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 Fund. For its annual
reporting period ended July 31, 1997, your Fund produced a total return,
including bond price changes and interest income, of 8.95%.* This compares
with a total return of 10.79% for the Merrill Lynch Corporate and Government
Master Index during the same period.** Income dividends paid from net
investment income during the period amounted to approximately $.856, represent
ing a distribution rate per share of 7.12%.***
THE ECONOMY
Optimism about inflation and moderating economic growth brought long-term
interest rates to their lowest levels in nearly 18 months by the end of the
reporting period. The Gross Domestic Product (GDP), after a remarkably strong
annual growth rate of 4.9% in the first quarter, moderated in the most recent
quarter to just 2.2%. A more reluctant consumer was the prime contributor to
the slowdown, as evidenced by retail sales, which declined from March through
May despite strong job growth and rising incomes. This slowdown helped dispel
fears that the economy was growing too quickly and that the Federal Reserve
might again raise interest rates as a precaution against a resurgence in
inflation. The Federal Open Market Committee, the policy-making arm of the
Federal Reserve, has raised interest rates just once in more than two years.
That hike came in March 1997 when the Federal Funds rate was increased by one
quarter of a percentage point to 5.50%. (The Federal Funds rate is the rate
of interest that banks charge one another for overnight loans.)
Inflation has been virtually dormant over the reporting period. The
Consumer Price Index (CPI) rose at an annual rate of just 1.4% over the first
six months of the year, the lowest rate for the first half of a year since
1986. For the 12-month period ending in June, the CPI gained a modest 2.3%.
The GDP price deflator, a Commerce Department inflation gauge, posted its
smallest quarterly advance since 1961 when it rose at an annual rate of only
0.7% for the second quarter. Producer prices were even tamer. In June the
Producer Price Index fell for the sixth consecutive month, bringing the Index
to the same level as 12 months earlier.
The tight labor market over the reporting period added to concerns about
a potential rekindling of inflation. The unemployment rate fell to 4.8% in
May, matching a 24-year low; after rising to 5.0% in June, it fell back to
4.8% in July. Despite the robust growth of new jobs, there was little
inflationary pressure from rising wages. Over the past year, salaries and
wages rose 3.2%, a rate that remained noninflationary because of solid
productivity growth, lower energy costs, and a strong dollar that helped keep
the prices of imports down. Corporations continued to seek more efficient
ways of operating. Business investment in new machinery and technology surged
over the reporting period, compensating by efficiency for the thriftiness of
consumers. There appears to be growing evidence that these heavy investments
in high technology have enabled businesses to gain production efficiencies
not readily measured by conventional economic statistics. That may account
for the high level of noninflationary growth achieved by the economy.
Consumer confidence rose throughout the reporting period as incomes grew
and the rapid rate of job creation gave workers a greater sense of employment
stability. The budget accord between Congress and the administration, and the
tax cut proposal announced at the end of July, should help ease investor
concern about the Federal deficit. Tax receipts have surged, boosted by
rising corporate profits and individual incomes. Early reports indicate that
the nation's budget deficit for fiscal year 1997 could be at its lowest
level, as a percentage of the total economy, since 1970. Despite all the good
economic news, we are mindful that the economy is in its seventh year of
low-inflation expansion, and that this is unprecedented. We remain alert to
signs of excess that may pose a threat to our present economic and financial
stability.
MARKET ENVIRONMENT
The alternating periods of strong and moderate economic growth have
caused Treasury interest rates to fluctuate within a fairly well-defined
range. Over the past year, yields on U.S. Treasury two-year maturity bonds
reached a low of 5.58% near the end of 1996, and a high of 6.54% in April
1997. As of the end of July, yields were near the lower end of the range at
5.73%. This historically narrow range has created an historically narrow
spread environment. Both corporate and mortgage-backed securities currently
provide moderate yield premiums to similar maturity Treasury alternatives. As
long as yields move within so narrow a range and economic growth remains
moderate, these tight yield spread relationships are likely to persist.
PORTFOLIO OVERVIEW
The interest rate fluctuations we have seen over the past year have
provided numerous opportunities to adjust the overall duration of the
portfolio. When we last wrote you at the end of January, the portfolio
duration was 2.8 years. Currently, the portfolio duration is shorter at 1.4
years. On balance, lengthening duration when rates were high, and shortening
when rates were low, have added to the Fund's overall total return. Given our
outlook for the economy and the bond market, we have consistently favored
corporate and mortgage-backed securities and maintained a relatively modest
exposure to U.S. Treasury and agency securities. This strategy has enhanced
both the yield and overall total return of the portfolio. Sectors with the
largest portfolio weightings currently are energy- and aerospace-related
corporate bonds and government and commercial mortgage-backed securities.
Some individual names we have added to the portfolio include A.H. Belo,
Philip Morris Cos., Repap Wisconsin and Scandinavian Broadcasting System SA.
While we continue to have exposure to securities rated below investment
grade, the average overall portfolio quality remains A-rated.
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 M. McClintock signature logo]
Kevin M. McClintock
Head of Taxable Fixed Income
August 18, 1997
New York, NY
* Total return includes reinvestment of dividends and any capital gains
paid.
**SOURCE: BLOOMBERG - Unlike the Fund, the Merrill Lynch Corporate and
Government Master Index is an unmanaged index for investment-grade corporate
securities and government securities with maturities greater than or equal to
one year. See note beneath performance chart.
*** 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 SHORT TERM INCOME FUND JULY 31, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS SHORT TERM
INCOME FUND AND
THE MERRILL LYNCH CORPORATE AND GOVERNMENT MASTER INDEX
Dollars
$13,649
Dreyfus Short Term
Income Fund
$13,293
Merrill Lynch Corporate
and Government
Master Index*
*Source: Merrill Lynch Pierce, Fenner and Smith Inc.
