indices.
The following investment restrictions numbered 14 and 15 apply only to
Dreyfus Intermediate Term Income Fund. Dreyfus Intermediate Term Income
Fund may not:
14. Invest more than 5% of its assets in the obligations of any
single issuer, except that up to 25% of the value of the Fund's total
assets may be invested, and securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities may be purchased, without
regard to any such limitation.
15. Hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to
75% of the Fund's total assets.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will
not constitute a violation of
such restriction.
The Company may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Fund shares in
certain states. Should the Company determine that a commitment is no
longer in the best interest of the Fund and its shareholders, the Company
reserves the right to revoke the commitment by terminating the sale of such
Fund's shares in the state involved.
MANAGEMENT OF THE COMPANY
Board members and officers of the Company, together with information
as to their principal business occupations during at least the last five
years, are shown below. Each Board member who is deemed to be an
"interested person" of the Company, as defined in the 1940 Act, is
indicated by an asterisk.
Board Members of the Company
LUCY WILSON BENSON, Board Member. President of Benson and Associates,
consultants to business and government. Mrs. Benson is a director of
Communications Satellite Corporation, General Re Corporation and
Logistics Management Institute. She is also a trustee of the Alfred
P. Sloan Foundation, Vice Chairman of the Board of Trustees of
Lafayette College, Vice Chairman of the Citizens Network for Foreign
Affairs and a member of the Council on Foreign Relations. From 1980
to 1994, Mrs. Benson was a director of The Grumman Corporation. Mrs.
Benson served as a consultant to the U.S. Department of State and to
SRI International from 1980 to 1981. From 1977 to 1980, she was Under
Secretary of State for Security Assistance, Science and Technology.
She is 68 years old and her address is 46 Sunset Avenue, Amherst,
Massachusetts 01002.
*DAVID W. BURKE, Board Member. Chairman of the Broadcasting Board of
Governors, an independent board within the United States Information
Agency, since August 1995. From August 1994 to February 1995, Mr.
Burke was a Consultant to the Manager and, from October 1990 to August
1994, he was Vice President and Chief Administrative Officer of the
Manager. From 1977 to 1990, Mr. Burke was involved in the management
of national television news, as Vice President and Executive Vice
President of ABC News, and subsequently as President of CBS News. He
is 59 years old and his address is Box 654, Eastham, Massachusetts
02642.
*JOSEPH S. DiMARTINO, Chairman of the Board. Since January 1995, Chairman
of the Board of various funds in the Dreyfus Family of Funds. For
more than five years prior thereto, he was President, a director and,
until August 1994, Chief Operating Officer of the Manager and
Executive Vice President and a director of Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager and, until
August 24, 1994, the Company's distributor. From August 1994 until
December 31, 1994, he was a director of Mellon Bank Corporation. He
is also Chairman of the Board of Directors of Noel Group, Inc., a
venture capital company; a trustee of Bucknell University; and a
director of The Muscular Dystrophy Association, HealthPlan Services
Corporation, Belding Heminway Company, Inc., a manufacturer and
marketer of industrial threads, specialty yarns, home furnishings and
fabrics, Curtis Industries, Inc., a national distributor of security
products, chemicals and automotive and other hardware, and Staffing
Resources, Inc. He is 52 years old and his address is 200 Park
Avenue, New York, New York 10166.
MARTIN D. FIFE, Board Member. Chairman of the Board of Magar, Inc., a
company specializing in financial products and developing early stage
companies, since November 1987. Mr. Fife is also Chairman of the
Board and Chief Executive Officer of Skysat Communications Network
Corporation, a company developing telecommunications systems. From
1960 to 1994, Mr. Fife was President of Fife Associates, Inc. He also
serves on the boards of various other companies. He is 68 years old
and his address is 405 Lexington Avenue, New York, New York 10174.
WHITNEY I. GERARD, Board Member. Partner of the New York City law firm of
Chadbourne & Parke. He is 61 years old and his address is 30
Rockefeller Plaza, New York, New York 10112.
ROBERT R. GLAUBER, Board Member. Research Fellow, Center for Business and
Government at the John F. Kennedy School of Government, Harvard
University since January 1992. Mr. Glauber was Under Secretary of the
Treasury for Finance at the U.S. Treasury Department from May 1989 to
January 1992. For more than five years prior thereto, he was a
Professor of Finance at the Graduate School of Business Administration
of Harvard University and, from 1985 to 1989, Chairman of its Advanced
Management Program. He is also a director of Mid Ocean Reinsurance
Co. Ltd. and Cooke & Bieler, Inc., investment counselors. He is 56
years old and his address is 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138.
ARTHUR A. HARTMAN, Board Member. Senior consultant with APCO Associates
Inc. From 1981 to 1987, he was United States Ambassador to the former
Soviet Union. He is a director of the Hartford Insurance Group and a
member of the advisory councils of several other companies, research
institutes and foundations. He is Chairman of First NIS Regional
Funds (ING/Barings Management) and former President of the Harvard
Board of Overseers. He is 69 years old and his address is 2738
McKinley Street, N.W., Washington, D.C. 20015.
GEORGE L. PERRY, Board Member. An economist and Senior Fellow at the
Brookings Institution since 1969. He is co-director of the Brookings
Panel on Economic Activity and editor of its journal, The Brookings
Papers. He is also a director of the State Farm Mutual Automobile
Association and State Farm Life Insurance Company. He is 61 years old
and his address is 1775 Massachusetts Avenue, N.W., Washington, D.C.
20036.
PAUL D. WOLFOWITZ, Board Member. Dean of The Paul H. Nitze School of
Advanced International Studies at Johns Hopkins University. From 1989
to 1993, he was Under Secretary of Defense for Policy. From 1986 to
1989, he was the U.S. Ambassador to the Republic of Indonesia. From
1982 to 1986, he was Assistant Secretary of State of East Asian and
Pacific Affairs of the Department of State. He is 51 years old and
his address is 1740 Massachusetts Avenue, N.W., Washington, D.C.
20036.
For so long as the Company's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Board members who are
not "interested persons" of the Company, as defined in the 1940 Act, will
be selected and nominated by the Board members who are not "interested
persons" of the Company.
The Company typically pays its Board members an annual retainer and a
per meeting fee and reimburses them for their expenses. The Chairman of
the Board receives an additional 25% of such compensation. Emeritus Board
members are entitled to receive an annual retainer and a per meeting fee of
one-half the amount paid to them as Board members. The aggregate amount of
compensation paid to each Board member by the Company for the fiscal year
ended July 31, 1995, and by all other funds in the Dreyfus Family of Funds
for which such person is a Board member (the number of which is set forth
in parenthesis next to each Board member's total compensation) for the year
ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
(5)
(3) Total Compensation
(2) Pension or (4) From Company and
(1) Aggregate Retirement Benefits Estimated Annual Fund Complex
Name of Board Compensation Accrued as Part of Benefits Upon Paid to Board
Member From Company* Company's Expenses Retirement Member
- ------------ ----------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Lucy Wilson Benson $5,000 none none $ 64,459 (15)
David W. Burke $5,000 none none $ 27,898 (53)
Joseph S. DiMartino $6,250 none none $445,000 (93)**
Martin D. Fife $5,000 none none $51,750 (12)
Whitney I. Gerard $5,000 none none $52,000 (12)
Robert R. Glauber $4,375 none none $79,696 (21)
Arthur A. Hartman $5,000 none none $52,000 (12)
George L. Perry $5,000 none none $52,000 (12)
Paul D. Wolfowitz $5,000 none none $32,631 (11)
* Amount does not include reimbursed expenses for attending Board meetings, which
amounted to $871 for all Board members as a group.
