DREYFUS SHORT TERM INCOME FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for Dreyfus Short Term Income
Fund, a portfolio of Dreyfus Investment Grade Bond Funds, Inc. For its
semi-annual reporting period ended January 31, 1997 your Fund produced a
total return, including bond price changes and interest income, of 4.77%.*
Income dividends paid from net investment income during the period amounted
to approximately $ .428, representing an annualized distribution rate per
share of 7.08%.**
THE ECONOMY
The Federal Open Market Committee, the policy-making arm of the Federal
Reserve Board (the "Fed"), has left monetary policy unchanged since late
January, 1996 when it reduced both the Federal Funds target rate and the
Discount Rate. Despite the Open Market Committee's apparent satisfaction
regarding interest rate levels, long-term interest rates rose through midyear
in anticipation that the economy would overheat and bring a rekindling of
inflation: In fact, the opposite occurred. Throughout the year, the economy
alternately slowed and accelerated in a relatively narrow band, while
inflation remained subdued. The unemployment rate remained below 5.5% for
most of the year, while the growth in new jobs was robust (and worrisome,
since it seemed to indicate the economy was growing too fast). The tightening
labor market did not result in inflationary increases in wage rates, however,
since workers seemed more concerned with keeping their jobs rather than with
getting raises. For the full year 1996, the Employment Cost Index (a
statistical series closely followed by Federal Reserve Board Chairman
Greenspan) rose 2.9% and the Consumer Price Index rose by 3.3%. Evidently,
noninflationary wage increases were a key factor in the Fed's accommodative
monetary policy last year. Recent remarks by Chairman Greenspan have
indicated his awareness that the period of wage restraint may be ending,
particularly as the economy seemed to be again strengthening at the end of
the year.
Spurred by record exports and a late-year surge in industrial production,
the economy ended 1996 on a decidedly upbeat note. Fourth quarter gross
domestic product (GDP) rose at a 4.7% annual rate, significantly above
consensus estimates. Yet, as was the case for all of 1996, inflation remained
under control. The GDP price deflator increased at an annual rate of only
1.4%, the smallest rise for this broad measure of inflation in 30 years. With
the economy now in its sixth year of recovery, it is no surprise that
consumer attitude surveys show rising confidence. According to the Conference
Board, consumer confidence is at its highest level since the current economic
expansion began in March 1991. This consumer optimism was reflected
dramatically in the real estate market where sales of existing homes in 1996
rose above four million units for the first time.
Yet there are some factors that possess the potential to dampen economic
growth. Continued cautious consumer retail spending could result in inventory
accumulation and a slowdown in production. Last year, retail sales rose 4.4%,
a moderate rate of increase, particularly after adjusting for the 3.3% rate
of inflation. On the international front, the strength in the dollar could
curb the demand for U.S. goods abroad and slow U.S. factories' activity. Well
worth watching in the near term is the continued strong rate of growth in new
jobs which, when combined with a low unemployment rate, could result in
workers' concerns about job security being replaced by demand for wage
increases. In turn, if wage increases become inflationary, they could lead to
a tightening in monetary policy by the Open Market Committee.
MARKET ENVIRONMENT
The alternate slowing and acceleration of economic growth during the past
six months created a relatively volatile interest rate environment. Two-year
U.S. Treasury interest rates have fluctuated from a high of 6.4% in September
of 1996 to a low of 5.6% in November. Despite this volatility, yield spreads
on high-grade corporate bonds have remained relatively narrow.
Mortgage-backed securities, however, have been more volatile as investors
have experienced swings in prepayment expectations commensurate with the
movements in interest rates.
PORTFOLIO OVERVIEW
In order to take advantage of the swings in interest rates, we have
modestly adjusted the portfolio duration over the past six months. At the end
of July, the portfolio's effective duration was near 2.0 years. After the
subsequent rise in interest rates, we gradually lengthened duration to where
it now stands, near 2.8 years. We have continued to reduce exposure to many
high grade corporate bonds, favoring instead high grade mortgage backed
securities and lower-rated corporate bonds. Currently we are most heavily
concentrated in agency mortgages, U.S. Treasuries, energy and aerospace.
Significant new positions include GNMA adjustable rate mortgages with 5%, 5
1/2% and 6% coupons, two aircraft asset-backeds and several short mortgages
backed by commercial real estate. We have also added several new corporate
names to the Fund including Revlon, Emcor, MBNA and Texas Utilities.
As always, our objective is to earn as high a level of current income as
is consistent with preservation of capital. Our ongoing strategy will be to
achieve this objective through sector and security selection and duration
adjustments.
Very truly yours,
[Kevin McClintock signature logo]
Kevin McClintock
Portfolio Manager
February 18, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
**Distribution rate per share is based upon dividends per share paid from net
investment income during the period (annualized), divided by the net asset
value per share at the end of the period.
