DREYFUS INTERMEDIATE TERM INCOME FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus
Intermediate Term Income Fund, a Portfolio of Dreyfus Investment Grade Bond
Fund. From its inception on February 2, 1996 to July 31, 1996, your Fund
produced a total return, including bond price changes and interest income, of
1.51% per share.* Income dividends paid from net investment income of
approximately $.460 per share were paid representing an annualized
distribution rate per share of 7.59%.**
THE ECONOMY
Strong second-quarter growth, a tightening labor market and signs of
upward pressure on wages have, in the words of Chairman Alan Greenspan,
placed the Federal Reserve Board ("the Fed") in a state of "heightened
surveillance" regarding signs of potentially higher inflation. So far,
inflation reports have been benign. Through July 31, the Consumer Price Index
rose 3.0% for the preceding 12 months, generally consistent with its trend
over the past several years. Wholesale prices have been similarly well-behaved
while commodity prices have been in decline since early spring. As favorable
as these reports have been, the Fed looks deeper into the economy for signs
of strain that could result in increased inflation. Before the Fed began its
last round of interest rate increases in early 1994, there was little actual
evidence of inflation. Yet, concerned that a number of indicators suggested
that inflation could surge later on, the Federal Reserve had applied the
monetary brakes. (The last rise in the Federal Funds rate occurred on
February 1, 1995. Since then all of the moves by the Fed have been to lower
rates; the last reduction to 5.25% occurred on January 31, 1996.) Now it
seems that the Fed's attention is drawn once more to indications that
continued strong reports of job growth and rising wages may fuel unacceptable
increases in the rate of inflation. The investment markets have been
anticipating a Fed tightening.
Investor fears that the Fed would raise short-term interest rates
resulted in a rise in long-term interest rates of a full percentage point
since January. Ironically, this rise might have stayed the Fed's hand from
being more aggressive. The restraining effect of the rise on consumer
spending and housing, according to one growing view, may contribute to a
moderation of economic growth over the second half of the year. Yet, little
evidence of a potential slowdown has emerged so far. Higher mortgage rates
have not tempered growth in the housing market and construction starts of new
homes are at their highest level since April 1994. Retail sales growth
remains solid despite rises in consumer installment debt and credit card
delinquencies. On the manufacturing side of the economy, industrial
production continues to gain without any sign of strain to keep up with
demand. Capacity utilization (83.2% of potential output at midyear) remains
below the 85% level that most economists believe indicates a potential for
inflationary bottlenecks. Still, we remain alert to signs of inflationary
pressures that might trigger a rise in interest rates.
MARKET ENVIRONMENT
Since the Fund's inception date on February 2, 1996, interest rates have
been quite volatile. Five-year Treasury rates rapidly rose from 5.25% to
6.85% in June of 1996 and have subsequently declined to 6.35% as economic
growth has subsided. This volatility is likely to continue in the months
ahead as low unemployment and high industrial capacity utilization increase
the possibility of rising inflation and rising interest rates.
THE PORTFOLIO
Correctly anticipating the February rise in interest rates, we started
the portfolio with a relatively short effective duration; at the end of
February it stood at 3.66 years. We subsequently benefited by lengthening the
effective duration to 5.21 years as of July 31 as rates declined. We intend
to shorten the portfolio's effective duration to 4.9 years as we now believe
a stance closer to the Fund's benchmark is warranted.
Average portfolio quality of AA has been achieved by barbelling between
AAA- rated mortgages and Treasuries and lower quality corporate bonds. We
currently see little advantage in higher quality corporate bonds since there
is little yield premium over Treasuries to compensate for the additional
credit risk. We currently see the best value in Treasuries, Residential
Mortgages, Commercial Mortgages, and selective Foreign issuers.
Our primary goal is to produce as high a level of income as is consistent
with capital preservation. The high level of market volatility underscores
the need to maintain a disciplined long-term focus to achieve this objective.
Included in this report is a series of detailed statements about your
Fund's holdings and its financial condition. We hope they are informative.
Please know that we appreciate greatly your continued confidence in the Fund
and in The Dreyfus Corporation.
Very truly yours,
[Kevin M. McClintock signature logo]
Kevin M. McClintock
Director, Taxable Fixed Income Group
August 15, 1996
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
**Annualized distribution rate per share is based upon dividends per share
paid from net investment income during the period, divided by the net asset
value per share at the end of the period.
DREYFUS INTERMEDIATE TERM INCOME FUND JULY 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS INTERMEDIATE
TERM INCOME FUND AND THE MERRILL LYNCH DOMESTIC MASTER INDEX
[Exhibit A]
Dollars
$10,151
Dreyfus Intermediate Term Income Fund
$9,843
Merrill Lynch Domestic
Master Index*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
[Exhibit A]
ACTUAL AGGREGATE TOTAL RETURN
FROM INCEPTION (2/2/96)
TO JULY 31, 1996
__________
1.51%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Intermediate
Term Income Fund on 2/2/96 (Inception Date) to a $10,000 investment made in
the Merrill Lynch Domestic Master Index on that date. All dividends and
capital gain distributions are reinvested.
The Fund invests primarily in debt securities and securities with debt-like
characteristics of domestic and foreign issuers and maintains a
dollar-weighted average maturity ranging between five and ten years. The
Fund's performance shown in the line graph takes into account all applicable
fees and expenses. Unlike the Fund, the Merrill Lynch Domestic Master Index
is an unmanaged performance benchmark for portfolios that include U.S.
Government, mortgage and BBB or higher-rated corporate securities with
maturities greater than or equal to one year; corporate and Treasury securities
in the Index must have par amounts outstanding greater than or equal to $25
million and generic mortgage-backed securities, $200 million per coupon. The
Index does not take into account charges, fees and other expenses. Further
information relating to Fund performance, including expense reimbursements,
if applicable, is contained in the Financial Highlights section of the
Prospectus and elsewhere in this report.