<TABLE>
<CAPTION>
Average Annual Total Returns
One Year Ended From Inception (8/18/92)
July 31, 1997 to July 31, 1997
---------------------- -------------------------
<S> <C>
8.95% 6.49%
</TABLE>
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, 1997
Principal
Bonds and Notes-101.1% Amount Value
------- -------
<S> <C> <C>
Aircraft & Aerospace-8.9%Aircraft Lease Portfolio Securitisation 96-1
Pass Through Trust, Ctfs.,
Cl. D, 123\4%, 2006.................. $ 4,396,666 $ 4,748,400
America West Airlines Pass-Through Trusts, Ctfs.:
Ser. 1996-1, Cl. D, 8.16 %, 2002..... 6,743,466 6,777,184
Ser. 1997-1, Cl. D, 8.12 %, 2001..... 4,250,000 (a) 4,271,250
Fairchild,
Sub. Deb., 12%, 2001................. 5,650,000 5,890,125
NWA Trust No. 2,
Sub. Aircraft Notes, Cl. D, 137\8%, 2008 1,250,000 1,475,000
Talley Manufacturing and Technology,
Sr. Notes, 103\4%, 2003.............. 1,500,000 1,582,500
-------
24,744,459
-------
Asset-Backed-3.6% Prime Finance, 1997-A Equipment Lease
Receivables-Backed Pay-Through Notes:
Cl. A-2, 7.13%, 2005................. 5,247,555 (a) 5,262,314
Cl. A-3, 7.295%, 2005................. 2,805,339 (a) 2,804,463
Cl. B, 7.295%, 2005................. 1,952,027 (a) 1,843,141
-------
9,909,918
-------
Auto Related-.8% Collins & Aikman Products,
Gtd. Sr. Sub. Notes, 111\2%, 2006.... 2,000,000 2,295,000
-------
Building Materials-1.7% Emcor Group,
Notes, Ser. C, 11%, 2001............. 4,495,700 4,742,964
-------
Commercial
Mortgage Backed-15.3% BKB Commercial Mortgage Trust,
Multiclass Pass-Through Ctfs., Ser. 1997-C1:
Cl. C, 7.45%, 2000........................ 8,000,000 (a,b) 8,116,250
Cl. E, 8.742%, 2001........................ 4,000,000 (a,b) 3,918,750
Bosque Asset,
Asset-Backed Notes, 7.66%, 2002................ 4,898,824 (a) 4,923,319
CRIIMI MAE Trust I,
Commercial Mortgage Bonds, Ser. 1996-C1,
Cl. A-1, 6.77%, 2033................. 7,500,000 (a) 7,492,969
Resolution Trust,
Commercial Mortgage Pass-Through Ctfs.:
Ser. 1992-CHF:
Cl. C, 81\4%, 2020................ 4,938,897 4,988,286
Cl. D, 81\4%, 2020........ ....... 1,226,927 1,239,579
Ser. 1992-C8,
Cl. B, 8.835%, 2023................ 5,000,000 5,217,968
Ser. 1993-C3,
Cl. D, 7.10%, 2024................ 1,907,423 1,915,768
Ser. 1994-C2,
Cl. D, 8%, 2025................ 4,674,265 4,827,640
-------
42,640,529
-------
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1997
Principal
Bonds and Notes (continued) Amount Value
------- -------
Consumer-3.5% Industrial Finance,
Notes, 7%, 2007.................... .... $ 4,000,000 (a) $ 3,971,200
Revlon Worldwide,
Sr. Secured Discount Notes,
Zero Coupon, 1998.................... 4,500,000 4,353,750
Signature Brands USA,
Sr. Sub. Notes, 13%, 2002 (Units)............ . 1,250,000 (c) 1,350,000
-------
9,674,950
-------
Energy-10.6% Clark Oil & Refining,
Sr. Notes, 101\2%, 2001.............. 3,000,000 3,120,000
DeepTech International,
Sr. Secured Notes, 11%, 2000......... 7,850,000 (a) 7,889,250
Dual Drilling,
Gtd. Sr. Sub. Notes, 97\8%, 2004..... 4,750,000 5,153,750
Global Marine,
Sr. Secured Notes, 123\4%, 1999...... 3,495,000 3,661,013
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 71\4%, 1998............... 6,500,000 6,570,616
Rowan Cos.,
Sr. Notes, 117\8%, 2001.............. 3,053,000 3,251,445
-------
29,646,074
-------
Entertainment-3.7% Tele-Communications,
Medium-Term Notes, 6.60%, 1998....... 5,000,000 5,017,515
Time Warner,
Notes, 7.95%, 2000................... 5,000,000 5,200,240
-------
10,217,755
-------
Finance-6.5% Bear Stearns Capital Trust I,
Gtd. Fixed/Adj. Rate Capital Securities,
7%, 2027............................. 4,000,000 (a,b) 4,055,952
CoreStates Capital III,
Floating Rate Capital Trust,
Gtd. Pass-Through Securities,
6.383%, 2027......................... 10,000,000 (a,b) 9,733,880
Presidential Life,
Sr. Notes, 91\2%, 2000............... 4,325,000 4,498,000
-------
18,287,832
-------
Foreign-1.6% Petroleos Mexicanos,
Gtd. Notes, 8%, 1998................. 4,500,000 (a) 4,561,875
-------
Foreign/Govermental-6.2% Republic of Argentina (BOTE),
Floating Rate Notes,
Ser. 10, 5.805%, 2000................ 2,189,500 (b) 2,160,044
Sultanate of Oman,
Notes, 71\8%, 2002................... 4,000,000 (a) 4,085,280