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS JANUARY 31, 1997 (UNAUDITED)
Principal
Bonds and Notes-107.0% Amount Value
-------- -------
<S> <C> <C> <C> <C> <C>
Aircraft & Aerospace-8.9% Aircraft Lease Portfolio Securitisation 96-1
Pass Through Trust, Ctfs.,
Cl. D, 123\4%, 2006............ $ 4,396,666 (a) $ 4,660,467
America West Airlines, Pass-Through
Ctfs., Ser. 1996-1, Cl. D,
8.16 %, 2002................... 7,513,540 7,504,148
Fairchild,
Sub. Deb. 12%, 2001............ 5,650,000 5,770,063
Talley Manufacturing and Technology,
Sr. Notes, 10-3\4%, 2003....... 1,500,000 1,575,000
Tracor,
Sr. Sub. Notes, 10-7\8%, 2001.. 1,000,000 1,065,000
_______
20,574,678
_______
Banking-3.9% MBNA Capital B,
Gtd. Floating Rate Capital Securities,
Ser. B, 6.363%, 2027........... 9,000,000 (b) 8,918,109
_______
Building Materials-.3% Emcor Group,
Notes, Ser. C, 11%, 2001....... 750,000 768,750
_______
Commercial Mortgage
Backed-4.8% CRIIMI MAE Trust I,
Commercial Mortgage Bonds, Series 1996-C1,
Cl. A-1, 6.77%, 2033........... 7,500,000 (a)
7,482,422 Resolution Trust,
Commercial Mortgage Pass-Through Ctfs.,
Series 1992-CHF:
Cl. C, 8-1\4%, 2020......... 2,412,887 2,439,656
Cl. D, 8-1\4%, 2020......... 1,238,403 1,256,979
_______
11,179,057
_______
Consumer-2.6% Coleman Holdings,
Sr. Secured Discount Notes, Ser. B,
Zero Coupon, 1998.............. 500,000 441,250
Health o meter,
Sr. Sub. Notes, 13%, 2002 (Units) 1,250,000 (c) 1,393,750
Revlon Worldwide,
Sr. Secured Discount Notes,
Zero Coupon, 1998.............. 4,500,000 4,072,500
_______
5,907,500
_______
Energy-13.0% Clark Oil & Refining,
Sr. Notes, 10-1\2%, 2001....... 3,000,000 3,116,250
DeepTech International,
Sr. Secured Notes, 11%, 2000... 7,850,000 (a) 7,869,625
Dual Drilling,
Gtd. Sr. Sub. Notes, 9-7\8%, 2004 2,750,000 2,935,625
Global Marine,
Sr. Secured Notes, 12-3\4%, 1999 3,495,000 3,757,125
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1997 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
_______ _______
Energy (continued) Noble Drilling,
Sr. Notes, 9-1\4%, 2003......... $ 1,345,000 $ 1,435,787
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 7-1\4%, 1998......... 6,500,000 6,546,137
Rowan Cos.,
Sr. Notes, 11-7\8%, 2001........ 4,070,000 4,314,200
_______
29,974,749
_______
Entertainment-4.4% Tele-Communications,
Medium-Term Notes, 6.60%, 1998. 5,000,000 5,014,410
Time Warner,
Notes, 7.95%, 2000............. 5,000,000 5,168,595
_______
10,183,005
_______
Finance-3.7% Bear Stearns Capital Trust I,
Gtd. Fixed/Adj. Rate Capital Securities,
7%, 2027....................... 4,000,000 (a,b) 4,010,000
Presidential Life,
Sr. Notes, 9-1\2%, 2000........ 4,325,000 4,541,250
_______
8,551,250
_______
Foreign-2.0% Petroleos Mexicanos,
Gtd. Notes, 8%, 1998........... 4,500,000 (a) 4,545,000
_______
Foreign/Govermental-5.9% Republic of Argentina (BOTE),
Floating Rate Notes,
Ser. 10, 5.627%, 2000.......... 2,576,500 (b) 2,508,767
United Mexican States,
Floating Rate Notes, 7-9\16%, 2001 11,000,000 (a,b) 11,110,000
_______
13,618,767
_______
Gaming-1.4% Waterford Gaming, L.L.C./Finance,
Sr. Notes, 12-3\4%, 2003....... 3,000,000 (a) 3,142,500
_______
Residential Mortgage-3.1% DLJ Mortgage Acceptance,
Multifamily Mortgage Pass-Through Ctfs.,
Ser. 1994-MF11, C1. B1, 8.10%, 2004 7,000,000 7,238,438
_______
Retail-.2% K Mart,
Medium-Term Notes, 7.96%, 1999.... 500,000
492,843
_______
Steel-.7% Carbide/Graphite Group,
Sr. Notes, 11-1\2%, 2003........ 1,043,000 1,155,123
Weirton Steel,
Sr. Notes, 10-7\8%, 1999........ 500,000 515,000
_______
1,670,123
_______
Supermarkets-1.0% Dominick's Finer Foods,
Sr. Sub. Notes, 10-7\8%, 2005... 2,000,000 2,215,000
_______
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1997 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
_______ ___________
Utilities-6.4% TU Electric Capital IV,
Gtd. Floating Rate Capital Securities,
6.363%, 2037..................... $ 15,000,000 (b) $ 14,793,750
___________
U.S. Government/
Mortgage Backed-36.0% Federal National Mortgage Association:
9%, 6/1/2026-8/1/2026.......... 19,990,142 21,131,524
REMIC, Pass-Through Ctfs.