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<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS JULY 31, 1996
PRINCIPAL
BONDS AND NOTES-97.3% AMOUNT VALUE
__________ _________
<S> <C> <C>
COMMERCIAL
MORTGAGE BACKED-6.4% G S Mortgage Securities Corp. II,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1996-PL, Cl. A-1, 7.02%, 2027... $ 247,368 $ 245,358
Structured Asset Securities,
Multiclass Pass-Through Ctfs., Ser. 1996-CFL:
..Cl. A-1C, 5.944%, 2028 200,000 192,570
.. Cl. B, 6.303%, 2028 200,000 190,156
___________
628,084
___________
ENERGY-16.2% DeepTech International,
Sr. Secured Notes, 12%, 2000......... 150,000 150,375
Dual Drilling,
Gtd. Sr. Sub. Notes, 9 7/8%, 2004.... 150,000 156,562
Global Marine,
Sr. Secured Notes, 12 3/4%, 1999..... 150,000 163,500
Louisiana Land & Exploration,
Deb., 7.65%, 2023.................... 200,000 191,687
Noble Drilling,
Sr. Notes, 9 1/4%, 2003.............. 150,000 152,250
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 7 1/4%, 1998.............. 500,000 495,646
Rowan Cos.,
Sr. Notes, 11 7/8%, 2001............. 250,000 269,375
___________
1,579,395
___________
FINANCE-1.0% Presidential Life,
Sr. Notes, 9 1/2%, 2000.............. 100,000 102,750
___________
FOREIGN-5.6% Corporacion Andina de Fomento,
Bonds, 7.10%, 2003................... 150,000 146,211
Zhuhai Highway Co. Ltd.,
Sr. Notes, Ser. A, 9 1/8%, 2006...... 400,000 (a) 397,928
___________
544,139
___________
FOREIGN/
GOVERNMENTAL-10.3% Hydro-Quebec, Medium-Term Notes
(Gtd. by the Province of Quebec),
Ser. B, 8.05%, 2006.................. 200,000 (b) 211,386
Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5.609%, 2000 118,540 (c) 111,540
Republic of Colombia,
Notes, 7 1/4%, 2004.................. 200,000 184,799
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1996
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
_________ _________
FOREIGN/
GOVERNMENTAL (CONTINUED) United Mexican States,
Floating Rate Notes, 7 11/16%, 2001.. $ 500,000(a,c,d) $ 498,875
___________
1,006,600
___________
RESIDENTIAL
MORTGAGE BACKED-18.0% Bear Stearns
Mortgage Pass-Through Ctfs.:
.... Ser. 1995, Cl. B4-11, 6.481%, 2010 336,581 (a) 247,282
.....Ser. 1995, Cl. B4-12, 7.40%, 2010 273,579 (a) 213,648
Chase Mortgage Finance,
Multi-Class Mortgage Pass-Through Ctfs.,
Ser. 1994-E, Cl. B5, 6 1/4%, 2010.... 181,586 (a) 130,743
GE Capital Mortgage Services,
REMIC Multi-Class Pass-Through Ctfs.,
Ser. 1994-21, Cl. B4, 6 1/2%, 2009... 306,081 (a) 224,683
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs.,
Ser. 1996-7, Cl. B2, 6 3/4%, 2011.... 248,389 227,509
Structured Asset Securities,
Mortgage Pass-Through Ctfs.,
Ser. GreenPoint 1996-A
Cl. B3, 8.441%, 2027................. 725,865 707,719
___________
1,751,584
___________
U.S. GOVERNMENT AGENCY/
MORTGAGE BACKED-9.8% Government National Mortgage Association I:
7%, 12/15/2008....................... 791,082 786,629
9%, 11/15/2017....................... 160,740 170,836
___________
957,465
___________
U.S. GOVERNMENTS-30.0% U.S. Treasury Bonds:
11 5/8%, 11/15/2004.................. 250,000 326,250
6 7/8%, 8/15/2025.................... 600,000 589,688
U.S. Treasury Notes:
6 5/8%, 6/30/2001.................... 700,000 701,641
6 7/8%, 5/15/2006.................... 1,300,000 1,308,328
___________
2,925,907
___________
TOTAL BONDS AND NOTES
(cost $9,530,774).................... $ 9,495,924
==============
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1996
PRINCIPAL
CONVERTIBLE SUBORDINATED NOTES-4.1% AMOUNT VALUE
_________ _________
ENERGY-2.2% Nabors Industries,
5%, 2006............................. $ 200,000 $ 212,500
___________
INDUSTRIAL-1.9% MagneTek,
8%, 2001............................. 200,000 189,500
___________
TOTAL CONVERTIBLE SUBORDINATED NOTES
(cost $394,715)...................... $ 402,000
==============
SHORT-TERM INVESTMENTS-1.5%
U.S. GOVERNMENT AGENCY; Federal Home Loan Banks,
5.57%, 8/1/1996
(cost $140,000)...................... $ 140,000 $ 140,000
==============
TOTAL INVESTMENTS (cost $10,065,489)....................... 102.9% $10,037,924
======= ==============
LIABILITIES, LESS CASH AND RECEIVABLES (2.9%) $ (282,216)
======= ==============
NET ASSETS.................................................................. 100.0% $ 9,755,708
======= ==============
NOTES TO STATEMENT OF INVESTMENTS:
(a) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At July 31, 1996, these securities amounted to $1,713,159 or
17.6% of of net assets.
(b) Reflects date security can be redeemed at holder's option; the
stated maturity date is 7/7/2024.
(c) Variable rate security-interest rate subject to periodic change.
(d) Purchased on a forward commitment basis.
See notes to financial statements.
