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PROSPECTUS OCTOBER 1, 1996
AS REVISED, AUGUST 1, 1997
DREYFUS INVESTMENT GRADE BOND FUNDS, INC.
DREYFUS SHORT TERM INCOME FUND
DREYFUS INTERMEDIATE TERM INCOME FUND
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DREYFUS INVESTMENT GRADE BOND FUNDS, INC. IS AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY (THE "COMPANY"), KNOWN AS A MUTUAL FUND. THE COMPANY
PERMITS YOU TO INVEST IN TWO SEPARATE SERIES WHICH ARE DESCRIBED IN THIS
PROSPECTUS (EACH, A "FUND" AND, COLLECTIVELY, THE "FUNDS")_DREYFUS SHORT
TERM INCOME FUND ("SHORT TERM INCOME FUND"), A NON-DIVERSIFIED SERIES, AND
DREYFUS INTERMEDIATE TERM INCOME FUND ("INTERMEDIATE TERM INCOME FUND"), A
DIVERSIFIED SERIES. EACH FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE YOU WITH
AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH THE PRESERVATION OF
CAPITAL. THE FUNDS DIFFER IN EFFECTIVE PORTFOLIO DURATION AND AVERAGE
PORTFOLIO MATURITY, WHICH IN TURN AFFECTS THEIR LEVEL OF INCOME AND DEGREE OF
SHARE PRICE FLUCTUATION.
EACH FUND INVESTS PRINCIPALLY IN A BROAD RANGE OF INVESTMENT GRADE
DEBT SECURITIES OF DOMESTIC AND FOREIGN ISSUERS. UNDER NORMAL MARKET
CONDITIONS, THE SHORT TERM INCOME FUND WILL INVEST IN A PORTFOLIO OF
SECURITIES THAT HAS AN EFFECTIVE DURATION AND AN EFFECTIVE AVERAGE PORTFOLIO
MATURITY OF THREE YEARS OR LESS. UNDER NORMAL MARKET CONDITIONS, THE
INTERMEDIATE TERM INCOME FUND WILL INVEST IN A PORTFOLIO OF SECURITIES THAT
HAS AN EFFECTIVE DURATION RANGING BETWEEN THREE AND EIGHT YEARS AND AN
EFFECTIVE AVERAGE PORTFOLIO MATURITY RANGING BETWEEN FIVE AND TEN YEARS.
YOU CAN INVEST, REINVEST OR REDEEM SHARES AT ANY TIME WITHOUT CHARGE
OR PENALTY.
EACH FUND PROVIDES FREE REDEMPTION CHECKS, WHICH YOU CAN USE IN
AMOUNTS OF $500 OR MORE FOR CASH OR TO PAY BILLS. YOU CONTINUE TO EARN INCOME
ON THE AMOUNT OF THE CHECK UNTIL IT CLEARS. YOU CAN PURCHASE OR REDEEM SHARES
BY TELEPHONE USING DREYFUS TELETRANSFER.
THE DREYFUS CORPORATION PROFESSIONALLY MANAGES EACH FUND'S PORTFOLIO.