(Collateralized by FNMA Pass-Through
Ctfs.), Ser. 1993-198, Cl. M, 6-1\2%,
10/25/2023 (Interest Only Obligations) (d) 1,979,545
Government National Mortgage Association I,
9%, 11/15/2017................. 6,880,517 7,377,153
Government National Mortgage Association II:
5%, 2/20/2027.................. 14,000,000 (e,f) 13,667,500
5-1\2%, 10/20/2026............. 13,000,000 (e,f) 12,878,060
6%, 2/20/2027.................. 25,754,064 (e,f) 25,818,449
___________
82,852,231
___________
U.S. Governments-8.7% U.S. Treasury Notes,
5-3\4%, 12/31/1998............. 20,000,000 19,947,272
___________
TOTAL BONDS AND NOTES
(cost $245,760,217)............ $246,573,022
===========
Convertible Debentures-1.4%
---------------------------------------------------------------
Energy; Reading & Bates,
Deb., 4.878%, 1998
(cost $3,061,225).............. $ 3,321,000 $ 3,145,241
===========
Short-Term Investments-10.4%
- -----------------------------------------------------------------
Time Deposit-10.2% Chase Manhattan Bank (London),
5-3\8%, 2/3/1997............... $ 23,403,000 $ 23,403,000
___________
U.S. Treasury Bills-.2% 4.96%, 3/13/1997 200,000 (g) 198,912
5%, 4/3/1997..................... 359,000 (g) 355,977
___________
554,889
___________
TOTAL SHORT-TERM INVESTMENTS
(cost $23,957,856)............. $ 23,957,889
___________
___________
TOTAL INVESTMENTS (cost $272,779,298)................................. 118.8% $273,676,152
====== ===========
LIABILITIES, LESS CASH AND RECEIVABLES................................ (18.8%) $ (43,271,882)
====== ===========
NET ASSETS............................................................ 100.0% $230,404,270
====== ===========
DREYFUS SHORT TERM INCOME FUND
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
January 31, 1997, these securities amounted to $42,820,014 or 18.6%
of net assets.
(b) Variable rate security-interest rate subject to periodic change.
(c) With warrants to purchase Common Stock.
(d) Nominal face $4,830,000.
(e) Purchased on a foward commitment basis.
(f) Adjustable rate mortgage-interest subject to change periodically.
(g) Held by the custodian in a segregated account as collateral for open
Financial Futures positions.
STATEMENT OF FINANCIAL FUTURES JANUARY 31, 1997 (UNAUDITED)
Market Value Unrealized
Number of Covered Appreciation
Long Contracts by Contracts Expiration at 1/31/97
- --- ------------ --------------- -------------- --------------
U.S. Treasury 5yr Note....................... 394 $41,954,844 March `97 $ 42,719
=====
See notes to financial statements.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1997 (UNAUDITED)
Cost Value
_______ _______
ASSETS: Investments in securities-See Statement of Investments $272,779,298 $273,676,152
Cash....................................... 2,368,238
Receivable for investment securities sold.. 6,356,329
Interest receivable........................ 2,486,776
Receivable for shares of Common Stock subscribed 152,004
Prepaid expenses and other assets.......... 11,254
_______
285,050,753
_______
LIABILITIES: Due to The Dreyfus Corporation and affiliates 91,151
Due to Distributor......................... 38,167
Payable for investment securities purchased 54,076,613
Payable for shares of Common Stock redeemed 364,981
Interest payable........................... 11,408
Accrued expenses........................... 64,163
_______
54,646,483
_______
NET ASSETS.................................................................. $230,404,270
=======
REPRESENTED BY: Paid-in capital............................ $243,401,630
Accumulated undistributed investment income-net 260,963
Accumulated net realized gain (loss) on investments (14,197,896)
Accumulated net unrealized appreciation (depreciation)
on investments (including $42,719 net unrealized
appreciation on financial futures)-Note 4(b) 939,573
_______
NET ASSETS.................................................................. $230,404,270
=======
SHARES OUTSTANDING
(500 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED)............. 19,216,326
NET ASSET VALUE, offering and redemption price per share.................... $11.99
=======
See notes to financial statements.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF OPERATIONS SIX MONTHS ENDED JANUARY 31, 1997 (UNAUDITED)
INVESTMENT INCOME
INCOME Interest Income............................ $8,379,920
EXPENSES: Management fee-Note 3(a)................... $ 524,715
Shareholder servicing costs-Note 3(b)...... 349,034
Professional fees.......................... 44,731
Directors' fees and expenses-Note 3(c)..... 19,972
Registration fees.......................... 17,181
Custodian fees-Note 3(b)................... 15,671
Interest expense-Note 2.................... 11,408
Prospectus and shareholders' reports....... 10,652
Miscellaneous.............................. 9,874
______
Total Expenses....................... 1,003,238
Less-reduction in management fee due to
Undertaking-Note 3(a).................. (152,285)
______
Net Expenses......................... 850,953
______
INVESTMENT INCOME-NET....................................................... 7,528,967
______
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $ (4,910)
Net realized gain (loss) on financial futures (186,853)
______
Net Realized Gain (Loss)............. (191,763)
Net unrealized appreciation (depreciation) on investments
(including $42,719 net unrealized appreciation
on financial futures).................. 2,354,820
______
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 2,163,057
______
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $9,692,024
======
See notes to financial statements.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
January 31, 1997 Year Ended
(Unaudited) July 31, 1996
_________ _______
OPERATIONS:
Investment income-net.................................................. $ 7,528,967 $ 12,791,052
Net realized gain (loss) on investments................................ (191,763) 2,710,054
Net unrealized appreciation (depreciation) on investments.............. 2,354,820 (3,000,169)
________ ______
Net Increase (Decrease) in Net Assets Resulting from Operations...... 9,692,024 12,500,937
________ ______
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net.................................................. (7,467,722) (12,702,062)
________ ______
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold.......................................... 81,750,752 56,656,362
Dividends reinvested................................................... 6,935,467 10,171,199
Cost of shares redeemed................................................ (50,199,030) (87,457,699)
________ ______
Increase (Decrease) in Net Assets from Capital Stock Transactions.... 38,487,189 (20,630,138)
________ ______
Total Increase (Decrease) in Net Assets.......................... 40,711,491 (20,831,263)
NET ASSETS:
Beginning of Period.................................................... 189,692,779 210,524,042
________ ______
End of Period.......................................................... $230,404,270 $189,692,779
======== =======
UNDISTRIBUTED INVESTMENT INCOME-NET........................................ $ 260,963 $ 199,718
________ ______
Shares Shares
________ ______
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................ 6,851,984 4,749,405
Shares issued for dividends reinvested................................. 581,339 851,625
Shares redeemed........................................................ (4,204,984) (7,323,655)
________ ______
Net Increase (Decrease) in Shares Outstanding........................ 3,228,339 (1,722,625)
======== =======
See notes to financial statements.