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1996
ASSETS:
Investments in securities, at value
(cost $10,065,489)-see statement...................................... $10,037,924
Cash.................................................................... 1,324
Receivable for investment securities sold............................... 504,765
Interest receivable..................................................... 129,516
Prepaid expenses........................................................ 10,097
Due from The Dreyfus Corporation and affiliates......................... 9,169
____________
10,692,795
LIABILITIES:
Due to Distributor...................................................... $ 1,971
Payable for investment securities purchased............................. 895,428
Payable for Common Stock redeemed....................................... 2,500
Accrued expenses........................................................ 37,188 937,087
__________ ____________
NET ASSETS ................................................................ $ 9,755,708
=============
REPRESENTED BY:
Paid-in capital......................................................... $ 9,830,365
Accumulated undistributed investment income-net......................... 1,333
Accumulated net realized (loss) on investments.......................... (48,425)
Accumulated net unrealized (depreciation) on investments-Note 4......... (27,565)
____________
NET ASSETS at value applicable to 798,065 shares outstanding
(500 million shares of $.001 par value Common Stock authorized)......... $ 9,755,708
=============
NET ASSET VALUE, offering and redemption price per share
($9,755,708 / 798,064 shares)........................................... $12.22
=======
See notes to financial statements.
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF OPERATIONS
FROM FEBRUARY 2, 1996 (COMMENCEMENT OF OPERATIONS) TO JULY 31, 1996
INVESTMENT INCOME:
INTEREST INCOME......................................................... $259,467
EXPENSES:
Management fee-Note 3(a).............................................. $ 25,206
Legal fees............................................................ 72,581
Shareholder servicing costs-Note 3(b)................................. 12,390
Auditing fees......................................................... 12,000
Registration fees..................................................... 5,763
Custodian fees-Note 3(b).............................................. 2,880
Prospectus and shareholders' reports.................................. 1,229
Directors' fees and expenses-Note 3(c)................................ 607
Miscellaneous......................................................... 1,423
_________
TOTAL EXPENSES.................................................. 134,079
Less-expense reimbursement from Manager
due to undertaking-Note 3(a)...................................... 134,079
_________
NET EXPENSES.................................................... _
________
INVESTMENT INCOME-NET........................................... 259,467
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS-Note 4:
Net realized (loss) on investments...................................... $ (48,425)
Net unrealized (depreciation) on investments............................ (27,565)
___________
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (75,990)
________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $183,477
========
See notes to financial statements.
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
FROM FEBRUARY 2, 1996 (COMMENCEMENT OF OPERATIONS) TO JULY 31, 1996
OPERATIONS:
Investment income-net.................................................................... $ 259,467
Net realized (loss) on investments....................................................... (48,425)
Net unrealized (depreciation) on investments for the period.............................. (27,565)
__________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 183,477
__________
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net.................................................................... (258,134)
__________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................................ 10,556,104
Dividends reinvested..................................................................... 226,755
Cost of shares redeemed.................................................................. (952,494)
__________
INCREASE IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS................................. 9,830,365
__________
TOTAL INCREASE IN NET ASSETS....................................................... 9,755,708
NET ASSETS:
Beginning of period...................................................................... --
__________
End of period (including undistributed investment income-net of $1,333
on July 31, 1996)...................................................................... $ 9,755,708
==============
SHARES
_________
CAPITAL SHARE TRANSACTIONS:
Shares sold.............................................................................. 858,167
Shares issued for dividends reinvested................................................... 18,607
Shares redeemed.......................................................................... (78,709)
__________
NET INCREASE IN SHARES OUTSTANDING..................................................... 798,065
==============
See notes to financial statements.
DREYFUS INTERMEDIATE TERM INCOME FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for the period from February 2, 1996
(commencement of operations) to July 31, 1996. This information has been
derived from the Fund's financial statements.
PER SHARE DATA:
Net asset value, beginning of period.................................................... $12.50
_______
INVESTMENT OPERATIONS:
Investment income-net................................................................... .46
Net realized and unrealized (loss) on investments....................................... (.28)
_______
TOTAL FROM INVESTMENT OPERATIONS...................................................... .18
_______
DISTRIBUTIONS;
Dividends from investment income-net.................................................... (.46)
_______
Net asset value, end of period.......................................................... $12.22
========
TOTAL INVESTMENT RETURN..................................................................... 3.05%(1)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................................................. .-
Ratio of net investment income to average net assets.................................... 7.70%(1)
Decrease reflected in above expense ratio due to
undertaking by the Manager (limited to the expense limitation
provision of the management agreement)................................................ 2.50%(1)
Portfolio Turnover Rate................................................................. 139.38%(2)
Net Assets, end of period (000's omitted)............................................... $9,756
(1) Annualized.
(2) Not annualized.
See notes to financial statements.
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DREYFUS INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
The Dreyfus Investment Grade Bond Funds, Inc. (the "Company") is
registered under the Investment Company Act of 1940 ("Act") as an open-end
management investment company and operates as a series company currently
offering two funds, including Dreyfus Intermediate Term Income Fund (the
"Fund"). The Fund is a diversified series. The Fund's investment objective is
to provide investors with as high a level of current income as is consistent
with the preservation of capital. The Dreyfus Corporation ("Manager") serves
as the Fund's investment adviser. The Manager is a direct subsidiary of
Mellon Bank, N.A. ("Mellon"). Premier Mutual Fund Services, Inc. (the
"Distributor") acts as the distributor of the Fund's shares, which are sold
to the public without a sales charge.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: 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. Securities for which there are no such
valuations are valued at fair value as determined in good faith under the
direction of the Board of Directors. Investments in U.S. Government
obligations are valued at the mean between quoted bid and asked prices.
Short-term investments are carried at amortized cost, which approximates
value. 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, if any, are normally declared and
paid annually, but the Fund may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
DREYFUS INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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 $48,400
available for Federal income tax purposes to be applied against future net
securities profits, if any realized subsequent to July 31, 1996. If not
applied, the carryover expires in fiscal 2004.
NOTE 2-BANK LINE OF CREDIT:
The Fund participates with other Dreyfus-managed Funds in a $100 million
unsecured line of credit primarily to be utilized for temporary or emergency
purposes, including the financing of redemptions. Interest is charged to the
Fund at rates which are related to the Federal Funds rate in effect at the
time of borrowings. For the period ending July 31, 1996 the Fund did not
borrow under the line of credit.
NOTE 3-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 .75 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 certain expenses as
described above) exceed 21\2% of the first $30 million, 2% of the next $70
million and 11\2% of the excess over $100 million of the average value of the
Fund's net assets in accordance with California "blue-sky" regulations. The
Manager has undertaken from February 2, 1996 through September 30, 1996, to
reimburse all fees and expenses of the Fund (exclusive of certain expenses as
described above). The expense reimbursement, pursuant to the undertaking,
amounted to $134,079 for the period ended July 31, 1996.