** Estimated amount as of year ending December 31, 1995.
</TABLE>
Officers of the Company
MARIE E. CONNOLLY, President and Treasurer. President and Chief Executive
Officer of the Distributor and an officer of other investment
companies advised or administered by the Manager. From December 1991
to July 1994, she was President and Chief Compliance Officer of Funds
Distributor, Inc., the ultimate parent of which is Boston
Institutional Group, Inc. Prior to December 1991, she served as Vice
President and Controller, and later as Senior Vice President, of The
Boston Company Advisors, Inc. She is 38 years old.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice President and
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From February 1992
to July 1994, he served as Counsel for The Boston Company Advisors,
Inc. From August 1990 to February 1992, he was employed as an
Associate at Ropes & Gray. He is 31 years old.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. From 1988 to August
1994, he was manager of the High Performance Fabric Division of
Springs Industries Inc. He is 34 years old.
ERIC B. FISCHMAN, Vice President and Assistant Secretary. Associate
General Counsel of the Distributor and an officer of other investment
companies advised or administered by the Manager. From September 1992
to August 1994, he was an attorney with the Board of Governors of the
Federal Reserve System. He is 31 years old.
ELIZABETH BACHMAN, Vice President and Assistant Secretary. Assistant Vice
President of the Distributor and an officer of other investment
companies advised or administered by the Manager. She is 26 years
old.
JOSEPH S. TOWER, III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and an
officer of other investment companies advised or administered by the
Manager. From July 1988 to August 1994, he was employed by The Boston
Company, Inc. where he held various management positions in the
Corporate Finance and Treasury areas. He is 33 years old.
JOHN J. PYBURN, Assistant Treasurer. Assistant Treasurer of the
Distributor and an officer of other investment companies advised or
administered by the Manager. From 1984 to July 1994, he was Assistant
Vice President in the Mutual Fund Accounting Department of the
Manager. He is 60 years old.
MARGARET PARDO, Assistant Secretary. Legal Assistant with the Distributor
and an officer of other investment companies advised or administered
by the Manager. From June 1992 to April 1995, she was a Medical
Coordinator Officer at ORBIS International. Prior to June 1992, she
worked as Program Coordinator at Physicians World Communications
Group. She is 27 years old.
The address of each officer of the Company is 200 Park Avenue, New
York, New York 10166.
The Company's Board members and officers, as a group, owned less than
1% of each Fund's shares of common stock outstanding on February 23, 1996.
MANAGEMENT AGREEMENT
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Management
of the Funds."
Management Agreement. The Manager provides management services
pursuant to the Management Agreement (the "Agreement") dated August 24,
1994, as amended August 24, 1995, with the Company. As to each Fund, the
Agreement is subject to annual approval by (i) the Company's Board or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund, provided that in either event the continuance also
is approved by a majority of the Board members who are not "interested
persons" (as defined in the 1940 Act) of the Company or the Manager, by
vote cast in person at a meeting called for the purpose of voting on such
approval. The Agreement was approved by shareholders on August 5, 1994 in
respect of Dreyfus Short Term Income Fund, and was last approved by the
Company's Board, including a majority of the Board members who are not
"interested persons" of any party to the Agreement, at a meeting held on
August 24, 1995. As to each Fund, the Agreement is terminable without
penalty, on 60 days' notice, by the Company's Board or by vote of the
holders of a majority of such Fund's shares, or, on not less than 90 days'
notice, by the Manager. The Agreement will terminate automatically, as to
the relevant Fund, in the event of its assignment (as defined in the 1940
Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; W. Keith
Smith, Vice Chairman of the Board; Christopher M. Condron, President, Chief
Operating Officer and a director; Stephen E. Canter, Vice Chairman, Chief
Investment Officer and a director; Lawrence S. Kash, Vice
Chairman--Distribution and a director; Philip L. Toia, Vice Chairman-
- -Operations and Administration and a director; William T. Sandalls, Jr.,
Senior Vice President and Chief Financial Officer; Barbara E. Casey, Vice
President--Dreyfus Retirement Services; Diane M. Coffey, Vice President--
Corporate Communications; Elie M. Genadry, Vice President--Institutional
Sales; William F. Glavin, Jr., Vice President--Corporate Development; Mark
N. Jacobs, Vice President--Legal, Secretary and General Counsel; Mary Beth
Leibig, Vice President--Human Resources; Jeffrey N. Nachman, Vice
President--Mutual Fund Accounting; Andrew S. Wasser, Vice President--
Information Services; Maurice Bendrihem, Controller; Elvira Oslapas,
Assistant Secretary; and Mandell L. Berman, Frank V. Cahouet, Alvin E.
Friedman, Lawrence M. Greene and Julian M. Smerling, directors.
The Manager manages each Fund's investments in accordance with the
stated policies of such Fund, subject to the approval of the Company's
Board. The Manager is responsible for investment decisions, and provides
the Funds with portfolio managers who are authorized by the Board to
execute purchases and sales of securities. Dreyfus Short Term Income
Fund's portfolio managers are Kevin McClintock, Garitt Kono and Gerry
Thunelius. Dreyfus Intermediate Term Income Fund's portfolio manager is
Kevin McClintock. The Manager also maintains research departments with a
professional staff of portfolio managers and securities analysts who
provide research services for the Fund as well as for other funds advised
by the Manager. All purchases and sales are reported for the Board's
review at the meeting subsequent to such transactions.
The Manager maintains office facilities on behalf of the Funds, and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Funds. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
Expenses. All expenses incurred in the operation of the Company are
borne by the Company, except to the extent specifically assumed by the
Manager. The expenses borne by the Company include: organizational costs,
taxes, interest, loan commitment fees, interest and distributions paid on
securities sold short, brokerage fees and commissions, if any, fees of
Board members who are not officers, directors, employees or holders of 5%
or more of the outstanding voting securities of the Manager, Securities and
Exchange Commission fees, state Blue Sky qualification fees, advisory fees,
charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside auditing and
legal expenses, costs of maintaining the Company's existence, costs of
independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, costs of shareholders' reports and meetings, and any
extraordinary expenses. In addition, Fund shares are subject to an annual
service fee. See "Shareholder Services Plan." Expenses attributable to a
particular Fund are charged against the assets of that Fund; other expenses
of the Company are allocated between the Funds on the basis determined by
the Board, including, but not limited to, proportionately in relation to
the net assets of each Fund.
As compensation for the Manager's services to the Company, the Company
has agreed to pay the Manager a monthly management fee at the annual rate
of .50 of 1% of the value of Dreyfus Short Term Income Fund's average daily
net assets and .75 of 1% of the value of Dreyfus Intermediate Term Income
Fund's average daily net assets. For the period August 18, 1992
(commencement of operations) through July 31, 1993 and for the fiscal years
ended July 31, 1994 and 1995, the management fees payable with respect to
Dreyfus Short Term Income Fund amounted to $428,814, $1,431,860 and
$1,156,674, respectively; however, pursuant to an undertaking in effect,
the Manager waived receipt of $428,814, $1,431,860 and $682,003 for fiscal
1993, 1994 and 1995, respectively, resulting in no management fee being
paid in fiscal 1993 and 1994 and $474,671 being paid in fiscal 1995 with
respect to Dreyfus Short Term Income Fund.