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 period indicated. This
information has been derived from the Fund's financial statements.
Six Months Ended
January 31, 1997 Year Ended July 31,
------------------------------------------
PER SHARE DATA: (Unaudited) 1996 1995 1994 1993(1)
--------- ---- ---- ---- ----
Net asset value, beginning of period....... $11.86 $11.89 $11.94 $12.47 $12.50
----- ---- ---- ---- ----
Investment Operations:
Investment income-net...................... .43 .78 .85 .84 .89
Net realized and unrealized gain (loss)
on investments........................... .13 (.04) (.05) (.54) (.01)
----- ---- ---- ---- ----
Total from Investment Operations........... .56 .74 .80 .30 .88
----- ---- ---- ---- ----
Distributions:
Dividends from investment income-net....... (.43) (.77) (.85) (.83) (.89)
Dividends from net realized gain on investments -- -- -- -- (.02)
----- ---- ---- ---- ----
Total Distributions........................ (.43) (.77) (.85) (.83) (.91)
----- ---- ---- ---- ----
Net asset value, end of period............. $11.99 $11.86 $11.89 $11.94 $12.47
==== ==== ==== ==== ====
TOTAL INVESTMENT RETURN........................ 9.46%(2) 6.42% 7.05% 2.47% 7.68%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets .80%(2) .80% .61% .24% --
Ratio of interest expense to average net assets .01%(2) -- -- -- --
Ratio of net investment income
to average net assets.................... 7.17%(2) 6.52% 7.26% 6.79% 7.58%(2)
Decrease reflected in above expense ratios
due to undertakings by the Manager....... .15%(2) .14% .34% .71% 1.12%(2)
Portfolio Turnover Rate.................... 178.83%(3) 291.35% 511.62% 74.90% 54.59%(3)
Net Assets, end of period (000's Omitted).. $230,404 $189,693 $210,524 $277,028 $205,736
- -----------------------------------
(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 (UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Short Term Income Fund (the "Fund") is a series of Dreyfus
Investment Grade Bond Funds, Inc. (the "Company") which 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
series, including 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.
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, financial futures 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. Financial futures are valued at the last sales price on
the securities exchange on which such securities are primarily traded or at
the last sales price on the national securities market on each business day.
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.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 may borrow up to $10 million for leveraging purposes under a
short-term unsecured line of credit and participates with other
Dreyfus-managed funds in a $100 million unsecured line of credit primarily to
be utilized for temporary or emergency purposes, including the financing of
redemptions. Interest is charged to the Fund at rates which are related to
the Federal Funds rate in effect at the time of borrowings. For the period
ended January 31, 1997, there were no outstanding borrowings under either
line of credit.
The average daily amount of borrowings outstanding under both
arrangements during the period ended January 31, 1997 was $395,772, with a
related weighted average annualized interest rate of 5.72%. The maximum
amount borrowed at any time during the period ended January 31, 1997 was
$15,005,000.
NOTE 3-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement with the Manager, the management
fee is computed at the annual rate of .50 of 1% of the value of the Fund's
average daily net assets and is payable monthly. The Manager has undertaken
from August 1, 1996 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 taxes, brokerage, interest on
borrowings and extraordinary expenses) 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 $152,285 during the period
ended January 31, 1997.
(B) Under the Shareholder Services Plan, the Fund pays the Distributor 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 January 31, 1997, the Fund was charged
$209,886 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 $93,543 during the period ended January 31, 1997.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended January 31, 1997,
$15,671 was charged by Mellon pursuant to the custody agreement.
(C) Each director who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $2,500 and an attendance fee of
$625 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4-SECURITIES TRANSACTIONS:
(A) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities and financial futures, during the period
ended January 31, 1997 amounted to $433,851,488 and $374,331,284,
respectively.
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is exposed to
market risk as a result of changes in the value of the underlying financial
instruments (see the Statement of Financial Futures). Investments in
financial futures require the Fund to "mark to market" on a daily basis,
which reflects the change in market value of the contracts at the close of
each day's trading. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains and losses. When the contracts are
closed, the Fund recognizes a realized gain or loss. These investments
require initial margin deposits with a custodian, which consist of cash or
cash equivalents, up to approximately 10% of the contract amount. The amount
of these deposits is determined by the exchange or Board of Trade on which
the contract is traded and is subject to change. Contracts open at January
31, 1997 and their related unrealized appreciation are set forth in the
Statement of Financial Futures.