The undertaking may be extended, modified or terminated by the Manager,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) Pursuant to the Fund's Shareholder Services Plan, the Fund pays the
Distributor at the annual rate of .25 of 1% of the value of the Fund's
average daily net assets for the provision of certain services. The services
provided may include personal services relating to shareholder accounts, such
as answering shareholder inquiries regarding the Fund and providing reports
and other information, and services related to the maintenance of shareholder
accounts. The Distributor may make payments to Service Agents (a securities
dealer, financial institution or other industry professional) in respect of
these services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended July 31, 1996, the Fund was charged $8,402
pursuant to the Shareholder Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such
compensation amounted to $785 for the period ended July 31, 1996.
DREYFUS INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective May 10, 1996, the Fund entered into a custody agreement with
Mellon to provide custodial services for the Fund. For
the period from May 10, 1996 through July 31, 1996, $1,532 was paid to Mellon
pursuant to the custody agreement.
(C) Each director who is not an "affiliated person," as defined in the
Act receives from the Company an annual fee of $2,500 and an attendance fee
of $625 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 4-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended July 31, 1996
amounted to $17,778,486 and $7,812,091, respectively.
At July 31, 1996, accumulated net unrealized depreciation on investments
was $27,565, consisting of $93,373 gross unrealized appreciation and $120,938
gross unrealized depreciation.
At July 31, 1996, 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 INTERMEDIATE TERM INCOME FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS INTERMEDIATE TERM INCOME FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Intermediate Term Income
Fund (one of the series constituting Dreyfus Investment Grade Bond Funds,
Inc.) as of July 31, 1996, and the related statements of operations and
changes in net assets and financial highlights for the period from February
2, 1996 (commencement of operations) to July 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included verification by
examination of securities held by the custodian as of July 31, 1996 and
confirmation of securities not held by the custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 Intermediate Term Income Fund at July 31, 1996, and the
results of its operations, the changes in its net assets and the financial
highlights for the period from February 2, 1996 to July 31, 1996, in
conformity with generally accepted accounting principles.
[Ernst & Young LLP signature logo]
New York, New York
August 27, 1996
[Dreyfus lion "d" logo]
DREYFUS INTERMEDIATE TERM INCOME FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 082AR967
[Dreyfus logo]
Dreyfus
Intermediate Term
Income Fund
Annual Report
July 31, 1996
DREYFUS SHORT TERM INCOME FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus Short Term
Income Fund, a Portfolio of Dreyfus Investment Grade Bond Funds, Inc. For its
annual reporting period ended July 31, 1996, your Fund produced a total
return, including bond price changes and interest income, of 6.42% per
share.* Income dividends paid from net investment income of approximately
$.775 per share were paid representing an annualized distribution rate per
share of 6.51%.** The Fund currently has a five-star rating from Morningstar
overall and for the three-year period ended July 31, 1996*** and is in the
top 10% of its Lipper category for one year and since its inception date of
8/18/92.****
THE ECONOMY
Strong second-quarter growth, a tightening labor market and signs of
upward pressure on wages have, in the words of Chairman Alan Greenspan,
placed the Federal Reserve Board (the "Fed") in a state of "heightened
surveillance" regarding signs of potentially higher inflation. So far,
inflation reports have been benign. Through July 31, the Consumer Price Index
rose 3.0% for the preceding 12 months, generally consistent with its trend
over the past several years. Wholesale prices have been similarly well-behaved
while commodity prices have been in decline since early spring. As favorable
as these reports have been, the Fed looks deeper into the economy for signs
of strain that could result in increased inflation. Before the Fed began its
last round of interest rate increases in early 1994, there was little actual
evidence of inflation. Yet, concerned that a number of indicators suggested
that inflation could surge later on, the Federal Reserve had applied the
monetary brakes. Now it seems that the Fed's attention is drawn to
indications that continued strong reports of job growth and rising wages may
fuel unacceptable increases in the rate of inflation. The investment markets
have been anticipating a Fed tightening. (The last rise in the Federal Funds
rate occurred on February 1, 1995. Since then all of the moves by the Fed
have been to lower rates; the last reduction to 5.25% occurred on January 31,
1996.)
Investor fears that the Fed would raise short-term interest rates
resulted in a rise in long-term interest rates of a full percentage point
since January. Ironically, this rise might have stayed the Fed's hand from
being more aggressive. The restraining effect of the rise on consumer
spending and housing, according to one growing view, may contribute to a
moderation of economic growth over the second half of the year. Yet, little
evidence of a potential slowdown has emerged so far. Higher mortgage rates
have not tempered growth in the housing market and construction starts of new
homes are at their highest level since April 1994. Retail sales growth
remains solid despite rises in consumer installment debt and credit card
delinquencies. On the manufacturing side of the economy, industrial
production continues to gain without any sign of strain to keep up with
demand. Capacity utilization (83.2% of potential output at midyear) remains
below the 85% level that most economists believe indicates a potential for
inflationary bottlenecks. Still, we remain alert to signs of inflationary
pressures that might trigger a rise in interest rates.
MARKET ENVIRONMENT
Interest rates have been quite volatile as a result of the aforementioned
economic environment and that volatility has been further magnified by swings
in bond market participants' sentiment. Two-year Treasury interest rates on
July 31, 1995 were at 5.85% and fell to 4.80% in February of 1996 as economic
growth slowed and the Federal Funds rate target was lowered to 5.25%.
Subsequently, two-year Treasury rates rose to 6.40% in July of 1996 as
economic growth resumed and market participants began to expect increases in
the Fed Funds rate. The two-year Treasury rate currently stands at 6.00%.