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1997
Principal
Bonds and Notes (continued) Amount Value
------- -------
Foreign/Govermental (continued) United Mexican States,
Floating Rate Notes, 77\8%, 2001..... $ 11,000,000 (a,b) $ 11,000,000
-------
17,245,324
-------
Gaming-1.2% Waterford Gaming, L.L.C./Finance,
Sr. Notes, 123\4%, 2003.............. 3,000,000 3,390,000
-------
Paper & Paper Related-1.4%.. Repap Wisconsin,
Second Priority Sr. Secured Notes,
97\8%, 2006.......................... 3,700,000 3,996,000
-------
Publishing-1.8% A.H. Belo,
Sr. Notes, 67\8%, 2002............... 5,000,000 5,106,630
-------
Real Estate-1.8%Fisher Brothers Financial Realty Group,
Secured Notes, 103\4%, 2000.......... 4,880,000 4,953,200
-------
Residential Mortgage-2.6%DLJ Mortgage Acceptance,
Multifamily Mortgage Pass-Through
Ctfs.,
Ser. 1994-MF11, Cl. B1, 8.10%, 2004.. 7,000,000 7,387,187
-------
Retail-.2%........................... K Mart,
Medium-Term Notes, 7.96%, 1999....... 500,000 505,766
-------
Steel-1.7%........... Carbide/Graphite Group,
Sr. Notes, 111\2%, 2003.............. 1,043,000 1,152,515
EES Coke Battery,
Sr. Secured Notes, Ser. A, 71\8%, 2002 3,500,000 (a) 3,533,369
-------
4,685,884
-------
Supermarkets-.8%..... Dominick's Finer Foods,
Sr. Sub. Notes, 107\8%, 2005......... 2,000,000 2,270,000
-------
Tobacco-.7%.............. Philip Morris Cos.,
Notes, 6.95%, 2001................... 2,000,000 (d) 2,048,752
-------
Transportation-1.2%................ ValueJet,
Sr. Notes, 101\4%, 2001.............. 3,500,000 3,342,500
-------
U.S. Government Agency/
Mortgage Backed-25.3%Federal Home Loan Mortgage Corp.,
Ser. 1547, Cl. B, 7%, 2/15/2022
(Interest Only Obligation)........... (e) 1,902,043
Federal National Mortgage Association:
9%, 6/1/2026-8/1/2026................ 17,672,737 18,770,161
REMIC Trust,
Gtd. Pass-Through Ctfs.:
Ser. 1993-198, Cl. M, 61\2%,
10/25/2023
(Interest Only Obligation). (f) 1,959,169
Ser. 1997-40, Cl. PF, 7%,
12/18/2026
(Interest Only Obligation). (g) 5,554,812
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1997
Principal
Bonds and Notes (continued) Amount Value
------- -------
U.S. Government Agency/
Mortgage Backed (continued) Government National Mortgage Association I:
8%, 9/15/2008........................ $ 6,342,518 $ 6,598,186
9%, 11/15/2017....................... 6,331,983 6,842,468
Government National Mortgage Association II,
Adjustable Rate Mortgage,
51\2%, 11/20/2026-9/20/2027.......... 28,819,912 (h) 28,934,730
-------
70,561,569
-------
TOTAL BONDS AND NOTES
(cost $279,669,262).................. $282,214,168
=======
Convertible Debentures-1.9%
Broadcasting-.8% Scandinavian Broadcasting System SA,
Sub. Deb., 71\4%, 2005............... $ 2,000,000 $ 2,140,000
Energy-1.1%................. Reading & Bates,
Deb., 4.878%, 1998................... 3,321,000 3,179,250
-------
Total Convertible Debentures
(cost $5,138,492).................... $ 5,319,250
=======
Short-Term Investments-3.3%
Time Deposit-3.3% Chase Manhattan Bank (London),
53\4%, 8/1/1997...................... $ 9,281,000 $ 9,281,000
-------
U.S. Treasury Bills-.0%.... 5.07%, 10/23/1997................. 35,000 (i) 34,589
-------
TOTAL SHORT-TERM INVESTMENTS
(cost $9,315,590).................... $ 9,315,589
=======
TOTAL INVESTMENTS (cost $294,123,344)....................................... 106.3% $296,849,007
==== =======
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (6.3%) $ (17,707,470)
==== =======
NET ASSETS.................................................................. 100.0% $279,141,537
==== =======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
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
July 31, 1997, these securities amounted to $87,463,262 or 31.3% of net
assets.
(b) Variable rate security-interest rate subject to periodic change.
(c) With warrants to purchase Common Stock.
(d) Reflects date security can be redeemed at holders' option; the
stated maturity date is 6/1/2006.
(e) Notional face $6,474,821.
(f) Notional face $4,830,000.
(g) Notional face $12,696,714.
(h) Partially purchased on a foward commitment basis.
(i) Held by the custodian in a segregated account as collateral for open
Financial Futures positions.