(B) At January 31, 1997, accumulated net unrealized appreciation on
investments was $939,573, consisting of $1,555,282 gross unrealized
appreciation and $615,709 gross unrealized depreciation.
At January 31, 1997, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
[Dreyfus lion "d" logo]
Registration Mark
Registration Mark
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. 083SA971
[Dreyfus logo]
Short Term
Income Fund
Semi-Annual
Report
January 31, 1997
<PAGE>
Dreyfus
Intermediate Term
Income Fund
Semi-Annual
Report
January 31, 1997
<PAGE>
Dreyfus Intermediate Term Income Fund
- --------------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to report the performance for Dreyfus Intermediate Term Income
Fund, a portfolio of Dreyfus Investment Grade Bond Funds, Inc. For its
semi-annual reporting period ended January 31, 1997 your Fund produced a total
return, including bond price changes and interest income, of 7.61%.* Income
dividends paid from net investment income during the period amounted to
approximately $ .495, representing an annualized distribution rate per share of
7.77%.**
THE ECONOMY
The Federal Open Market Committee, the policy-making arm of the Federal
Reserve Board (the "Fed"), has left monetary policy unchanged since late
January, 1996 when it reduced both the Federal Funds target rate and the
Discount Rate. Despite the Open Market Committee's apparent satisfaction
regarding interest rate levels, long-term interest rates rose through midyear in
anticipation that the economy would overheat and bring a rekindling of
inflation. In fact, the opposite occurred. Throughout the year, the economy
alternately slowed and accelerated in a relatively narrow band, while inflation
remained subdued. The unemployment rate remained below 5.5% for most of the
year, while the growth in new jobs was robust (and worrisome, since it seemed to
indicate the economy was growing too fast). The tightening labor market did not
result in inflationary increases in wage rates, however, since workers seemed
more concerned with keeping their jobs rather than with getting raises. For the
full year 1996, the Employment Cost Index (a statistical series closely followed
by Federal Reserve Board Chairman Greenspan) rose 2.9% and the Consumer Price
Index rose by 3.3%. Evidently, noninflationary wage increases were a key factor
in the Fed's accommodative monetary policy last year. Recent remarks by Chairman
Greenspan have indicated his awareness that the period of wage restraint may be
ending, particularly as the economy seemed to be again strengthening at the end
of the year.
Spurred by record exports and a late-year surge in industrial production, the
economy ended 1996 on a decidedly upbeat note. Fourth quarter gross domestic
product (GDP) rose at a 4.7% annual rate, significantly above consensus
estimates. Yet, as was the case for all of 1996, inflation remained under
control. The GDP price deflator increased at an annual rate of only 1.4%, the
smallest rise for this broad measure of inflation in 30 years. With the economy
now in its sixth year of recovery, it is no surprise that consumer attitude
surveys show rising confidence. According to the Conference Board, consumer
confidence is at its highest level since the current economic expansion began in
March 1991. This consumer optimism was reflected dramatically in the real estate
market where sales of existing homes in 1996 rose above four million units for
the first time.
Yet there are some factors that possess the potential to dampen economic
growth. Continued cautious consumer retail spending could result in inventory
accumulation and a slowdown in production. Last year, retail sales rose 4.4%, a
moderate rate of increase, particularly after adjusting for the 3.3% rate of
inflation. On the international front, the strength in the dollar could curb the
demand for U.S. goods abroad and slow U.S. factories' activity. Well worth
watching in the near term is the continued strong rate of growth in new jobs
which, when combined with a low unemployment rate, could result in workers'
concerns about job security being replaced by demand for wage increases. In
turn, if wage increases become inflationary, they could lead to a tightening in
monetary policy by the Open Market Committee.
<PAGE>
MARKET ENVIRONMENT
The alternate slowing and acceleration of economic growth during the past six
months created a relatively volatile interest rate environment. Ten-year U.S.
Treasury rates have fluctuated from a high of 7.0% in September of 1996 to a low
of 6.0% in November. Despite this volatility, yield spreads on high-grade
corporate bonds have remained relatively narrow. Mortgage-backed securities,
however, have been more volatile as investors have experienced swings in
prepayment expectations commensurate with movements in interest rates.
PORTFOLIO OVERVIEW
In order to take advantage of the swings in interest rates, we have modestly
adjusted the portfolio duration over the past six months. At the end of July the
portfolio's effective duration was 5.3 years. After the subsequent rise in
interest rates, we gradually lengthened duration to where it now stands, near
5.8 years. We have reduced exposure to corporate bonds in favor of commercial
and residential mortgage-backed securities and lower-rated corporate bonds.
Currently we are most heavily concentrated in U.S. government, residential and
commercial mortgage-backeds, as well as energy and banking corporate sectors. We
have added several new corporate names including Zions Bancorp, Union Planters,
Fairchild Industries, and Michaels Stores.
As always, our objective is to produce as high a level of current income as is
consistent with capital preservation. Our ongoing strategy will be to achieve
this objective through sector and security selection and duration adjustments.
Very truly yours,
Kevin McClintock
Portfolio Manager
February 18, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
** Distribution rate per share is based upon dividends per share paid from net
investment income during the period (annualized), divided by the net asset
value per share at the end of the period.