THE PORTFOLIO
As you know from our previous letter, for the period ending January 31,
1996, we had lengthened the portfolio toward its maximum effective duration
of 3.0 years and so benefited from declining interest rates. We also
correctly anticipated the subsequent rise in interest rates and shortened the
average effective duration to less than 1.9 years during the months of
February and March. We feel it is now prudent to target an interest rate
stance closer to our benchmark than these, and therefore the Fund's current
effective duration is approximately 2.1 years.
The last time we wrote you the Fund's average credit quality was A and it
currently is A. However, the Fund has achieved this average by barbelling
credit quality, concentrating on both higher and lower quality issuers. The
Fund has benefited from this repositioning since economic strength in the
second quarter of 1996 helped the lower quality corporates more than the
higher quality corporates. Currently we see little advantage in high quality
short-term corporates as there is little additional yield compensation over
Treasuries for the additional credit risk. We currently prefer to own
Treasuries, short-term mortgage-backed securities, and lower quality
corporates which all have a more attractive risk/return profile than higher
quality corporates. At the moment, we are most heavily concentrated in
Energy, Entertainment, Government Mortgage Securities and U.S. Treasury
issues.
As always, our primary task is to earn as high a level of current income
as is consistent with preservation of capital. The high level of current
market volatility underscores the need to maintain a disciplined long-term
focus to achieve the objective.
Included in this report is a series of detailed statements about your
Fund's holdings and its financial condition. We hope they are informative.
Please know that we appreciate greatly your continued confidence in the Fund
and in The Dreyfus Corporation.
Very truly yours,
[Kevin M. McClintock signature logo]
Kevin M. McClintock
Director, Taxable Fixed Income Group
August 15, 1996
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
**Annualized distribution rate per share is based upon dividends per share
paid from net investment income during the period, divided by the net asset
value per share at the end of the period.
*** SOURCE: MORNINGSTAR, INC. - Morningstar proprietary ratings reflect
historical risk-adjusted performance through 7/31/96. The ratings are subject
to change every month. Funds with at least three years of performance history
are assigned ratings from one star (lowest) to five stars (highest). 10% of
funds in an investment category receive 5 stars; 22.5% receive 4 stars. The
Fund received five stars among 898 fixed-income funds rated for the
three-year period, and four stars among 1,484 funds rated for the one-year
period.
**** SOURCE: LIPPER ANALYTICAL SERVICES, INC. - The Fund ranked seventh of
95 funds for the one-year period and sixth of 58 funds for the three-year
period ended 7/31/96; it ranked third of 34 funds for the period 8/31/92 -
7/31/96. The date 8/31/92 was used for the Fund's actual inception date,
8/18/92, since Lipper rankings are for the month's end.
DREYFUS SHORT TERM INCOME FUND JULY 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS SHORT TERM
INCOME FUND AND
THE MERRILL LYNCH CORPORATE AND GOVERNMENT MASTER INDEX
[Exhibit A:
Dollars
$12,528
Dreyfus Short Term
Income Fund
$12,305
Merrill Lynch Corporate
and Government
Master Index*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.]
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FROM INCEPTION (8/18/92)
JULY 31, 1996 TO JULY 31, 1996
__________ _____________
6.42% 5.87%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Short Term
Income Fund on 8/18/92 (Inception Date) to a $10,000 investment made in the
Merrill Lynch Corporate and Government Master Index on that date. All
dividends and capital gain distributions are reinvested.
The Fund invests primarily in debt securities and securities with debt-like
characteristics of domestic and foreign issuers and maintains a
dollar-weighted average maturity of three years or less. The Fund's
performance shown in the line graph takes into account all applicable fees
and expenses. Unlike the Fund, the Merrill Lynch Corporate and Government
Master Index is an unmanaged performance benchmark for investment grade
corporate securities and government securities with maturities greater than
or equal to one year, but no longer than 4.99 years; issues in the Index must
have par amounts outstanding greater than or equal to $25 million. The Index
does not take into account charges, fees and other expenses. Further
information relating to Fund performance, including expense reimbursements,
if applicable, is contained in the Financial Highlights section of the
Prospectus and elsewhere in this report.
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS JULY 31, 1996
PRINCIPAL
BONDS AND NOTES-97.4% AMOUNT VALUE
_______ _______
<S> <C> <C>