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF FINANCIAL FUTURES JULY 31, 1997
Unrealized
Market Value Appreciation
Covered (Depreciation)
Financial Futures Contracts by Contracts Expiration at 7/31/97
- ------------------ ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury 5yr Notes (Short).............. 46 $4,967,281 September '97 $ (6,469)
U.S. Treasury 10yr Notes (Long).............. 28 3,108,000 September '97 23,625
----
$17,156
====
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1997
Cost Value
------- -------
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $294,123,344 $296,849,007
Cash....................................... 1,310,560
Interest receivable........................ 4,059,434
Receivable for shares of Common Stock subscribed 15,822
Prepaid expenses and other assets.......... 133,428
-------
302,368,251
-------
LIABILITIES: Due to The Dreyfus Corporation and affiliates 119,005
Due to Distributor......................... 46,124
Payable for investment securities purchased 20,966,541
Dividends payable.......................... 1,672,194
Payable for shares of Common Stock redeemed 364,400
Interest payable-Note 2.................... 1,246
Payable for futures variation margin-Note 4(a) 906
Accrued expenses........................... 56,298
-------
23,226,714
-------
NET ASSETS.................................................................. $279,141,537
=======
REPRESENTED BY: Paid-in capital............................ $291,177,521
Accumulated undistributed investment income-net 418,955
Accumulated net realized gain (loss) on investments (15,197,758)
Accumulated net unrealized appreciation (depreciation)
on investments (including $17,156 net unrealized
appreciation on financial futures)-Note 4(b) 2,742,819
-------
NET ASSETS.................................................................. $279,141,537
=======
SHARES OUTSTANDING
(500 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED)............. 23,210,013
NET ASSET VALUE, offering and redemption price per share.................... $12.03
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1997
INVESTMENT INCOME
INCOME Interest Income............................ $18,473,328
EXPENSES: Management fee-Note 3(a)................... $ 1,141,534
Shareholder servicing costs-Note 3(b)...... 731,788
Professional fees.......................... 59,452
Registration fees.......................... 34,462
Interest expense-Note 2.................... 34,399
Directors' fees and expenses-Note 3(c)..... 33,901
Custodian fees-Note 3(b)................... 32,002
Prospectus and shareholders' reports....... 20,914
Miscellaneous.............................. 20,042
-------
Total Expenses....................... 2,108,494
Less-reduction in management fee due to
undertaking-Note 3(a).................. (247,639)
-------
Net Expenses......................... 1,860,855
-------
INVESTMENT INCOME-NET....................................................... 16,612,473
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $ (492,940)
Net realized gain (loss) on financial futures (698,685)
-------
Net Realized Gain (Loss)............. (1,191,625)
Net unrealized appreciation (depreciation)
on investments (including $17,156 net unrealized
appreciation on financial futures)..... 4,158,066
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 2,966,441
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $19,578,914
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
July 31, 1997 July 31, 1996
--------- ---------
OPERATIONS:
Investment income-net.................................................. $ 16,612,473 $ 12,791,052
Net realized gain (loss) on investments................................ (1,191,625) 2,710,054
Net unrealized appreciation (depreciation) on investments.............. 4,158,066 (3,000,169)
--------- ---------
Net Increase (Decrease) in Net Assets Resulting from Operations...... 19,578,914 12,500,937
--------- ---------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net.................................................. (16,393,236) (12,702,062)
--------- ---------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold.......................................... 178,300,093 56,656,362
Dividends reinvested................................................... 12,757,874 10,171,199
Cost of shares redeemed................................................ (104,794,887) (87,457,699)
--------- ---------
Increase (Decrease) in Net Assets from Capital Stock Transactions.... 86,263,080 (20,630,138)
--------- ---------
Total Increase (Decrease) in Net Assets............................ 89,448,758 (20,831,263)
NET ASSETS:
Beginning of Period.................................................... 189,692,779 210,524,042
--------- ---------
End of Period.......................................................... $ 279,141,537 $ 189,692,779
========= =========
UNDISTRIBUTED INVESTMENT INCOME-NET...................................... $ 418,955 $ 199,718
--------- ---------
Shares Shares
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................ 14,929,236 4,749,405
Shares issued for dividends reinvested................................. 1,069,474 851,625
Shares redeemed........................................................ (8,776,684) (7,323,655)
--------- ---------
Net Increase (Decrease) in Shares Outstanding........................ 7,222,026 (1,722,625)
========= =========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<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 period indicated. This
information has been derived from the Fund's financial statements.
Year Ended July 31,
------------------------------------------------------
PER SHARE DATA: 1997 1996 1995 1994 1993(1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $11.86 $ 11.89 $ 11.94 $ 12.47 $ 12.50
---- ---- ---- ---- ----
Investment Operations:
Investment income-net........................ .86 .78 .85 .84 .89
Net realized and unrealized gain (loss)
on investments............................. .17 (.04) (.05) (.54) (.01)
---- ---- ---- ---- ----
Total from Investment Operations............. 1.03 .74 .80 .30 .88
---- ---- ---- ---- ----
Distributions:
Dividends from investment income-net......... (.86) (.77) (.85) (.83) (.89)
Dividends from net realized gain on investments .- .- .- .- (.02)
---- ---- ---- ---- ----
Total Distributions.......................... (.86) (.77) (.85) (.83) (.91)
---- ---- ---- ---- ----
Net asset value, end of period............... $12.03 $11.86 $11.89 $11.94 $12.47
==== ==== ==== ==== ====
TOTAL INVESTMENT RETURN.......................... 8.95% 6.42% 7.05% 2.47% 7.68%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets .80% .80% .61% .24% .-
Ratio of interest expense to average net assets .02% .- .- .- .-
Ratio of net investment income
to average net assets...................... 7.28% 6.52% 7.26% 6.79% 7.58%(2)
Decrease reflected in above expense ratios
due to undertakings by the Manager......... .11% .14% .34% .71% 1.12%(2)
Portfolio Turnover Rate...................... 292.99% 291.35% 511.62% 74.90% 54.59%(3)
Net Assets, end of period (000's Omitted).... $279,142 $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.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS
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") is 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: Investments in securities (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 (CONTINUED)
The Fund has an unused capital loss carryover of approximately $14,220,000
available for Federal income tax purposes to be
applied against future net securities profits, if any, realized subsequent to
July 31, 1997. The carryover does not include net realized securities losses
from November 1, 1996 through July 31, 1997 which are treated, for Federal
income tax purposes, as arising in fiscal 1998. If not applied, $9,958,000 of
the carryover expires in fiscal 2003, $2,947,000 expires in fiscal 2004 and $1
,315,000 expires in fiscal 2005.
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. At July 31, 1997,
there were no outstanding borrowings under either arrangement.