As to each Fund, the Manager has agreed that if in any fiscal year the
aggregate expenses of the Fund, exclusive of taxes, brokerage, interest on
borrowings and (with the prior written consent of the necessary state
securities commissions) extraordinary expenses, but including the
management fee, exceed the expense limitation of any state having
jurisdiction over the Fund, the Fund may deduct from the payment to be made
to the Manager under the Agreement, or the Manager will bear, such excess
expense to the extent required by state law. Such deduction or payment, if
any, will be estimated daily, and reconciled and effected or paid, as the
case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of a Fund's net assets increases.
PURCHASE OF SHARES
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "How to Buy
Shares."
The Distributor. The Distributor serves as each Fund's distributor on
a best efforts basis pursuant to an agreement which is renewable annually.
The Distributor also acts as distributor for the other funds in the Dreyfus
Family of Funds and for certain other investment companies. In some
states, certain financial institutions effecting transactions in Fund
shares may be required to register as dealers pursuant to state law.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders
may be made at any time. Purchase orders received by 4:00 p.m., New York
time, on any business day that Dreyfus Transfer, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York
Stock Exchange are open for business will be credited to the shareholder's
Fund account on the next bank business day following such purchase order.
Purchase orders made after 4:00 p.m., New York time, on any business day
the Transfer Agent and the New York Stock Exchange are open for business,
or orders made on Saturday, Sunday or any Fund holiday (e.g., when the New
York Stock Exchange is not open for business), will be credited to the
shareholder's Fund account on the second bank business day following such
purchase order. To qualify to use the Dreyfus TeleTransfer Privilege, the
initial payment for purchase of shares must be drawn on, and redemption
proceeds paid to, the same bank and account as are designated on the
Account Application or Shareholder Services Form on file. If the proceeds
of a particular redemption are to be wired to an account at any other bank,
the request must be in writing and signature-guaranteed. See "Redemption
of Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a
minimum investment of $100 without filing a new Account Application during
the calendar year the account is closed or during the following calendar
year, provided the information on the old Account Application is still
applicable.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Shareholder
Services Plan."
The Company has adopted a Shareholder Services Plan, pursuant to which
the Company pays the Distributor for the provision of certain services to
each Fund's shareholders. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Company and providing reports and other
information, and services related to the maintenance of such shareholder
accounts. Under the Shareholder Services Plan, the Distributor may make
payments to certain securities dealers, financial institutions and other
financial industry professionals (collectively, "Service Agents") in
respect of these services.
A quarterly report of the amounts expended under the Shareholder
Services Plan, and the purposes for which such expenditures were incurred,
must be made to the Board for its review. In addition, the Shareholder
Services Plan provides that material amendments must be approved by the
Company's Board and by the Board members who are not "interested persons"
(as defined in the 1940 Act) of the Company and have no direct or indirect
financial interest in the operation of the Shareholder Services Plan or in
any agreements entered into in connection with the Shareholder Services
Plan, by vote cast in person at a meeting called for the purpose of
considering such amendments. As to each Fund, the Shareholder Services
Plan is subject to annual approval by such vote of the Board members cast
in person at a meeting called for the purpose of voting on the Shareholder
Services Plan. The Shareholder Services Plan was so approved on August 24,
1995. The Shareholder Services Plan is terminable with respect to each
Fund at any time by vote of a majority of the Board members who are not
"interested persons" and have no direct or indirect financial interest in
the operation of the Shareholder Services Plan or in any agreements entered
into in connection with the Shareholder Services Plan.
Prior Service Plan. As of October 1, 1995, the Company terminated its
then-existing Service Plan that had been in effect from August 24, 1994
with respect to Dreyfus Short Term Income Fund only. The Service Plan,
adopted pursuant to Rule 12b-1 under the 1940 Act, provided that the
Company (i) reimburse the Distributor for payments to Service Agents for
distributing shares and servicing shareholder accounts ("Servicing") and
(ii) pay the Manager, Dreyfus Service Corporation and any affiliate of
either of them (collectively, "Dreyfus") for advertising and marketing
relating to the Company and for Servicing, at an aggregate annual rate of
.20% of the value of Dreyfus Short Term Income Fund's average daily net
assets. Under such plan, for the period August 24, 1994 through July 31,
1995, the total amount payable by the Company was $474,522, of which
$103,526 was waived by Dreyfus and the remainder was paid to Dreyfus for
advertising and marketing Dreyfus Short Term Income Fund's shares and
Servicing. In addition, the Company paid $43,573 for preparing, printing
and distributing prospectuses and statements of additional information and
for costs associated with implementing and operating such plan.
As of August 24, 1994, the Company terminated its then-existing
Service Plan, which provided for payments to be made to Dreyfus Service
Corporation, the Company's distributor prior to such date, for advertising,
marketing and distributing Dreyfus Short Term Income Fund's shares and for
Servicing at an annual rate of .20% of the value of such Fund's total
assets. Under such plan, for the period from August 1, 1994 through August
23, 1994, the total amount payable by the Company was $43,686, of which
$31,721 was payable for advertising, marketing and distributing Fund shares
and Servicing and $11,965 was payable for preparing, printing and
distributing prospectuses and statements of additional information and
operating such plan.
REDEMPTION OF SHARES
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "How to
Redeem Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Company provide Redemption
Checks ("Checks") drawn on the investor's Fund account. Checks will be
sent only to the registered owner(s) of the account and only to the address
of record. The Account Application or later written request must be
manually signed by the registered owner(s). Checks may be made payable to
the order of any person in an amount of $500 or more. When a Check is
presented to the Transfer Agent for payment, the Transfer Agent, as the
investor's agent, will cause the Fund to redeem a sufficient number of
shares in the investor's account to cover the amount of the Check.
Dividends are earned until the Check clears. After clearance, a copy of
the Check will be returned to the investor. Investors generally will be
subject to the same rules and regulations that apply to checking accounts,
although election of this Privilege creates only a shareholder-transfer
agent relationship with the Transfer Agent.
If the amount of the Check is greater than the value of the shares in
an investor's account, the Check will be returned marked insufficient
funds. Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor and reasonably believed by the Transfer Agent to be genuine.
Ordinarily, the Company will initiate payment for shares redeemed pursuant
to this Privilege on the next business day after receipt by the Transfer
Agent of the redemption request in proper form. Redemption proceeds
($1,000 minimum) will be transferred by Federal Reserve wire only to the
commercial bank account specified by the investor on the Account
Application or Shareholder Services Form, or to a correspondent bank if the
investor's bank is not a member of the Federal Reserve System. Fees
ordinarily are imposed by such bank and usually are borne by the investor.