AIRCRAFT & AEROSPACE-2.6% K & F Industries,
Sr. Sub. Deb., 13 3/4%, 2001.... $ 3,900,000 $ 4,031,625
RHI Holdings,
Sr. Sub. Deb., 11 7/8%, 1999.... 1,000,000 995,000
______
5,026,625
______
BANKING-1.3% Chase Manhattan,
Sub. Notes, 10 3/8%, 1999....... 2,300,000 2,500,641
______
CHEMICALS-.6% Arcadian Partner,
Sr. Notes, 10 3/4%, 2005........ 1,000,000 1,082,500
______
COMMERCIAL
MORTGAGE BACKED-2.7% Structured Asset Securities,
Multiclass Pass-Through Ctfs., Ser. 1996-CFL,
Cl. A-1A, 5.711%, 2028.......... 5,263,357 5,199,882
______
COMPUTER-.6% Unisys,
Notes, 15%, 1997................ 1,000,000 1,060,000
______
CONSUMER-6.4% Nabisco,
Notes, 8%, 2000................. 5,000,000 5,160,390
Safeway,
Sr. Medium-Term Notes, Ser. B,
8.07%, 1997 2,000,000 (a) 2,013,620
SUPERVALU,
Medium-Term Notes, Ser. B, 6.09%, 1998 5,000,000 4,935,275
______
12,109,285
______
ENERGY-15.1% Dual Drilling,
Gtd. Sr. Sub. Notes, 9 7/8%, 2004 2,750,000 2,870,312
Global Marine,
Sr. Secured Notes, 12 3/4%, 1999 3,495,000 3,809,550
Noble Drilling,
Sr. Notes, 9 1/4%, 2003......... 1,345,000 1,365,175
Nuevo Energy,
Sr. Sub. Notes, 12 1/2%, 2002... 5,000,000 5,368,750
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 7 1/4%, 1998......... 6,500,000 6,443,391
Rowan Cos.,
Sr. Notes, 11 7/8%, 2001........ 8,070,000 8,695,425
______
28,552,603
______
ENTERTAINMENT-13.8% GNF,
First Mortgage Notes,
Ser. B, 10 5/8%, 2003........... 2,000,000 2,170,000
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1996
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
_______ _______
ENTERTAINMENT (CONTINUED) News America Holdings (Gtd. by News),
Sr. Notes:
...9 1/8%, 1999 $ 3,650,000 $ 3,872,427
..7 1/2%, 2000 5,300,000 5,373,061
Tele-Communications,
Medium-Term Notes, 6.60%, 1998.. 5,000,000 4,971,870
Time Warner,
Notes, 7.95%, 2000.............. 5,000,000 5,109,545
Viacom,
Sr. Notes, 5 7/8%, 2000......... 5,000,000 4,718,865
______
26,215,768
______
FINANCE-9.2% AT&T Capital,
Medium-Term Notes:
..Ser. 3, 6.06%, 1997 5,000,000 4,984,880
..Ser. 2, 6.46%, 2000 5,000,000 4,911,245
Bear Stearns Cos.,
Medium-Term Notes, Ser. B, 6.05%, 1997 5,000,000 4,997,575
Fleet Financial Group,
Sr. Notes, 7 1/8%, 2000......... 2,500,000 2,519,095
______
17,412,795
______
FOREIGN-2.4% Petroleos Mexicanos,
Gtd. Notes, 8%, 1998............ 4,500,000 (a) 4,500,000
______
FOREIGN/
GOVERNMENTAL-6.2% Republic of Argentina (BOTE),
Floating Rate Notes,
Ser. 10, 5.609%, 2000........... 2,963,500 (b) 2,788,497
United Mexican States,
Floating Rate Notes, 7 11/16%, 2001 9,000,000 (a,b,c) 8,979,750
______
11,768,247
______
INDUSTRIAL-8.5% Alco Capital Resource,
Medium-Term Notes, Ser. A, 8.04%, 1997 5,000,000 5,066,790
American Standard,
Sr. Deb., 11 3/8%, 2004......... 6,000,000 6,540,000
Valassis Inserts,
Sr. Sub. Notes, 9 3/8%, 1999.... 4,500,000 4,564,575
______
16,171,365
______
INSURANCE-3.3% Associates Corp. of North America,
Sr. Medium-Term Notes,
Ser. G, 7.05%, 1997............. 6,205,000 6,251,860
______
TELECOMMUNICATIONS-5.5% Comcast Cellular,
Sr. Participating Redeemable Notes,
Ser. B, Zero Coupon, 1998....... 5,000,000 (d) 3,443,750
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1996
PRINCIPAL
BONDS AND NOTES (CONTINUED) AMOUNT VALUE
_______ _______
TELECOMMUNICATIONS
(CONTINUED) MCI Communications,
Sr. Medium-Term Notes, 6 1/4%, 1998 $ 5,000,000 $ 4,979,370
PanAmSat, L.P./Capital,
Sr. Secured Notes 9 3/4%, 2000.. 2,000,000 2,070,000
______
10,493,120
______
U.S. GOVERNMENT/
MORTGAGE BACKED-11.2% Federal National Mortgage Association,
7%, 9/1/2002-1/1/2003........... 4,502,695 4,480,182
Government National Mortgage Association I:
7%, 12/15/2008.................. 8,899,675 8,849,570
9%, 11/15/2017.................. 7,439,370 7,906,637
______
21,236,389
______
U.S. GOVERNMENTS-8.0% U.S. Treasury Notes:
7 3/8%, 11/15/1997.............. 5,000,000 5,080,469
6 5/8%, 6/30/2001............... 5,000,000 5,011,719
6 7/8%, 5/15/2006............... 5,000,000 5,032,032
______
15,124,220
______
TOTAL BONDS AND NOTES
(cost $185,462,896)............. $184,705,300
=======
CONVERTIBLE DEBENTURES-1.6%
ENERGY; Reading & Bates,
Deb., 4.878%, 1998
(cost $3,621,123)............... $ 3,321,000 $ 2,963,472
=======
SHORT-TERM INVESTMENTS-4.6%
TIME DEPOSIT; Chase Manhattan (London),
5 5/8%, 8/1/1996
(cost $8,788,000)............... $ 8,788,000 $ 8,788,000
=======
TOTAL INVESTMENTS (cost $197,872,019) ........................... 103.6% $196,456,772
====== =======
LIABILITIES, LESS CASH AND RECEIVABLES (3.6%) $ (6,763,993)
====== =======
NET ASSETS............................................................. 100.0% $189,692,779
====== =======
NOTES TO STATEMENT OF INVESTMENTS:
(a) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At
July 31, 1996, these securities amounted to $ 15, 493,370 or 8.2%
of net assets.
(b) Variable rate security - interest rate subject to periodic change.
(c) Purchased on a forward commitment basis.
(d) Reflects date security can be redeemed at holders' option; the stated
maturity date is 3/5/2000.