The average daily amount of borrowings outstanding under both
arrangements during the period ended July 31, 1997 was approximately
$591,000, with a related weighted average annualized interest rate of 5.82%.
The maximum amount borrowed at any time during the period ended July 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 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 $247,639 during the period ended July 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 July 31, 1997, the Fund was charged $456,614
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 $189,065 during the period ended July 31, 1997.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended July 31, 1997,
$32,002 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.
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 July 31, 1997 amounted to $760,794,599 and $665,049,262, respectively.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
July 31, 1997 and their related unrealized appreciation/depreciation are set
forth in the Statement of Financial Futures.
(B) At July 31, 1997, accumulated net unrealized appreciation on
investments and financial futures was $2,742,819, consisting of $3,473,276
gross unrealized appreciation and $730,457 gross unrealized depreciation.
At July 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 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 statements of investments and financial futures, of Dreyfus
Short Term Income Fund (one of the series constituting Dreyfus Investment
Grade Bond Funds, Inc.), as of July 31, 1997, 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 includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures included
verification by examination of securities held as of July 31, 1997 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 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, 1997, 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
September 5, 1997
Registration Mark
[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. 083AR977
Registration Mark
[Dreyfus logo]
Short Term
Income Fund
Annual Report
July 31, 1997
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 Fund. For its
annual reporting period ended July 31, 1997 your Fund produced a total
return, including bond price changes and interest income, of 16.70%.* This
compares with a total return of 10.79% for the Merrill Lynch Domestic Master
Index during the same period.** Income dividends paid from net investment
income during the period amounted to approximately $.947, representing a
distribution rate per share of 7.16%.***
THE ECONOMY
Optimism about inflation and moderating economic growth brought long-term
interest rates to their lowest levels in nearly 18 months by the end of the
reporting period. The Gross Domestic Product (GDP), after a remarkably strong
annual growth rate of 4.9% in the first quarter, moderated in the most recent
quarter to just 2.2%. A more reluctant consumer was the prime contributor to
the slowdown, as evidenced by retail sales, which declined from March through
May despite strong job growth and rising incomes. This slowdown helped dispel
fears that the economy was growing too quickly and that the Federal Reserve
might again raise interest rates as a precaution against a resurgence in
inflation. The Federal Open Market Committee, the policy-making arm of the
Federal Reserve, has raised interest rates just once in more than two years.
That hike came in March 1997 when the Federal Funds rate was increased by one
quarter of a percentage point to 5.50%. (The Federal Funds rate is the rate
of interest that banks charge one another for overnight loans.)
Inflation has been virtually dormant over the reporting period. The
Consumer Price Index (CPI) rose at an annual rate of just 1.4% over the first
six months of the year, the lowest rate for the first half of a year since
1986. For the 12-month period ending in June, the CPI gained a modest 2.3%.
The GDP price deflator, a Commerce Department inflation gauge, posted its
smallest quarterly advance since 1961 when it rose at an annual rate of only
0.7% for the second quarter. Producer prices were even tamer. In June the
Producer Price Index fell for the sixth consecutive month, bringing the Index
to the same level as 12 months earlier.
The tight labor market over the reporting period added to concerns about
a potential rekindling of inflation. The unemployment rate fell to 4.8% in
May, matching a 24-year low; after rising to 5.0% in June, it fell back to
4.8% in July. Despite the robust growth of new jobs, there was little
inflationary pressure from rising wages. Over the past year, salaries and
wages rose 3.2%, a rate that remained noninflationary because of solid
productivity growth, lower energy costs, and a strong dollar that helped keep
the prices of imports down. Corporations continued to seek more efficient
ways of operating. Business investment in new machinery and technology surged
over the reporting period, compensating by efficiency for the thriftiness of
consumers. There appears to be growing evidence that these heavy investments
in high technology have enabled businesses to gain production efficiencies
not readily measured by conventional economic statistics. That may account
for the high level of noninflationary growth achieved by the economy.
Consumer confidence rose throughout the reporting period as incomes grew
and the rapid rate of job creation gave workers a greater sense of employment
stability. The budget accord between Congress and the administration, and the
tax cut proposal announced at the end of July, should help ease investor
concern about the Federal deficit. Tax receipts have surged, boosted by
rising corporate profits and individual incomes. Early reports indicate that
the nation's budget deficit for fiscal year 1997 could be at its lowest
level, as a percentage of the total economy, since 1970. Despite all the good
economic news, we are mindful that the economy is in its seventh year of
low-inflation expansion, and that this is unprecedented. We remain alert to
signs of excess that may pose a threat to our present economic and financial
stability.
MARKET ENVIRONMENT
The alternating periods of strong and moderate economic growth have
caused Treasury interest rates to fluctuate within a fairly well-defined
range. Over the past year, yields on U.S. Treasury ten-year maturity bonds
reached a high of 7.00% in September of 1996, and currently stand near the
low end of the range at 6.00%. This 6.00% low was also approached near the
end of 1996. This historically narrow range has created an historically
narrow spread environment. Both corporate and mortgage-backed securities
currently provide modest yield premiums to similar maturity Treasury
alternatives. As long as yields move within so narrow a range and economic
growth remains moderate, these tight yield spread relationships are likely to
persist.