Immediate notification by the correspondent bank to the investor's bank is
necessary to avoid a delay in crediting the funds to the investor's bank
account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may
have the wire transmitted by contacting a TRT Cables operator at
1-800-654-7171, toll free. Investors should advise the operator that the
above transmittal code must be used and should also inform the operator of
the Transfer Agent's answer back sign.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if
they have selected the Dreyfus TeleTransfer Privilege, any request for a
wire redemption will be effected as a Dreyfus TeleTransfer transaction
through the Automated Clearing House ("ACH") system unless more prompt
transmittal specifically is requested. Redemption proceeds will be on
deposit in the investor's account at an ACH member bank ordinarily two
business days after receipt of the redemption request. See "Purchase of
Shares--Dreyfus TeleTransfer Privilege."
Stock Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request.
Written redemption requests must be signed by each shareholder, including
each holder of a joint account, and each signature must be guaranteed.
Signatures on endorsed certificates submitted for redemption also must be
guaranteed. The Transfer Agent has adopted standards and procedures
pursuant to which signature-guarantees in proper form generally will be
accepted from domestic banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations, as well as from participants in the New York
Stock Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program.
Guarantees must be signed by an authorized signatory of the guarantor and
"Signature-Guaranteed" must appear with the signature. The Transfer Agent
may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular
verification. For more information with respect to signature-guarantees,
please call one of the telephone numbers listed on the cover.
Redemption Commitment. The Company has committed itself to pay in
cash all redemption requests by any shareholder of record of a Fund,
limited in amount during any 90-day period to the lesser of $250,000 or 1%
of the value of such Fund's net assets at the beginning of such period.
Such commitment is irrevocable without the prior approval of the Securities
and Exchange Commission. In the case of requests for redemption in excess
of such amount, the Board reserves the right to make payments in whole or
in part in securities (which may include non-marketable securities) or
other assets in case of an emergency or any time a cash distribution would
impair the liquidity of the Fund to the detriment of the existing
shareholders. In such event, the securities would be valued in the same
manner as the Fund's securities are valued. If the recipient sold such
securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended
or the date of payment postponed (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday
closings), (b) when trading in the markets the relevant Fund ordinarily
utilizes is restricted, or when an emergency exists as determined by the
Securities and Exchange Commission so that disposal of the Fund's
investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit to protect the Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Shareholder
Services."
Fund Exchanges. Shares of funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a sales
load will be made without a sales load.
B. Shares of funds purchased without a sales load may be exchanged
for shares of other funds sold with a sales load, and the
applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be exchanged
without a sales load for shares of other funds sold without a
sales load.
D. Shares of funds purchased with a sales load, shares of funds
acquired by a previous exchange from shares purchased with a
sales load and additional shares acquired through reinvestment
of dividends or distributions of any such funds (collectively
referred to herein as "Purchased Shares") may be exchanged for
shares of other funds sold with a sales load (referred to herein
as "Offered Shares"), provided that, if the sales load
applicable to the Offered Shares exceeds the maximum sales load
that could have been imposed in connection with the Purchased
Shares (at the time the Purchased Shares were acquired), without
giving effect to any reduced loads, the difference will be
deducted.
To accomplish an exchange under item D above, shareholders must notify
the Transfer Agent of their prior ownership of fund shares and their
account number.
To request an exchange, shareholders must give exchange instructions
to the Transfer Agent in writing or by telephone. The ability to issue
exchange instructions by telephone is given to all Fund shareholders
automatically, unless the investor checks the applicable "No" box on the
Account Application, indicating that the investor specifically refuses this
Privilege. By using the Telephone Exchange Privilege, the investor
authorizes the Transfer Agent to act on telephonic instructions from any
person representing himself or herself to be the investor, and reasonably
believed by the Transfer Agent to be genuine. Telephone exchanges may be
subject to limitations as to the amount involved or the number of telephone
exchanges permitted. Shares issued in certificate form are not eligible
for telephone exchange.
To establish a personal retirement plan by exchange, shares of the
fund being exchanged must have a value of at least the minimum initial
investment required for the fund into which the exchange is being made.
For Dreyfus-sponsored Keogh Plans, IRAs and IRAs set up under a Simplified
Employee Pension Plan ("SEP-IRAs") with only one participant, the minimum
initial investment is $750. To exchange shares held in corporate plans,
403(b)(7) Plans and SEP-IRAs with more than one participant, the minimum
initial investment is $100 if the plan has at least $2,500 invested among
the funds in the Dreyfus Family of Funds. To exchange shares held in a
personal retirement plan account, the shares exchanged must have a current
value of at least $100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege
permits an investor to purchase, in exchange for shares of a Fund, shares
of another fund in the Dreyfus Family of Funds. This Privilege is
available only for existing accounts. Shares will be exchanged on the
basis of relative net asset value as described above under "Fund
Exchanges." Enrollment in or modification or cancellation of this
Privilege is effective three business days following notification by the
investor. An investor will be notified if the investor's account falls
below the amount designated to be exchanged under this Privilege. In this
case, an investor's account will fall to zero unless additional investments
are made in excess of the designated amount prior to the next Auto-Exchange
transaction. Shares held under IRA and other retirement plans are eligible
for this Privilege. Exchanges of IRA shares may be made between IRA
accounts and from regular accounts to IRA accounts, but not from IRA
accounts to regular accounts. With respect to all other retirement
accounts, exchanges may be made only among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available
to shareholders resident in any state in which shares of the fund being
acquired may legally be sold. Shares may be exchanged only between
accounts having identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Company reserves the right to
reject any exchange request in whole or in part. The Fund Exchanges
service or the Dreyfus Auto-Exchange Privilege may be modified or
terminated at any time upon notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the
yield on the shares. If withdrawal payments exceed reinvested dividends
and distributions, the investor's shares will be reduced and eventually may
be depleted. There is a service charge of $.50 for each withdrawal check.
Automatic Withdrawal may be terminated at any time by the investor, the
Company or the Transfer Agent. Shares for which certificates have been
issued may not be redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from a Fund in shares of another fund in the Dreyfus
Family of Funds of which the investor is a shareholder. Shares of other
funds purchased pursuant to this privilege will be purchased on the basis
of relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other funds that
are offered without a sales load.
B. Dividends and distributions paid by a fund which does not charge
a sales load may be invested in shares of other funds sold with
a sales load, and the applicable sales load will be deducted.
C. Dividends and distributions paid by a fund which charges a sales
load may be invested in shares of other funds sold with a sales
load (referred to herein as "Offered Shares"), provided that, if
the sales load applicable to the Offered Shares exceeds the
maximum sales load charged by the fund from which dividends or
distributions are being swept, without giving effect to any
reduced loads, the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested in
shares of other funds that impose a contingent deferred sales
charge ("CDSC") and the applicable CDSC, if any, will be imposed
upon redemption of such shares.
Corporate Pension/Profit-Sharing and Retirement Plans. The Company
makes available to corporations a variety of prototype pension and profit-
sharing plans including a 401(k) Salary Reduction Plan. In addition, the
Company makes available Keogh Plans, IRAs, including SEP-IRAs and IRA
"Rollover Accounts," and 403(b)(7) Plans. Plan support services also are
available.
Investors who wish to purchase Fund shares in conjunction with a Keogh
Plan, a 403(b)(7) Plan or an IRA, including a SEP-IRA, may request from the
Distributor forms for adoption of such plans.