<PAGE>
Dreyfus Intermediate Term Income Fund
- ------------------------------------------------------------------------------
Statement of Investments January 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal
Bonds and Notes--103.8% Amount Value
- ---------------------------------------------------------------------------- ---------------- -----------
<S> <C> <C> <C>
Aircraft & Aerospace--3.0% Fairchild,
Sub. Deb., 12%, 2001................... $ 500,000 $ 510,625
-----------
Banking--8.3% Union Planters Capital Trust A,
Gtd. Capital Trust Pass-Through Securities,
8.20%, 2026............................ 700,000(a) 698,250
Zions Institutional Capital Trust A,
Gtd. Capital Securities, Ser. A,
8.536%, 2026........................... 700,000(a) 728,280
-----------
1,426,530
-----------
Commercial Mortgage Backed--18.5% Asset Securitization,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1996-D3, Cl. A5, 8.346%, 2026..... 500,000(b) 511,406
DLJ Mortgage Acceptance,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1996-CF2, Cl. B-1, 7.53%, 2021.... 600,000(a) 598,313
GMAC Commercial Mortgage Securities,
Mortgage Pass-Through Ctfs.,
Ser. 1996-C1, Cl. E, 7.86%, 2006....... 600,000 578,438
Resolution Trust,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1992-CHF, Cl-D, 81/4%, 2020....... 584,653 593,424
Structured Asset Securities,
Multiclass Pass-Through Ctfs.,
REMIC, Ser. 1996-CFL:
Cl. B, 6.303%, 2028.................. 200,000(a) 195,094
Cl. H, 7 3/4%, 2028.................. 1,000,000(a) 707,656
-----------
3,184,331
-----------
Energy--9.4% DeepTech International,
Sr. Secured Notes, 12%, 2000........... 150,000 160,500
Dual Drilling,
Gtd. Sr. Sub. Notes, 97/8%, 2004....... 150,000 160,125
Global Marine,
Sr. Secured Notes, 123/4%, 1999........ 150,000 161,250
Louisiana Land & Exploration,
Deb., 7.65%, 2023...................... 200,000 201,220
Noble Drilling,
Sr. Notes, 91/4%, 2003................. 150,000 160,125
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 71/4%, 1998................. 500,000 503,549
Rowan Cos.,
Sr. Notes, 117/8%, 2001................ 250,000 265,000
-----------
1,611,769
-----------
Foreign/Governmental--10.5% Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5.627%, 2000 103,060(b) 100,351
<PAGE>
Dreyfus Intermediate Term Income Fund
- ---------------------------------------------------------------------------
Statement of Investments (continued) January 31, 1997 (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- ---------------------------------------------------------------------------- ---------------- -----------
<S> <C> <C> <C>
Foreign/Governmental (continued) Republic of Colombia,
Notes, 71/4%, 2004..................... $ 200,000 $ 196,860
United Mexican States,
Floating Rate Notes, 79/16%, 2001...... 1,500,000(a,b) 1,515,000
-----------
1,812,211
-----------
Insurance--3.2% Presidential Life,
Sr. Notes, 91/2%, 2000................. 525,000 551,250
-----------
Residential Mortgage Backed--13.1% Bear Stearns Mortgage Securities,
Mortgage Pass-Through Ctfs.,
REMIC, Ser. 1995-1:
Cl. 1B4, 6.475%, 2010................ 326,928(a,b) 247,035
Cl. 2B4, 7.40%, 2010................. 265,141(a) 212,030
Chase Mortgage Finance,
Multi-Class Mortgage Pass-Through Ctfs.,
REMIC, Ser. 1994E, Cl. B5, 61/4%, 2010. 177,048(a) 131,348
GE Capital Mortgage Services:
Home Equity Loan Pass-Through Ctfs.,
Ser. 1996-HE4, Cl. B4, 9.427%, 2026.. 439,000(a,b) 314,571
REMICMulti-Class Pass-Through Ctfs.:
Ser. 1994-21, Cl. B4, 61/2%, 2009.... 298,165(a) 224,742
Ser. 1994-22, Cl. B2, 6%, 2009....... 188,565 172,537
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-7, Cl. B2, 63/4%, 2011....... 243,395 227,955
Structured Asset Securities,
Mortgage Pass-Through Ctfs.,
REMIC, Ser. Greenpoint 1996-A,
Cl. B3, 8.435%, 2027................... 721,310(b) 717,253
-----------
2,247,471
-----------
Utilities--3.3% Indiantown Cogeneration,
First Mortgage, Ser. A-10, 9.77%, 2020. 500,000 563,058
-----------
U.S. Government
Agency/Mortgage Backed--17.3% Federal Home Loan Mortgage,
REMIC, Ser. 1610, Cl. PW,
61/2%, 4/15/2022 (Interest Only Obligation) (c) 688,054
Federal National Mortgage Association,
9%, 8/1/2026........................... 1,067,795 1,128,521
Government National Mortgage Association I,
9%, 11/15/2017......................... 148,665 159,396
Government National Mortgage Association II:
51/2%, 10/20/2026...................... 500,000(d,e) 495,310
6%, 2/20/2027.......................... 500,000(d,e) 501,250
-----------
2,972,531
-----------
<PAGE>
Dreyfus Intermediate Term Income Fund
- ------------------------------------------------------------------------------
Statement of Investments (continued) January 31, 1997 (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Principal
Bonds and Notes (continued) Amount Value
- ---------------------------------------------------------------------------- ---------------- -----------
<S> <C> <C> <C>
U.S. Governments--17.2% U.S. Treasury Bonds,
61/2%, 11/15/2026...................... $ 500,000 $ 480,411
U.S. Treasury Notes,
61/8%, 12/31/2001...................... 2,500,000 2,486,009
-----------
2,966,420
-----------
TOTAL BONDS AND NOTES
(cost $17,622,653)..................... $17,846,196
-----------
-----------
Convertible Securities--5.2%
- -----------------------------------------------------------------------------
Subordinated Debentures--1.6%
Foreign; Scandinavian Broadcasting,
71/4%, 2005............................ $ 300,000 $ 273,375
-----------
Subordinated Notes--3.6%
Industrial--1.2% MagneTek,
8%, 2001............................... 200,000 210,500
-----------
Retail--2.4% Michaels Stores,
63/4%, 2003............................ 500,000 401,250
-----------
Total Subordinated Notes................. 611,750
-----------
TOTAL CONVERTIBLE SECURITIES
(cost $907,916)........................ $ 885,125
-----------
-----------
TOTAL INVESTMENTS (cost $18,530,569)......................................... 109.0% $18,731,321
------ -----------
------ -----------
LIABILITIES, LESS CASH AND RECEIVABLES....................................... (9.0%) $(1,540,898)
------ -----------
------ -----------
NET ASSETS................................................................... 100.0% $17,190,423
------ -----------
------ -----------
<FN>
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 January 31, 1997, these securities
amounted to $5,572,319 or 32.4% of net assets.