PORTFOLIO OVERVIEW
The interest rate fluctuations we have seen over the past year have
provided numerous opportunities to adjust the overall duration of the
portfolio. When we last wrote you at the end of January, the portfolio
duration was 5.8 years. Currently, the portfolio duration is shorter at 4.8
years. On balance, lengthening duration when rates were high, and shortening
when rates were low, have added to the Fund's overall total return. Given our
outlook for the economy and the bond market, we have consistently favored
corporate and mortgage-backed securities and maintained a relatively modest
exposure to U.S. Treasury and agency securities. This strategy has enhanced
both the yield and overall total return of the portfolio. Sectors with the
largest portfolio weightings currently are energy-related corporate bonds and
mortgage-backed securities backed by commercial, residential, or government
guaranteed mortgages. Some individual names we have added to the portfolio
include A.H. Belo, Smith Food & Drug Centers, Philip Morris Cos., and Spanish
Broadcasting System. While we continue to have exposure to securities rated
below investment grade, the average overall portfolio quality is A-rated.
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 M. McClintock signature logo]
Kevin M. McClintock
Head of Taxable Fixed Income
August 18, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
**SOURCE: BLOOMBERG - 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. See note
beneath the performance chart.
*** 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, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS INTERMEDIATE
TERM INCOME FUND AND
THE MERRILL LYNCH DOMESTIC MASTER INDEX
Dollars
$11,846
Dreyfus Intermediate
Term Income Fund
$10,905
Merrill Lynch Domestic
Master Index*
*Source: Merrill Lynch Pierce, Fenner and Smith Inc.
Average Annual Total Returns
One Year Ended From Inception (2/2/96)
July 31, 1997 to July 31, 1997
16.70% 12.04%
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.
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS JULY 31, 1997
Principal
Bonds and Notes-101.1% Amount Value
- ------------------------------------------------------------------ --------- --------
<S> <C> <C>
Aircraft &
Aerospace-2.4% Fairchild,
Sub. Deb., 12%, 2001.................................... $ 500,000 $ 521,250
Asset Backed-1.5% GE Capital Mortgage Services,
Home Equity Loan Pass-Through Ctfs.,
Ser. 1996-HE4, C1. B4, 9.406%, 2026..................... 434,287 (a,b) 322,662
________
Commercial Mortgage
Backed-15.8% Asset Securitization,
Commercial Mortgage Pass-Through Ctfs.,
Ser. 1996-D3, Cl. A5, 8.143%, 2026...................... 500,000 (b) 544,141
GMAC Commercial Mortgage Securities,
Mortgage Pass-Through Ctfs.,
Ser. 1996-C1, Cl. E, 7.86%, 2006........................ 600,000 620,156
Resolution Trust,
Commercial Mortgage Pass-Through Ctfs.:
Ser. 1992-CHF, Cl-D, 81\4%, 2020....................... 579,235 585,209
Ser. 1993-C3, Cl-D, 7.10%, 2024........................ 953,711 957,884
Structured Asset Securities,
Multiclass Pass-Through Ctfs., REMIC,
Ser. 1996-CFL, Cl. H, 73\4%, 2028....................... 1,000,000 (a) 756,406
_________
3,463,796
_________
Energy-6.4% DeepTech International,
Sr. Secured Notes, 12%, 2000............................ 150,000 160,875
Dual Drilling,
Gtd. Sr. Sub. Notes, 97\8%, 2004........................ 150,000 162,750
Global Marine,
Sr. Secured Notes, 123\4%, 1999......................... 150,000 157,125
Louisiana Land & Exploration,
Deb., 7.65%, 2023....................................... 200,000 212,794
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 71\4%, 1998.................................. 500,000 505,432
Rowan Cos.,
Sr. Notes, 117\8%, 2001................................. 187,000 199,155
_________
1,398,131
_________
Foreign-2.2% Industrial Finance,
Notes, 7%, 2007......................................... 500,000 (a) 496,400
_________
Foreign/Governmental-7.2% Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5.805%, 2000.............. 87,580 (b) 86,402
United Mexican States,
Floating Rate Notes, 77\8%, 2001........................ 1,500,000 (a,b) 1,500,000
_________
1,586,402
_________
Hotels & Motels-2.3%. Hyatt Equities, L.L.C.,
Notes, 6.80%, 2000...................................... 500,000 (a) 507,445
_________
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1997
Principal
Bonds and Notes (continued) Amount Value
_____________ ________
Insurance-2.5% Presidential Life,
Sr. Notes, 91\2%, 2000.................................. $ 525,000 $ 546,000
__________
Publishing-3.6% A.H. Belo,
Sr. Deb., 73\4%, 2027................................... 750,000 800,852
__________
Residential Mortgage
Backed-9.3% Bear Stearns Mortgage Securities, Mortgage Pass-Through Ctfs.,
REMIC, Ser. 1995-1:
Cl. 1B4, 6.476%, 2010................................. 316,865 (a,b) 268,346
Cl. 2B4, 7.40%,2010................................... 256,280 (a) 228,010
Chase Mortgage Finance,
Multi-Class Mortgage Pass-Through Ctfs.,
REMIC, Ser. 1994E, Cl. B5, 61\4%, 2010.................. 172,319 (a) 143,671
GE Capital Mortgage Services,
REMIC Multi-Class Pass-Through Ctfs.:
Ser. 1994-21, Cl. B4, 61\2%, 2009..................... 289,883 (a) 245,224
Ser. 1994-22, Cl. B2, 6%, 2009........................ 182,972 175,539
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-7, Cl. B2, 63\4%, 2011........................ 238,137 235,830
Structured Asset Securities,
Mortgage Pass-Through Ctfs.,
REMIC, Ser. Greenpoint 1996-A,
CL. B3, 8.471%, 2027.................................... 691,932 (b) 738,637
_________
2,035,257
_________
Retail-2.4% Smith's Food & Drug Centers,
1994-A Pass Through Trusts, Pass Through Ctfs.,
Ser. A2, 8.64%, 2012.................................... 500,000 540,000
_________
Tobacco-3.7% Philip Morris Cos.,
Notes, 6.95%, 2001...................................... 800,000 (c) 819,501
_________
Utilities-2.8% Indiantown Cogeneration,
First Mortgage, Ser. A-10, 9.77%, 2020.................. 500,000 606,921
_________
U.S. Government Agency/
Mortgage Backed-21.9% Federal Home Loan Mortgage,
Multiclass Mortgage Participation Ctfs., REMIC:
Ser. 1499, Cl. E, 7%, 4/15/2023
(Interest Only Obligation).......................... (d) 544,485
Ser. 1610, Cl. PW, 61\2%, 4/15/2022
(Interest Only Obligation).......................... (e) 670,546
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1997
Principal
Bonds and Notes (continued) Amount Value
__________ _______
U.S. Government Agency/
Mortgage Backed (continued) Federal National Mortgage Association:
9%, 8/1/2026............................................ $ 946,624 $ 1,005,192
REMIC Trust, Gtd. Pass-Through Ctfs.,
Ser. 1997-40, Cl. PF, 7%, 12/18/2026
(Interest Only Obligation)............................ (f) 437,500
Government National Mortgage Association I,
9%, 11/15/2017.......................................... 136,813 147,843
Government National Mortgage Association II,
Adjustable Rate Mortgage, 51\2%, 9/20/2027.............. 2,000,000 (b,g) 1,998,740
__________
4,804,306
__________
U.S. Government-17.1% U.S. Treasury Notes:
7 7\8%, 11/15/2004...................................... 1,600,000 1,774,750