The entity acting as custodian for Keogh Plans, 403(b)(7) Plans or
IRAs may charge a fee, payment of which could require the liquidation of
shares. All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct
remittance to the entity acting as custodian. Purchases for these plans
may not be made in advance of receipt of funds.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans and SEP-IRAs with more than one participant, is
$2,500 with no minimum for subsequent purchases. The minimum initial
investment for Dreyfus-sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7)
Plans with only one participant, is ordinarily $750, with no minimum for
subsequent purchases. Individuals who open an IRA also may open a
non-working spousal IRA with a minimum investment of $250.
Each investor should read the prototype retirement plan and the
appropriate form of custodial agreement for further details on eligibility,
service fees and tax implications, and should consult a tax adviser.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "How to Buy
Shares."
Valuation of Portfolio Securities. Substantially all of each Fund's
investments (excluding short-term investments) are valued each business day
by one or more independent pricing services (the "Service") approved by the
Board. Securities valued by the Service for which quoted bid prices in the
judgment of the Service are readily available and are representative of the
bid side of the market are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the
market for such securities). Other investments valued by the Service are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. Short-term investments are not valued by
the Service and are valued at the mean price or yield equivalent for such
securities or for securities of comparable maturity, quality and type as
obtained from market makers. Other investments that are not valued by the
Service are valued at the average of the most recent bid and asked prices
in the market in which such investments are primarily traded, or at the
last sales price for securities traded primarily on an exchange or the
national securities market. In the absence of reported sales of
investments traded primarily on an exchange or the national securities
market, the average of the most recent bid and asked prices is used. Bid
price is used when no asked price is available. Any assets or liabilities
initially expressed in terms of foreign currency will be translated into
U.S. dollars at the midpoint of the New York interbank market spot exchange
rate as quoted on the day of such translation by the Federal Reserve Bank
of New York or, if no such rate is quoted on such date, at the exchange
rate previously quoted by the Federal Reserve Bank of New York or at such
other quoted market exchange rate as may be determined to be appropriate by
the Manager. Expenses and fees, including the management fee (reduced by
the expense limitation, if any), are accrued daily and taken into account
for the purpose of determining the net asset value of a Fund's shares.
Restricted securities, as well as securities or other assets for which
recent market quotations are not readily available, or are not valued by
the Service, are valued at fair value as determined in good faith by the
Board. The Board will review the method of valuation on a current basis.
In making their good faith valuation of restricted securities, the Board
members generally will take the following factors into consideration:
restricted securities which are, or are convertible into, securities of the
same class of securities for which a public market exists usually will be
valued at market value less the same percentage discount at which
purchased. This discount will be revised periodically by the Board if the
Board members believe that it no longer reflects the value of the
restricted securities. Restricted securities not of the same class as
securities for which a public market exists usually will be valued
initially at cost. Any subsequent adjustment from cost will be based upon
considerations deemed relevant by the Board.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Dividends,
Distributions and Taxes."
Management of the Company believes that Dreyfus Short Term Income Fund
has qualified for the fiscal year ended July 31, 1995 as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended
(the "Code"). It is expected that Dreyfus Intermediate Term Income Fund
will qualify as a regulated investment company under the Code. Each Fund
intends to continue to so qualify if such qualification is in the best
interests of its shareholders. As a regulated investment company, each
Fund will pay no Federal income tax on net investment income and net
realized securities gains to the extent that such income and gains are
distributed to shareholders in accordance with applicable provisions of the
Code. To qualify as a regulated investment company, the Fund must
distribute at least 90% of its net income (consisting of net investment
income and net short-term capital gain) to its shareholders, derive less
than 30% of its annual gross income from gain on the sale of securities
held for less than three months, and meet certain asset diversification and
other requirements. The term "regulated investment company" does not imply
the supervision of management or investment practices or policies by any
government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the
cost of the investment. Such a dividend or distribution would be a return
of investment in an economic sense, although taxable as stated above. In
addition, the Code provides that if a shareholder holds shares of a Fund
for six months or less and has received a capital gain distribution with
respect to such shares, any loss incurred on the sale of such shares will
be treated as long-term capital loss to the extent of the capital gain
distribution received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, a portion of the gain or
loss realized from the disposition of foreign currencies (including foreign
currency denominated bank deposits) and non-U.S. dollar denominated
securities (including debt instruments and certain forward contracts and
options) may be treated as ordinary income or loss under Section 988 of the
Code. In addition, all or a portion of any gains realized from the sale or
other disposition of certain market discount bonds will be treated as
ordinary income under Section 1276. Finally, all or a portion of the gain
realized from engaging in "conversion transactions" may be treated as
ordinary income under Section 1258. "Conversion transactions" are defined
to include certain forward, futures, option and straddle transactions,
transactions marketed or sold to produce capital gains, or transactions
described in Treasury regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by a Fund
from certain forward contracts and options transactions will be treated as
60% long-term capital gain or loss and 40% short-term capital gain or loss.
Gain or loss will arise upon exercise or lapse of such contracts and
options as well as from closing transactions. In addition, any such
contracts or options remaining unexercised at the end of the Fund's taxable
year will be treated as sold for their then fair market value, resulting in
additional gain or loss to such Fund characterized in the manner described
above.
Offsetting positions held by a Fund involving certain foreign currency
forward contracts or options may constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal
property. The tax treatment of "straddles" is governed by Sections 1092
and 1258 of the Code, which, in certain circumstances, overrides or
modifies the provisions of Sections 1256 and 988 of the Code. As such, all
or a portion of any short or long-term capital gain from certain "straddle"
transactions may be recharacterized to ordinary income.
If a Fund were treated as entering into "straddles" by reason of its
engaging in certain forward contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the forward
contracts or options transactions comprising a part of such "straddles"
were governed by Section 1256 of the Code. A Fund may make one or more
elections with respect to "mixed straddles." Depending on which election
is made, if any, the results to the Fund may differ. If no election is
made, to the extent the "straddle" and conversion transaction rules apply
to positions established by the Fund, losses realized by the Fund will be
deferred to the extent of unrealized gain in the offsetting position.
Moreover, as a result of the "straddle" and conversion transaction rules,
short-term capital loss on "straddle" positions may be recharacterized as
long-term capital loss, and long-term capital gains may be treated as
short-term capital gains or ordinary income.
Investment by a Fund in securities issued or acquired at a discount,
or providing for deferred interest or for payment of interest in the form
of additional obligations could under special tax rules affect the amount,
timing and character of distributions to shareholders by causing the Fund
to recognize income prior to the receipt of cash payments. For example,
the Fund could be required to accrue a portion of the discount (or deemed
discount) at which the securities were issued each year and to distribute
such income in order to maintain its qualification as a regulated
investment company. In such case, the Fund may have to dispose of
securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
PORTFOLIO TRANSACTIONS
The Manager assumes general supervision over placing orders on behalf
of the Company for the purchase or sale of portfolio securities.
Allocation of brokerage transactions, including their frequency, is made in
the best judgment of the Manager and in a manner deemed fair and reasonable
to shareholders. The primary consideration is prompt execution of orders
at the most favorable net price. Subject to this consideration, the
brokers selected will include those that supplement the Manager's research
facilities with statistical data, investment information, economic facts
and opinions. Information so received is in addition to and not in lieu of
services required to be performed by the Manager and the Manager's fees are
not reduced as a consequence of the receipt of such supplemental
information. Such information may be useful to the Manager in serving both
the Company and other funds which it advises and, conversely, supplemental
information obtained by the placement of business of other clients may be
useful to the Manager in carrying out its obligations to the Company.