See notes to financial statements.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1996
ASSETS:
Investments in securities, at value
(cost $197,872,019)-see statement..................................... $196,456,772
Cash.................................................................... 276,018
Interest receivable..................................................... 3,440,738
Receivable for subscriptions to Common Stock............................ 7,453
Prepaid expenses and other assets....................................... 37,086
______
200,218,067
LIABILITIES:
Due to The Dreyfus Corporation and affiliates........................... $ 84,499
Due to Distributor...................................................... 31,900
Payable for investment securities purchased............................. 8,955,000
Dividends payable....................................................... 1,218,531
Payable for Common Stock redeemed....................................... 170,599
Accrued expenses........................................................ 64,759 10,525,288
______ ______
NET ASSETS ................................................................ $189,692,779
=======
REPRESENTED BY:
Paid-in capital......................................................... $204,914,441
Accumulated undistributed investment income-net......................... 199,718
Accumulated net realized (loss) on investments.......................... (14,006,133)
Accumulated net unrealized (depreciation) on investments-Note 4......... (1,415,247)
______
NET ASSETS at value applicable to 15,987,987 shares outstanding
(500 million shares of $.001 par value Common Stock authorized)......... $189,692,779
=======
NET ASSET VALUE, offering and redemption price per share
($189,692,779 / 15,987,987 shares)...................................... $11.86
=======
See notes to financial statements.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1996
INVESTMENT INCOME:
INTEREST INCOME......................................................... $14,359,317
EXPENSES:
Management fee-Note 3(a).............................................. $ 980,165
Shareholder servicing costs-Note 3(b)................................. 669,773
Professional fees..................................................... 46,926
Directors' fees and expenses-Note 3(c)................................ 34,443
Prospectus and shareholders' reports-Note 3(b)........................ 32,406
Custodian fees-Note 3(b).............................................. 31,700
Registration fees..................................................... 30,933
Miscellaneous......................................................... 20,301
_____
TOTAL EXPENSES.................................................... 1,846,647
Less-reduction in management fee due to undertaking-Note 3(a)......... 278,382
_____
NET EXPENSES...................................................... 1,568,265
______
INVESTMENT INCOME-NET............................................. 12,791,052
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS-Note 4:
Net realized gain on investments........................................ $ 2,710,054
Net unrealized (depreciation) on investments............................ (3,000,169)
_____
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS................. (290,115)
______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $12,500,937
======
See notes to financial statements.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
---------------------------------
1995 1996
-------- -------
OPERATIONS:
Investment income-net................................................... $ 16,799,169 $ 12,791,052
Net realized gain (loss) on investments................................. (11,193,340) 2,710,054
Net unrealized appreciation (depreciation) on investments for the year.. 9,381,794 (3,000,169)
_______ ______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. 14,987,623 12,500,937
_______ ______
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income-net................................................... (16,781,257) (12,702,062)
_______ ______
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold........................................... 79,943,038 56,656,362
Dividends reinvested.................................................... 12,577,109 10,171,199
Cost of shares redeemed................................................. (157,230,575) (87,457,699)
_______ ______
(DECREASE) IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS.............. (64,710,428) (20,630,138)
_______ ______
TOTAL (DECREASE) IN NET ASSETS.................................... (66,504,062) (20,831,263)
NET ASSETS:
Beginning of year....................................................... 277,028,104 210,524,042
_______ ______
End of year (including undistributed investment income-net:
$110,728 in 1995 and $199,718 in 1996)................................ $ 210,524,042 $ 189,692,779
======= ======
SHARES SHARES
_______ ______
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................. 6,812,455 4,749,405
Shares issued for dividends reinvested.................................. 1,071,488 851,625
Shares redeemed......................................................... (13,377,953) (7,323,655)
_______ ______
NET (DECREASE) IN SHARES OUTSTANDING.................................. (5,494,010) (1,722,625)
======= ======
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each year indicated. This information
has been derived from the Fund's financial statements.
YEAR ENDED JULY 31,
------------------------------------------------
PER SHARE DATA: 1993(1) 1994 1995 1996
---- ---- ----- -----
<S> <C> <C> <C> <C>
Net asset value, beginning of year....................... $12.50 $12.47 $11.94 $11.89
---- ---- ----- -----
INVESTMENT OPERATIONS:
Investment income-net.................................... .89 .84 .85 .78
Net realized and unrealized (loss) on investments........ (.01) (.54) (.05) (.04)
---- ---- ----- -----
TOTAL FROM INVESTMENT OPERATIONS....................... .88 .30 .80 .74
---- ---- ----- -----
DISTRIBUTIONS:
Dividends from investment income-net..................... (.89) (.83) (.85) (.77)
Dividends from net realized gain on investments.......... (.02) -- -- --
---- ---- ----- -----
TOTAL DISTRIBUTIONS.................................... (.91) (.83) (.85) (.77)
---- ---- ----- -----
Net asset value, end of year............................. $12.47 $11.94 $11.89 $11.86
=== === === ===
TOTAL INVESTMENT RETURN...................................... 7.68%(2) 2.47% 7.05% 6.42%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.................. -- .24% .61% .80%
Ratio of net investment income to average net assets..... 7.58%(2) 6.79% 7.26% 6.52%
Decrease reflected in above expense ratios due to undertakings
by the Manager......................................... 1.12%(2) .71% .34% .14%
Portfolio Turnover Rate.................................. 54.59%(3) 74.90% 511.62% 291.35%
Net Assets, end of year (000's Omitted).................. $205,736 $277,028 $210,524 $189,693
(1) From August 18, 1992 (commencement of operations) to July 31, 1993.
(2) Annualized.
(3) Not Annualized.
</TABLE>
See notes to financial statements.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Investment Grade Bond Funds, Inc. (the "Company") is registered
under the Investment Company Act of 1940 ("Act") as an open-end management
investment company and operates as a series company currently offering two
funds, including Dreyfus Short Term Income Fund (the "Fund"). The Fund is a
non-diversified series. The Fund's investment objective is to provide
investors with as high a level of current income as is consistent with the
preservation of capital. The Dreyfus Corporation ("Manager") serves as the
Fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank,
N.A. ("Mellon"). Premier Mutual Fund Services, Inc. (the "Distributor") acts
as the distributor of the Fund's shares, which are sold to the public without
a sales charge.
On August 24, 1995, the Company's Board of Directors approved a change of
the Company's name, effective November 8, 1995, from "Dreyfus Short-Term
Income Fund, Inc." to "Dreyfus Investment Grade Bond Funds, Inc." and to
rename the existing Fund Dreyfus Short Term Income Fund.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each series are
charged to that series' operations; expenses which are applicable to all
series are allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: 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. Securities for which there are no such
valuations are valued at fair value as determined in good faith under the
direction of the Board of Directors. Investments in U.S. Government
obligations are valued at the mean between quoted bid and asked prices.
Short-term investments are carried at amortized cost, which approximates
value. 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.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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
$12,905,000 available for Federal income tax purposes to be applied against
future net securities profits, if any, realized subsequent to July 31, 1996.
The carryover does not include net realized securities losses from November
1, 1995 through July 31, 1996 which are treated, for Federal income tax
purposes, as arising in fiscal 1997. If not applied, $9,958,000 of the
carryover expires in fiscal 2003 and $2,947,000 expires in fiscal 2004.