(b) Variable rate security - interest rate subject to periodic change.
(c) Notional face $1,867,492.
(d) Purchased on a forward commitment basis.
(e) Adjustable rate mortgage-interest subject to change periodically.
</TABLE>
Statement of Financial Futures January 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Market Value Unrealized
Number of Covered Appreciation
Long: Contracts by Contracts Expiration at 1/31/97
- ----- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury 10 Yr. Note......................... 25 $2,719,531 March `97 $ 0
-------
-------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Intermediate Term Income Fund
- -------------------------------------------------------------------------
Statement of Assets and Liabilities January 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Cost Value
----------- -----------
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments $18,530,569 $18,731,321
Cash............................................. 130,837
Receivable for investment securities sold........ 2,020,469
Interest receivable.............................. 237,937
Prepaid expenses and other assets................ 12,919
Due from The Dreyfus Corporation and affiliates.. 2,426
-----------
21,135,909
-----------
LIABILITIES: Payable for investment securities purchased...... 3,000,398
Bank loan payable--Note 2........................ 896,000
Payable for shares of Common Stock redeemed...... 17,816
Interest payable................................. 6,761
Accrued expenses................................. 24,511
-----------
3,945,486
-----------
NET ASSETS.......................................................... $17,190,423
-----------
-----------
REPRESENTED BY: Paid-in capital.................................. $16,836,940
Accumulated net realized gain (loss) on investments 152,731
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4(b)....................... 200,752
-----------
NET ASSETS............................................................ $17,190,423
-----------
-----------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized)....... 1,360,222
NET ASSET VALUE, offering and redemption price per share.............. $12.64
------
------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Intermediate Term Income Fund
- -----------------------------------------------------------------------------
Statement of Operations Six Months Ended January 31, 1997 (Unaudited)
<TABLE>
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME Interest Income.................................. $540,295
EXPENSES: Management fee--Note 3(a)........................ $ 49,523
Shareholder servicing costs--Note 3(b)........... 23,801
Registration fees................................ 12,341
Interest--Note 2................................. 6,761
Professional fees................................ 5,854
Custodian fees--Note 3(b)........................ 3,450
Prospectus and shareholders' reports............. 2,880
Directors' fees and expenses--Note 3(c).......... 1,287
Miscellaneous.................................... 2,586
--------
Total Expenses.............................. 108,483
Less--expense reimbursement from Manager due to
undertakings--Note 3(a)........................ (88,563)
--------
Net Expenses................................ 19,920
--------
INVESTMENT INCOME--NET......................................................... 520,375
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments ........ $151,075
Net realized gain (loss) on financial futures.... 50,081
--------
Net Realized Gain (Loss).................... 201,156
Net unrealized appreciation (depreciation)
on investments................................. 228,317
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS........................ 429,473
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................... $949,848
========
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Intermediate Term Income Fund
- -----------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
January 31, 1997 Year Ended
(Unaudited) July 31, 1996*
----------------- --------------
<S> <C> <C>
OPERATIONS:
Investment income--net....................................................... $ 520,375 $ 259,467
Net realized gain (loss) on investments..................................... 201,156 (48,425)
Net unrealized appreciation (depreciation) on investments................... 228,317 (27,565)
----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations......... 949,848 183,477
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net....................................................... (521,708) (258,134)
----------- -----------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................... 9,125,220 10,556,104
Dividends reinvested........................................................ 366,066 226,755
Cost of shares redeemed..................................................... (2,484,711) (952,494)
----------- -----------
Increase (Decrease) in Net Assets from Capital Stock Transactions....... 7,006,575 9,830,365
----------- -----------
Total Increase (Decrease) in Net Assets............................... 7,434,715 9,755,708
NET ASSETS:
Beginning of Period......................................................... 9,755,708 --
----------- -----------
End of Period............................................................... $17,190,423 $ 9,755,708
=========== ===========
Undistributed investment income--net........................................... -- $ 1,333
----------- -----------
Shares Shares
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Shares sold................................................................. 733,153 858,167
Shares issued for dividends reinvested...................................... 29,314 18,607
Shares redeemed............................................................. (200,310) (78,709)
----------- -----------
Net Increase (Decrease) in Shares Outstanding........................... 562,157 798,065
=========== ===========
<FN>
- ------------------------
*From February 2, 1996 (commencement of operations) to July 31, 1996.