Sales of Fund shares by a broker may be taken into consideration, and
brokers also will be selected because of their ability to handle special
executions such as are involved in large block trades or broad
distributions, provided the primary consideration is met. Large block
trades may, in certain cases, result from two or more funds advised or
administered by the Manager being engaged simultaneously in the purchase or
sale of the same security. Certain of the Funds' transactions in
securities of foreign issuers may not benefit from the negotiated
commission rates available to the Funds for transactions in securities of
domestic issuers. When transactions are executed in the over-the-counter
market, each Fund will deal with the primary market makers unless a more
favorable price or execution otherwise is obtainable. Foreign exchange
transactions are made with banks or institutions in the interbank market at
prices reflecting a mark-up or mark-down and/or commission.
Portfolio turnover may vary from year to year as well as within a
year. High turnover rates are likely to result in greater brokerage
expenses. The overall reasonableness of brokerage commissions paid is
evaluated by the Manager based upon its knowledge of available information
as to the general level of commissions paid by other institutional
investors for comparable services.
For the period August 18, 1992 (commencement of operations) through
July 31, 1993 and for the fiscal years ended July 31, 1994 and 1995, no
brokerage commissions were paid by Dreyfus Short Term Income Fund. Gross
spreads and concessions on principal transactions which were determinable
amounted to $72,750, $31,500 and $432,313 for the same periods, none of
which were paid to the Distributor.
The increase in the gross spreads and commissions on principal
transactions paid by Dreyfus Short Term Income Fund and the increase in
such Fund's portfolio turnover rate from 75% to 512% for the fiscal year
ended July 31, 1995 was caused primarily by the Manager's response to the
increase in interest rates during the fiscal year. The Manager sought to
sell certain portfolio securities and subsequently purchase similar
securities at a lower price. As the spreads on the securities sold and
repurchased widened, the Fund's sale and repurchase of these securities
caused it to incur greater gross spreads and commissions on principal
transactions.
PERFORMANCE INFORMATION
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "Performance
Information."
Dreyfus Intermediate Term Income Fund had not commenced operations as
of the date of the financials. Accordingly, no performance information is
available for such Fund.
Dreyfus Short Term Income Fund's current yield for the 30-day period
ended July 31, 1995 was 5.65%, which reflects the absorption of certain
expenses pursuant to expense limitations in effect. See "Management of the
Funds" in the Prospectus. Had certain expenses not been absorbed, current
yield for the same period would have been 5.51%. Current yield is computed
pursuant to a formula which operates as follows: the amount of the Fund's
expenses accrued for the 30-day period (net of reimbursements) is
subtracted from the amount of the dividends and interest earned (computed
in accordance with regulatory requirements) by the Fund during the period.
That result is then divided by the product of: (a) the average daily number
of shares outstanding during the period that were entitled to receive
dividends, and (b) the net asset value per share on the last day of the
period less any undistributed earned income per share reasonably expected
to be declared as a dividend shortly thereafter. The quotient is then
added to 1, and that sum is raised to the 6th power, after which 1 is
subtracted. The current yield is then arrived at by multiplying the result
by 2.
Dreyfus Short Term Income Fund's average annual return for the 1 and
2.953 year periods ended July 31, 1995 was 7.05% and 5.68%, respectively.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial
investment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
Dreyfus Short Term Income Fund's total return for the period August
18, 1992 (commencement of operations) through July 31, 1995 was 17.72%.
Total return is calculated by subtracting the amount of the Fund's net
asset value per share at the beginning of a stated period from the net
asset value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period), and
dividing the result by the net asset value per share at the beginning of
the period.
From time to time, the Company may compare a Fund's performance with
the performance of other instruments, such as certificates of deposit and
FDIC-insured bank money market accounts.
INFORMATION ABOUT THE FUNDS
The following information supplements and should be read in
conjunction with the section in the Funds' Prospectus entitled "General
Information."
Each Fund share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and
non-assessable. Fund shares are of one class and have equal rights as to
dividends and in liquidation. Shares have no preemptive, subscription or
conversion rights and are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an
investment company, such as the Company, will not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series affected by such matter. Rule 18f-2
further provides that a series shall be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical or that the matter does not affect any interest of such series.
The Rule exempts the selection of independent accountants and the election
of Board members from the separate voting requirements of the Rule.
Each Fund will send annual and semi-annual financial statements to all
its shareholders.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN, COUNSEL
AND INDEPENDENT AUDITORS
Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, P.O.
Box 9671, Providence, Rhode Island 02940-9671, is the Company's transfer
and dividend disbursing agent. Under a transfer agency agreement with the
Company, the Transfer Agent arranges for the maintenance of shareholder
account records for each Fund, the handling of certain communications
between shareholders and the Company and the payment of dividends and
distributions payable by a Fund. For these services, the Transfer Agent
receives a monthly fee computed on the basis of the number of shareholder
accounts it maintains for the Company during the month, and is reimbursed
for certain out-of-pocket expenses. The Bank of New York, 90 Washington
Street, New York, New York 10286, is the Company's custodian. Neither the
Transfer Agent nor The Bank of New York has any part in determining the
investment policies of a Fund or which securities are to be purchased or
sold by a Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004-2696, as counsel for the Company, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of
the shares being sold pursuant to the Funds' Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Company.
APPENDIX
Description of certain ratings assigned by S&P, Moody's, Fitch and
Duff:
S&P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default,
and are dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, they
are not likely to have the capacity to pay interest and repay principal.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within
the major rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted with a plus sign (+) designation.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category
[and in the categories below B]. The modifier 1 indicates a ranking for
the security in the higher end of a rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking in
the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will be
evidenced by leading market positions in well established industries, high
rates of return on funds employed, conservative capitalization structures
with moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor, as
well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if
not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the
category.
B
Bonds rated B are below investment grade and possess the risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in quality rating
within this category or into a higher or lower quality rating grade.
CCC
Bond rated CCC are well below investment grade securities. Such bonds
may be in default or have considerable uncertainty as to timely payment of
interest, preferred dividends and/or principal. Protection factors are
narrow and risk can be substantial with unfavorable economic or industry
conditions and/or with unfavorable company developments.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating
category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by
ample asset protection. Risk factors are minor.