7%, 7/15/2006........................................... 1,850,000 1,969,672
__________
3,744,422
__________
TOTAL BONDS AND NOTES
(cost $21,414,777)...................................... $22,193,345
==========
Equity-Related Securities-7.8% Shares
___________________________________________________________________________________________________ _________
Common Stocks-.2%
Industrial; MagneTek.................................................. 2,250 $ 45,984
__________
Warrants-.5%
Broadcasting; Spanish Broadcasting System............................... 750 (a) 105,000
__________
Preferred Stocks-3.7%
Broadcasting; Spanish Broadcasting System,
Cum., $142.50........................................... 750 (a) 802,500
__________
Principal
Convertible Bonds and Notes-3.4% Amount
____________
Foreign-2.4% Scandinavian Broadcasting,
Sub. Deb., 71\4%, 2005.................................. $ 500,000 535,000
__________
Industrial-1.0% MagneTek,
Sub. Notes, 8%, 2001.................................... 164,000 210,740
__________
Total Convertible Bonds and Notes......................... 745,740
__________
TOTAL EQUITY-RELATED SECURITES
(cost $1,451,772)....................................... $ 1,699,224
==========
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1997
Principal
Short-Term Investments-.2% Amount Value
___________ _______
U.S. Treasury Bills; 4.99%, 9/4/1997
(cost $44,788).......................................... $ 45,000 (h) $ 44,786
==========
TOTAL INVESTMENTS (cost $22,911,337)........................................................... 109.1% $23,937,355
========== ==========
LIABILITIES, LESS CASH AND RECEIVABLES......................................................... (9.1%) $(1,993,756)
========== ==========
NET ASSETS..................................................................................... 100.0% $21,943,599
========== ==========
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, 1997, these securities amounted to $5,375,664 or 24.5% of net assets.
(b) Variable rate security-interest rate subject to periodic change.
(c) Reflects date security can be redeemed at holders' option; the
stated maturity date is 6/1/2006.
(d) Notional face $850,000.
(e) Notional face $1,867,492.
(f) Notional face $1,000,000.
(g) Purchased on a forward commitment basis.
(h) Held by the custodian in a segregated account as collateral for open Financial Futures positions.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL FUTURES JULY 31, 1997
Unrealized
Market Value Appreciation
Covered (Depreciation)
Financial Futures Contracts by Contracts Expiration at 7/31/97
_________________ _________ ____________ __________ ______________
<S> <C> <C> <C> <C>
U.S. Treasury 5 Yr. Notes (Short)............ 6 $ 647,906 September '97 $ (844)
U.S. Treasury 30 Yr. Bonds (Long)............ 21 2,451,750 September '97 99,750
_________
$ 98,906
=========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1997
Cost Value
______________ ___________
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments........ $22,911,337 $23,937,355
Cash.......................................................... 148,089
Receivable for investment securities sold..................... 2,089,322
Interest receivable........................................... 265,673
Receivable for futures variation margin-Note 4(a)............. 6,844
Prepaid expenses and other assets............................. 17,369
__________
26,464,652
==========
LIABILITIES: Due to The Dreyfus Corporation and affiliates................. 6,170
Due to Distributor............................................ 4,520
Payable for investment securities purchased................... 4,472,313
Payable for shares of Common Stock redeemed................... 7,130
Interest payable-Note 2....................................... 1,862
Accrued expenses.............................................. 29,058
__________
4,521,053
==========
NET ASSETS..................................................................................... $21,943,599
==========
REPRESENTED BY: Paid-in capital............................................... $20,627,170
Accumulated net realized gain (loss) on investments 191,505
Accumulated net unrealized appreciation (depreciation) on
investments (including $98,906 net unrealized
appreciation on financial futures)-Note 4(b).............. 1,124,924
__________
NET ASSETS..................................................................................... $21,943,599
===========
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized)................................ 1,659,111
NET ASSET VALUE, offering and redemption price per share....................................... $13.23
======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1997
INVESTMENT INCOME
INCOME Interest Income............................................... $1,323,930
EXPENSES: Management fee-Note 3(a)...................................... $ 123,707
Shareholder servicing costs-Note 3(b)......................... 51,888
Registration fees............................................. 26,382
Professional fees............................................. 16,684
Prospectus and shareholders' reports.......................... 11,273
Interest expense-Note 2....................................... 10,465
Custodian fees-Note 3(b)...................................... 7,695
Directors' fees and expenses-Note 3(c)........................ 3,293
Miscellaneous................................................. 5,383
___________
Total Expenses.......................................... 256,770
Less-expense reimbursement from the Manager due to
undertakings-Note 3(a).................................... (161,933)
___________
Net Expenses............................................ 94,837
___________
INVESTMENT INCOME-NET.......................................................................... 1,229,093
___________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments....................... $ 197,521
Net realized gain (loss) on financial futures 42,409
___________
Net Realized Gain (Loss).................................. 239,930
Net unrealized appreciation (depreciation) on investments
(including $98,906 net unrealized appreciation on
financial futures)........................................ 1,152,489
__________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS......................................... 1,392,419
__________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $2,621,512
==========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
July 31, 1997 July 31, 1996*
_____________ ______________
<S> <C> <C>
Investment income-net........................................................................ $ 1,229,093 $ 259,467
Net realized gain (loss) on investments...................................................... 239,930 (48,425)
Net unrealized appreciation (depreciation) on investments.................................... 1,152,489 (27,565)
_____________ ______________
Net Increase (Decrease) in Net Assets Resulting from Operations............................ 2,621,512 183,477