</TABLE>
See notes to financial statements.
<PAGE>
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 each period indicated. This information has been
derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Six Months Ended
January 31, 1997 Year Ended
PER SHARE DATA: (Unaudited) July 31, 1996(1)
---------------- -------------
<S> <C> <C>
Net asset value, beginning of period.................................... $12.22 $12.50
------ ------
Investment Operations:
Investment income--net................................................... .49 .46
Net realized and unrealized gain (loss)
on investments....................................................... .42 (.28)
------ ------
Total from Investment Operations........................................ .91 .18
------ ------
Distributions:
Dividends from investment income--net.................................... (.49) (.46)
------ ------
Net asset value, end of period.......................................... $12.64 $12.22
------ ------
------ ------
TOTAL INVESTMENT RETURN.................................................... 15.10%(2) 3.05%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets....................... .20%(2) --
Ratio of interest expense to average net assets......................... .10%(2) --
Ratio of net investment income
to average net assets................................................ 7.88%(2) 7.70%(2)
Decrease reflected in above expense ratios due to undertakings by the Manager
(limited to the expense limitation provision of the management agreement) 1.34%(2) 2.50%(2)
Portfolio Turnover Rate................................................. 160.88%(3) 139.38%(3)
Net Assets, end of period (000's Omitted)............................... $17,190 $9,756
<FN>
- --------------------
(1) From February 2, 1996 (commencement of operations) to July 31, 1996.
(2) Annualized.
(3) Not annualized.
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Intermediate Term Income Fund
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Significant Accounting Policies:
Dreyfus Intermediate Term Income Fund (the "Fund") is a series of Dreyfus
Investment Grade Bond Funds, Inc. (the "Company") which 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 series including
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, financial futures 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. Financial futures are valued at the last sales price
on the securities exchange on which such securities are primarily traded or at
the last sales price on the national securities market on each business day.
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.
<PAGE>
Dreyfus Intermediate Term Income Fund
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 may borrow up to $10 million for leveraging purposes under a
short-term unsecured line of credit and participates with other Dreyfus-managed
funds in a $100 million unsecured line of credit primarily to be utilized for
temporary or emergency purposes, including the financing of redemptions.
Interest is charged to the Fund at rates which are related to the Federal Funds
rate in effect at the time of borrowings. Outstanding borrowings under both
arrangements on January 31, 1997 amounted to $896,000.
The average daily amount of borrowings outstanding under both arrangements
during the period ended January 31, 1997 was $225,538, with a related weighted
average annualized interest rate of 5.95%. The maximum amount borrowed at any
time during the period ended January 31, 1997 was $3,186,000.
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 value of the
Fund's average daily net assets and is payable monthly. The Manager had
undertaken from August 1, 1996 through September 30, 1996, to reimburse all fees
and expenses of the Fund exclusive of taxes, brokerage, interest on borrowings
and extraordinary expenses, and thereafter has undertaken through March 31,
1997, to reduce the management fee paid by the Fund, to the extent that the
Fund's aggregate expenses (exclusive of certain expenses as described above)
exceed certain specified annual percentages of the Fund's average daily net
assets. The expense reimbursement, pursuant to the undertakings, amounted to
$88,563 during the period ended January 31, 1997.
(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 January 31, 1997, the Fund was charged $16,508
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 $3,069 during the period ended January 31, 1997.
The Fund compensates Mellon under a custody agreement to provide custodial
services for the Fund. During the period ended January 31, 1997, $3,450 was
charged by Mellon pursuant to the custody agreement.
(c) Each director who is not an "affiliated person" as defined in the
Act receives from the Company an annual fee of $2,500 and an attendance fee of
$625 per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
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Dreyfus Intermediate Term Income Fund
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 4--Securities Transactions:
(a) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities and financial futures, during the period ended
January 31, 1997 amounted to $29,610,074 and $21,161,762, respectively.
The Fund may invest in financial futures contracts in order to gain exposure
to or protect against changes in the market. The Fund is exposed to market risk
as a result of changes in the value of the underlying financial instruments (see
Statement of Financial Futures). Investments in financial futures require the
fund to "mark to market" on a daily basis, which reflects the change in the
market value of the contract at the close of each day's trading. Typically,
variation margin payments are received or made to reflect daily unrealized gains
or losses. When the contracts are closed, the Fund recognizes a realized gain or
loss. These investments require initial margin deposits with a custodian, which
consist of cash or cash equivalents, up to approximately 10% of the contract
amount. The amount of these deposits is determined by the exchange or Board of
Trade on which the contract is traded and is subject to change. Contracts open
at January 31, 1997, and their related unrealized appreciation are set forth in
the Statement of Financial Futures.
(b) At January 31, 1997, accumulated net unrealized appreciation on
investments was $200,752, consisting of $304,179 gross unrealized
appreciation and $103,427 gross unrealized depreciation.
At January 31, 1997, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
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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. 082SA971