NOTE 2-BANK LINE OF CREDIT:
The Fund participates with other Dreyfus managed Funds in a $100 million
unsecured line of credit primarily to be utilized for temporary or emergency
purpose, including the financing of redemptions. Interest is charged to the
Fund at rates which are related to the Federal Funds rate in effect at the
time of borrowings. For the period ending July 31, 1996 the Fund did not
borrow under the line of credit.
NOTE 3-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 value
of the Fund's average daily 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 certain expenses as
described above) exceed 21\2% of the first $30 million, 2% of the next $70
million and 11\2% of the excess over $100 million of the value of the Fund's
average daily net assets in accordance with California "blue-sky"
regulations. The Manager has undertaken from August 1, 1995 through July 31,
1997, to reduce the management fee paid by, or reimburse such excess expenses
of the Fund, to the extent that the Fund's aggregate expenses (exclusive of
certain expenses as described above) exceed an annual rate of .80 of 1% of
the value of the Fund's average daily net assets. The reduction in management
fee, pursuant to the undertaking, amounted to $278,382 during the year ended
July 31, 1996.
The undertaking may be extended, modified or terminated by the Manager
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) Effective December 1, 1995, the Fund adopted a Shareholder Services
Plan, pursuant to which it pays the Distributor a fee at the annual rate of
.20 of 1% of the value of the Fund's average daily net assets for the
provision of certain services. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund and providing reports and other information, and
services related to the maintenance of shareholder accounts. The Distributor
may make payments to Service Agents (a securities dealer, financial
institution or other industry professional) in respect of these services. The
Distributor determines the amounts to be paid to Service Agents. During the
period ended July 31, 1996, the Fund was charged $255,437 pursuant to the
Shareholder Services Plan.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Prior to December 1, 1995, the Fund's Service Plan (the "Plan") adopted
pursuant to Rule 12b-1 under the Act, provided for the Fund to (a) reimburse
the Distributor for payments to certain Service Agents for distributing the
Fund's shares and servicing shareholder accounts ("Servicing") and (b) pay
the Manager, Dreyfus Service Corporation, a wholly-owned subsidiary of the
Manager, or any affiliate (collectively "Dreyfus") for advertising and
marketing relating to the Fund and for Servicing, at an aggregate annual rate
of .20 of 1% of the value of the Fund's average daily net assets. Both the
Distributor and Dreyfus may have paid Service Agents a fee in respect of the
Fund's shares owned by shareholders with whom the Service Agent had a Servicing
relationship or for whom the Service Agent was the dealer or holder of record.
Both the Distributor and Dreyfus determined the amounts to be paid to Service
Agents to which it made payments and the basis on which such payments were
made. The Plan also separately provided 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. During the
period August 1, 1995 through November 30, 1995, $142,479 was charged to the
Fund pursuant to the Plan. Effective December 1, 1995, the Plan was
terminated.
Effective December 1, 1995, the Fund compensates Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of the Manager, under a transfer agency agreement
for providing personnel and facilities to perform transfer agency services
for the Fund. Such compensation amounted to $123,816 during the period ended
July 31, 1996.
Effective May 10, 1996, the Fund entered into a custody agreement with
Mellon to provide custodial services for the Fund. For the period from May
10, 1996, through July 31, 1996, $7,142 was paid to Mellon pursuant to the
custody agreement.
(C) Each director who is not an "affiliated person," as defined in the
Act receives from the Company an annual fee of $2,500 and an attendance fee
of $625 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 4-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the year ended July 31, 1996 amounted
to $519,532,995 and $529,308,841, respectively.
At July 31, 1996, accumulated net unrealized depreciation on investments
was $1,415,247, consisting of $430,662 gross unrealized appreciation and
$1,845,909 gross unrealized depreciation.
At July 31, 1996, 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
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS SHORT TERM INCOME FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus Short Term Income Fund
(one of the Funds constituting the Dreyfus Investment Grade Bond Funds, Inc.)
as of July 31, 1996, 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 verification
by examination of securities held by the custodian as of July 31, 1996 and
confirmation of securities not held by the custodian by correspondence with
others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as 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 at July 31, 1996, the results of
its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the indicated years, in conformity with generally accepted
accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
August 27, 1996
[Dreyfus lion "d" logo]
DREYFUS SHORT TERM INCOME FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 083AR967
[Dreyfus logo]
Short Term
Income Fund
Annual Report
July 31, 1996
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS INTERMEDIATE TERM INCOME FUND AND THE
MERRILL LYNCH DOMESTIC MASTER INDEX
EXHIBIT A:
______________________________________________
| | MERRILL LYNCH | DREYFUS |
| | DOMESTIC | INTERMEDIATE|
| PERIOD | MASTER | TERM |
| | INDEX * | INCOME FUND |
|----------- | ------------- | ------------|
| 2/2/96 | 10,000 | 10,000 |
| 2/29/96 | 9,833 | 9,885 |
| 3/31/96 | 9,768 | 9,857 |
| 4/30/96 | 9,711 | 9,857 |
| 5/31/96 | 9,692 | 9,897 |
| 6/30/96 | 9,815 | 10,129 |
| 7/31/96 | 9,843 | 10,151 |
|---------------------------------------------|
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
DREYFUS SHORT TERM INCOME FUND AND THE
MERRILL LYNCH CORPORATE AND GOVERNMENT MASTER INDEX
EXHIBIT A:
________________________________________________
| | MERRILL LYNCH | DREYFUS |
| | CORPORATE AND | SHORT TERM |
| PERIOD | GOVERNMENT MASTER | INCOME FUND |
| | INDEX * | |
|----------- | ------------------ | ------------|
| 8/18/92 | 10,000 | 10,000 |
| 7/31/93 | 10,618 | 10,732 |
| 7/31/94 | 10,806 | 10,997 |
| 7/31/95 | 11,672 | 11,773 |
| 7/31/96 | 12,305 | 12,528 |
|-----------------------------------------------|
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