_____________ ______________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net........................................................................ (1,230,426) (258,134)
_____________ ______________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold................................................................ 17,525,998 10,556,104
Dividends reinvested......................................................................... 816,175 226,755
Cost of shares redeemed...................................................................... (7,545,368) (952,494)
_____________ ______________
Increase (Decrease) in Net Assets from Capital Stock Transactions.......................... 10,796,805 9,830,365
_____________ ______________
Total Increase (Decrease) in Net Assets.................................................. 12,187,891 9,755,708
NET ASSETS:
Beginning of Period.......................................................................... 9,755,708 -
_____________ ______________
End of Period................................................................................ $21,943,599 $ 9,755,708
============= ==============
Undistributed investment income-net............................................................ - $ 1,333
_____________ ______________
Shares Shares
_____________ ______________
CAPITAL SHARE TRANSACTIONS:
Shares sold.................................................................................. 1,396,403 858,167
Shares issued for dividends reinvested....................................................... 64,742 18,607
Shares redeemed.............................................................................. (600,098) (78,709)
_____________ ______________
Net Increase (Decrease) in Shares Outstanding............................................. 861,047 798,065
============= ==============
*From February 2, 1996 (commencement of operations) to July 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
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.
Year Ended July 31,
____________________________
1997 1996(1)
_______ _________
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period....................................................... $12.22 $12.50
_______ _________
Investment Operations:
Investment income-net...................................................................... .95 .46
Net realized and unrealized gain (loss)
on investments........................................................................... 1.01 (.28)
_______ _________
Total from Investment Operations........................................................... 1.96 .18
_______ _________
Distributions:
Dividends from investment income-net....................................................... (.95) (.46)
_______ _________
Net asset value, end of period............................................................. $13.23 $12.22
======= ========
TOTAL INVESTMENT RETURN........................................................................ 16.70% 3.05%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets.......................................... .52% -
Ratio of interest expense to average net assets............................................ .06% -
Ratio of net investment income
to average net assets.................................................................... 7.45% 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)................ .98% 2.50%(2)
Portfolio Turnover Rate.................................................................... 321.59% 139.38%(3)
Net Assets, end of period (000's Omitted).................................................. $21,944 $9,756
(1) From February 2, 1996 (commencement of operations) to July 31, 1996.
(2) Annualized.
(3) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS
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") is 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: Investments in securities (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, if any, 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 INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. At July 31, 1997,
there were no outstanding borrowings under either arrangement.
The average daily amount of borrowings outstanding under both
arrangements during the period ended July 31, 1997 was approximately
$173,500, with a related weighted average annualized interest rate of 6.03%.
The maximum amount borrowed at any time during the period ended July 31, 1997
was $3.2 million
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 .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 had undertaken through May 15,
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 Manager has currently undertaken from May 16, 1997 through July
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 .90 of 1% of the value of the Fund's average daily net assets.
The expense reimbursement, pursuant to the undertakings, amounted to $161,933
during the period ended July 31, 1997.
(b) Under the 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, 1997, the Fund was charged $41,236
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 $8,192 during the period ended July 31, 1997.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended July 31, 1997,
$7,695 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.
NOTE 4-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities and financial futures,
during the period ended July 31, 1997 amounted to $66,624,703 and
$53,885,320, respectively.
DREYFUS INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 contracts
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
July 31, 1997, and their related unrealized appreciation/depreciation are set
forth in the Statement of Financial Futures.
(b) At July 31, 1997, accumulated net unrealized appreciation on
investments and financial futures was $1,124,924, consisting of $1,161,574
gross unrealized appreciation and $36,650 gross unrealized depreciation.
At July 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 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 statements of investments and financial futures, of Dreyfus
Intermediate Term Income Fund (one of the series constituting Dreyfus
Investment Grade Bond Funds, Inc.), as of July 31, 1997, 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 includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures included
verification by examination of securities held as of July 31, 1997 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 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 Intermediate Term Income Fund at July 31, 1997, 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.
New York, New York
September 5, 1997
Registration Mark
[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. 082AR977
Registration Mark
[Dreyfus logo]
Intermediate Term
Income Fund
Annual Report
July 31, 1997
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
CORPORATE AND DREYFUS
PERIOD GOVERNMENT MASTER SHORT TERM
INDEX * INCOME FUND
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
7/31/97 13,293 13,649
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
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
MASTER TERM
PERIOD INDEX * INCOME FUND
2/2/96 10,000 10,000
4/30/96 9,711 9,857
7/31/96 9,843 10,151
10/31/96 10,216 10,539
1/31/97 10,330 10,923
4/30/97 10,400 11,082
7/31/97 10,905 11,846
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