<TABLE>
<CAPTION>
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF INVESTMENTS JULY 31, 1995
PRINCIPAL
BONDS AND NOTES-99.0% AMOUNT VALUE
------------------- ----------------
<S> <C> <C>
BANKING-3.7%............ Capital One Bank,
Notes, 8 1/8%, 2000......................... $ 5,000,000 $ 5,207,925
Chemical Banking,
Sub. Notes, 10 3/8%, 1999................... 2,300,000 2,564,068
--------------
7,771,993
--------------
BROKERAGE-1.4%.......... Bear Stearns Cos.,
Sr. Notes, 5 7/8%, 1996..................... 3,000,000 2,995,812
--------------
CONSUMER-9.6%........... Bass America,
Gtd. Notes, 6 3/4%, 1999.................... 1,000,000 1,006,224
Coca-Cola Enterprises,
Notes, 6 1/2%, 1997......................... 6,100,000 6,133,172
Federal Express,
Sr. Notes, 9 3/4%, 1996..................... 1,000,000 1,026,654
IBM,
Notes, 6 3/8%, 1997......................... 5,000,000 5,019,680
PepsiCo,
Notes, 7%, 1996............................. 5,000,000 5,052,015
Safeway,
Sr. Medium-Term Notes, Ser. B, 8.07%, 1997.. 2,000,000(a) 2,033,660
--------------
20,271,405
--------------
ENTERTAINMENT-4.9%...... Time Warner,
Notes, 7.95%, 2000.......................... 5,000,000 5,114,650
Walt Disney,
Notes, 8%, 1997............................. 5,000,000 5,250,000
--------------
10,364,650
--------------
FINANCE-21.7%........... Fleet Financial Group,
Sr. Notes, 7 1/8%, 2000..................... 5,000,000 5,081,720
GATX Capital,
Medium-Term Notes, Ser. C, 10%, 1996........ 5,000,000 5,071,340
General Electric Capital,
Medium-Term Notes, Ser. A, 7 1/2%, 1998..... 10,000,000 10,307,050
General Motors Acceptance,
Medium-Term Notes, 7.35%, 1997.............. 8,050,000 8,181,706
International Lease Finance,
Medium-Term Notes, Ser. E, 6.47%, 1997...... 4,000,000 4,016,456
SAFECO,
Notes, 10 3/4%, 1995......................... 3,500,000 3,518,438
USL Capital,
Sr. Notes, 8 1/8%, 2000...................... 5,000,000 5,264,655
U. S. Leasing International,
Sr. Notes, 8 3/4%, 2001..................... 3,800,000 4,149,091
--------------
45,590,456
--------------
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
--------------- ----------------
INDUSTRIAL-25.0% Alco Capital Resource, Medium-Term Notes:
Ser. A, 8.04%, 1997......................... $ 5,000,000 $ 5,141,390
Ser. A, 6.99%, 2000......................... 3,000,000 3,023,475
Caterpillar Financial Services,
Medium-Term Notes, Ser. E, 8.16%, 1999...... 10,000,000 10,484,820
Deere & Co.,
Notes, 8 1/4%, 1996......................... 3,600,000 3,663,976
Ingersoll-Rand, Medium-Term Notes:
Ser. A, 6.24%, 1997......................... 5,000,000 5,002,150
Ser. A, 6.42%, 1998.......................... 9,000,000 9,000,900
John Deere Capital, Medium-Term Notes:
Ser. B, 7.37%, 2000......................... 5,000,000 5,144,400
Ser. B, 7.91%, 2000.......................... 5,750,000 6,032,906
PACCAR Financial,
Medium-Term Notes, Ser. F, 7.20%, 1999...... 5,000,000 5,105,695
--------------
52,599,712
--------------
INSURANCE-7.9% Associates Corp. of North America,
Medium-Term Sr. Notes:
Ser. G, 7.05%, 1997......................... 6,205,000 6,289,220
Ser. G, 7 5/8%, 2000........................ 5,350,000 5,543,354
SunAmerica,
Medium-Term Notes, 6.26%, 2001............. 5,000,000 4,844,800
--------------
16,677,374
--------------
TRANSPORTATION-4.9%..... FINOVA Capital,
Notes, 8%, 2000............................. 5,000,000 5,225,285
Ryder System,
Medium-Term Notes, Ser. 10, 7 3/4%, 1996.... 5,000,000 5,068,960
--------------
10,294,245
--------------
FOREIGN/
GOVERNMENTAL-6.6%.... Canada Government Bonds,
6 1/2%, 2000................................ 10,000,000 10,052,000
Ford Motor Credit,
Medium-Term Notes, 10 3/8%, 1996............ 3,656,307(b) 3,759,780
--------------
13,811,780
--------------
U.S. GOVERNMENT Federal Home Loan Banks, Consolidated Bonds:
AND AGENCIES-13.3%...... Ser. PL, 5.84%, 6/22/1998................... 9,000,000 8,926,875
5.77%, 6/29/1998............................ 5,000,000 4,951,565
U.S. Treasury Notes:
9 1/4%, 1/15/1996........................... 10,750,000 10,916,292
8 7/8%, 11/15/1997.......................... 2,500,000 2,653,907
9 1/8%, 5/15/1999........................... 500,000 550,000
--------------
27,998,639
--------------
TOTAL BONDS AND NOTES
(cost $206,791,144)......................... $208,376,066
==============
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1995
PRINCIPAL
SHORT-TERM INVESTMENT-1.9% AMOUNT VALUE
---------------- ---------------
TIME DEPOSIT; Chemical Bank (London),
5 7/8%, 8/1/1995
(cost $4,062,000)............... $ 4,062,000 $ 4,062,000
==============
TOTAL INVESTMENTS (cost $210,853,144)........................................................... 100.9% $212,438,066
================ ==============
LIABILITIES, LESS CASH AND RECEIVABLES (.9%) $ (1,914,024)
================ ==============
NET ASSETS...................................................................................... 100.0% $210,524,042
================ ==============
NOTES TO STATEMENT OF INVESTMENTS:
(a) Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At
July 31, 1995, these securities amounted to $2,033,660 or 1.0% of net
assets.
(b) Denominated in Canadian Dollars.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1995
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $210,853,144)-see statement..................................... $212,438,066
Cash.................................................................... 709,588
Interest receivable..................................................... 4,006,535
Receivable for subscriptions to Common Stock............................ 1,000
Prepaid expenses ....................................................... 43,383
---------------
217,198,572
LIABILITIES:
Due to The Dreyfus Corporation.......................................... $ 98,841
Due to Distributor...................................................... 2,493
Payable for investment securities purchased............................. 5,000,000
Dividends Payable....................................................... 1,174,412
Payable for Common Stock redeemed....................................... 313,244
Accrued expenses........................................................ 85,540 6,674,530
--------------- ---------------
NET ASSETS.................................................................. $210,524,042
===============
REPRESENTED BY:
Paid-in capital......................................................... $225,544,579
Accumulated undistributed investment income-net......................... 110,728
Accumulated net realized (loss) on investments.......................... (16,716,187)
Accumulated net unrealized appreciation on investments-Note 3........... 1,584,922
---------------
NET ASSETS at value applicable to 17,710,612 shares outstanding
(500 million shares of $.001 par value Common Stock authorized)......... $210,524,042
===============
NET ASSET VALUE, offering and redemption price per share
($210,524,042 / 17,710,612 shares)...................................... $11.89
========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 18,200,290
EXPENSES:
Management fee-Note 2(a).............................................. $ 1,156,674
Shareholder servicing costs-Note 2(b)................................. 784,942
Prospectus and shareholders' reports-Note 2(b)........................ 62,336
Registration fees..................................................... 49,701
Custodian fees........................................................ 49,504
Professional fees..................................................... 29,808
Directors' fees and expenses-Note 2(c)................................ 29,610
Miscellaneous......................................................... 24,075
--------------
2,186,650
Less-reduction in management fee due to
undertakings-Note 2(a)............................................ 785,529
--------------
TOTAL EXPENSES.................................................. 1,401,121
--------------
INVESTMENT INCOME-NET........................................... 16,799,169
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments-Note 3............................... $(11,193,340)
Net unrealized appreciation on investments.............................. 9,381,794
--------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (1,811,546)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $14,987,623
==============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS SHORT-TERM INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
---------------------------------
1994 1995
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Investment income-net................................................... $ 19,445,054 $ 16,799,169
Net realized (loss) on investments...................................... (5,611,159) (11,193,340)
Net unrealized appreciation (depreciation) on investments for the year.. (8,144,668) 9,381,794
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 5,689,227 14,987,623
--------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net................................................... (19,394,002) (16,781,257)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 340,428,554 79,943,038
Dividends reinvested.................................................... 16,377,882 12,577,109
Cost of shares redeemed................................................. (271,809,975) (157,230,575)
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS..... 84,996,461 (64,710,428)
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........................... 71,291,686 (66,504,062)
NET ASSETS:
Beginning of year....................................................... 205,736,418 277,028,104
--------------- ---------------
End of year (including undistributed investment income--net: $92,816 in 1994
and $110,728 in 1995).................................................... $ 277,028,104 $ 210,524,042
=============== ===============
SHARES SHARES
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 27,511,855 6,812,455
Shares issued for dividends reinvested.................................. 1,337,198 1,071,488
Shares redeemed......................................................... (22,144,923) (13,377,953)
--------------- ---------------
NET INCREASE (DECREASE) IN SHARES OUTSTANDING......................... 6,704,130 (5,494,010)
=============== ===============
See notes to financial statements.
</TABLE>
DREYFUS SHORT-TERM INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Reference is made to page 5 of the Fund's Prospectus dated March 15, 1996.
See notes to financial statements.
DREYFUS SHORT-TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 ("Act")
as a non-diversified open-end management investment company. Dreyfus Service
Corporation, until August 24, 1994, acted as the distributor of the Fund's
shares, which are sold to the public without a sales load. Dreyfus Service
Corporation is a wholly-owned subsidiary of The Dreyfus Corporation
("Manager"). Effective August 24, 1994, the Manager became a direct
subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of FDI Distribution Services, Inc., a provider of mutual fund
administration services, which in turn is a wholly-owned subsidiary of FDI
Holdings, Inc., the parent company of which is Boston Institutional Group,
Inc.
(A) PORTFOLIO VALUATION: The Fund's investments (excluding short-term
investments and U.S. Government obligations) are valued each business day by
an independent pricing service ("Service") approved by the Board of
Directors. Investments for which quoted bid prices 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. Investments in U.S. Government obligations are
valued at the mean between quoted bid and asked prices. Investments
denominated in foreign currencies are translated to U.S. dollars at the
prevailing rates of exchange.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, including, where applicable, amortization of discount on investments,
is recognized on the accrual basis.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, 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 $9,958,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to July 31, 1995. The
carryover does not include net realized securities losses from November 1,
1994 through
DREYFUS SHORT-TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1995 which are treated, for Federal income tax purposes, as arising
in fiscal 1996. If not applied, the carryover expires in fiscal 2003.
NOTE 2-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .50 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Fund. The most stringent state expense limitation
applicable to the Fund presently requires reimbursement of expenses in any
full fiscal year that such expenses (exclusive of distribution expenses and
certain expenses as described above) exceed 2 1/2% of the first $30 million,
2% of the next $70 million and 1 1/2% of the excess over $100 million of the
average value of the Fund's net assets in accordance with California
"blue-sky" regulations. However, the Manager had undertaken from August 1,
1994 through July 13, 1995, to reduce the management fee paid by the Fund, to
the extent of the Fund's aggregate expenses (exclusive of certain expenses as
described above) exceeded specified annual percentages of the Fund's average
daily net assets. The Manager has currently undertaken from July 14, 1995
through September 30, 1995, or until such time as the net assets of the Fund
exceed $350 million, regardless of whether they remain at that level, to
reduce the management fee paid by, or reimburse such excess expenses of the
Fund, to the extent that the Fund's aggregate annual expenses (excluding
certain expenses as described above) exceed an annual rate of .80 of 1% of
the average daily value of the Fund's net assets. The reduction in management
fee, pursuant to the undertakings, amounted to $682,003 for the year ended
July 31, 1995.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) On August 4, 1994, Fund shareholders approved a revised Service Plan
(the "Plan") pursuant to Rule 12b-1 under the Act. Pursuant to the Plan,
effective August 24, 1994, the Fund (a) reimburses the Distributor for
payments to certain Service Agents for distributing the Fund's shares and
servicing shareholder accounts and (b) pays the Manager, Dreyfus Service
Corporation or any affiliate (collectively "Dreyfus") for advertising and
marketing relating to the Fund and servicing shareholders accounts, at an
aggregate annual rate of .20 of 1% of the value of the Fund's average daily
net assets. Each of the Distributor and Dreyfus may pay Service Agents (a
securities dealer, financial institution or other industry professional) a
fee in respect of the Fund's shares owned by shareholders with whom the
Service Agent has a servicing relationship or for whom the Service Agent is
the dealer or holder of record. Each of the Distributor and Dreyfus
determines the amounts to be paid to Service Agents to which it will make
payments and the basis on which such payments are made. The Plan also
separately provides for the Fund to bear the costs of preparing, printing and
distributing certain of the Fund's prospectuses and statements of additional
information and costs associated with implementing and operating the Plan,
not to exceed the greater of $100,000 or .005 of 1% of the Fund's average
daily net assets for any full fiscal year.
Prior to August 24, 1994, the Fund's Service Plan ("prior Service Plan")
provided that the Fund pay Dreyfus Service Corporation at an annual rate of
.20 of 1% of the value of the Fund's average daily net
DREYFUS SHORT-TERM INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
assets, for costs and expenses in connection with advertising, marketing and
distributing the Fund's shares and for servicing shareholder accounts.
Dreyfus Service Corporation made payments to one or more Service Agents based
on the value of the Fund's shares owned by clients of the Service Agent. The
prior Service Plan also separately provided for the Fund to bear the cost of
preparing, printing and distributing certain of the Fund's prospectuses and
statements of additional information and costs associated with implementing
and operating the Plan, not to exceed the greater of $100,000 or .005 of 1%
of the Fund's average daily net assets for any full fiscal year.
During the year ended July 31, 1995, $474,522 was chargeable to the Fund
pursuant to the Plan, of which $103,526 was waived by the Fund, and $43,686
was charged pursuant to the prior Service Plan.
(C) Prior to August 24, 1994, certain officers and directors of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each director who is not an "affiliated person"
receives an annual fee of $2,500 and an attendance fee of $625 per meeting.
The Chairman of the Board receives an additional 25% of such compensation.
NOTE 3-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of securities, other than
short-term securities, during the year ended July 31, 1995 amounted to
$1,104,174,462 and $1,172,464,010, respectively.
At July 31, 1995, accumulated net unrealized appreciation on investments
was $1,584,922 consisting of $2,853,893 gross unrealized appreciation and
$1,268,971 gross unrealized depreciation.
At July 31, 1995, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see
the Statement of Investments).
DREYFUS SHORT-TERM INCOME FUND, INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS SHORT-TERM INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Dreyfus Short-Term Income Fund, Inc., including the statement of investments,
as of July 31, 1995, 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 also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of July 31, 1995 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 the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Short-Term Income Fund, Inc. at July 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated years, in conformity with generally
accepted accounting principles.
Ernst & Young LLP (signature logo)
New York, New York
August 30, 1995