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT THE FUNDS THAT
YOU SHOULD KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED OCTOBER 1, 1996, WHICH
MAY BE REVISED FROM TIME TO TIME, PROVIDES A FURTHER DISCUSSION OF CERTAIN
AREAS IN THIS PROSPECTUS AND OTHER MATTERS WHICH MAY BE OF INTEREST TO SOME
INVESTORS. IT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS INCORPORATED HEREIN BY REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION
MAINTAINS A WEB SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS THE STATEMENT OF
ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE FUNDS. FOR A FREE COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION, WRITE TO THE COMPANY AT 144 GLENN CURTISS BOULEVARD,
UNIONDALE, NEW YORK 11556-0144, OR CALL 1-800-645-6561. WHEN TELEPHONING, ASK
FOR OPERATOR 144.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE NET ASSET VALUE OF FUNDS OF THIS TYPE WILL FLUCTUATE FROM TIME TO TIME.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
ANNUAL FUND OPERATING EXPENSES.................... 4
CONDENSED FINANCIAL INFORMATION................... 5
DESCRIPTION OF THE FUNDS.......................... 6
MANAGEMENT OF THE FUNDS........................... 9
HOW TO BUY SHARES................................. 11
SHAREHOLDER SERVICES.............................. 13
HOW TO REDEEM SHARES ............................. 16
SHAREHOLDER SERVICES PLAN......................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES................ 19
PERFORMANCE INFORMATION........................... 20
GENERAL INFORMATION............................... 21
APPENDIX.......................................... 23
Page 2
[This Page Intentionally Left Blank]
Page 3
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
DREYFUS DREYFUS
SHORT TERM INTERMEDIATE TERM
INCOME FUND INCOME FUND
__________- __________--------
<S> <C> <C>
Management Fees .......................................... . .50% .75%
Other Expenses............................................ . .37% 1.75%
Total Fund Operating Expenses ............................ . .87% 2.50%
EXAMPLE:
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period:
DREYFUS DREYFUS
SHORT TERM INTERMEDIATE TERM
INCOME FUND INCOME FUND
__________- __________--------
1 YEAR $ 9 $ 25
3 YEARS $ 28 $ 78
5 YEARS $ 48 $133
10 YEARS $107 $284
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS
REPRESENTATIVE OF PAST AND FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, A FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist you in understanding
the costs and expenses borne by each Fund, the payment of which will reduce
investors' annual return. With respect to Dreyfus Short Term Income Fund,
Management Fees, Other Expenses and Total Fund Operating Expenses noted above
have been restated to reflect current fees. The information in the foregoing
table does not reflect any fee waivers or expense reimbursement arrangements
that may be in effect. With respect to Dreyfus Intermediate Term Income Fund,
operating expenses noted above have been annualized for the Fund's current
fiscal year. You can purchase Fund shares without charge directly from the
Funds' distributor; you may be charged a fee if you effect transactions in
Fund shares through a Service Agent (as defined below). See "Management of
the Funds," "How to Buy Shares" and "Shareholder Services Plan."
Page 4
CONDENSED FINANCIAL INFORMATION
The information in the following table has been audited by Ernst &
Young LLP, each Fund's independent auditors, whose reports thereon appear in
the Statement of Additional Information. Further financial data and related
notes are included in the Statement of Additional Information, available upon
request.
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>
SHORT TERM INCOME FUND INTERMEDIATE TERM INCOME FUND
------------------------------------ -----------------------------
YEAR ENDED JULY 31, PERIOD ENDED JULY 31,
------------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA: 1993(1) 1994 1995 1996 1996(2)
------ ---- ---- ---- -------
Net asset value, beginning of period $12.50 $12.47 $11.94 $11.89 $12.50
------ ---- ---- ---- -------
INVESTMENT OPERATIONS:
Investment income_net ............. .89 .84 .85 .78 .46
Net realized and unrealized (loss) on investments (.01) (.54) (.05) (.04) (.28)
------ ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS.... .88 .30 .80 .74 .18
DISTRIBUTIONS: ------ ---- ---- ---- ----
Dividends from investment income-net (.89) (.83) (.85) (.77) (.46)
Dividends from net realized gain on investments (.02) ._ ._ ._ ._
TOTAL DISTRIBUTIONS................. (.91) (.83) (.85) (.77) (.46)
---- ---- ---- ---- ----
Net asset value, end of period...... $12.47 $11.94 $11.89 $11.86 $12.22
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN............... 7.68%(3) 2.47% 7.05% 6.42% 3.05%(3)
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average net assets ._ .24% .61% .80% ._
Ratio of net investment income to
average net assets.................. 7.58%(3) 6.79% 7.26% 6.52% 7.70%(3)
Decrease reflected in above expense
ratios due to
undertakings by The Dreyfus Corporation 1.12%(3) .71% .34% .14% 2.50%(3)
Portfolio Turnover Rate............. 54.59%(4) 74.90% 511.62% 291.35% 139.38%(4)
Net Assets, end of period (000's omitted) $205,736 $277,028 $210,524 $189,693 $9,756
</TABLE>
(1) From August 18, 1992 (commencement of operations) to July 31, 1993.
(2) From February 2, 1996 (commencement of operations) through July 31, 1996.
(3) Annualized.
(4) Not annualized.
Further information about each Fund's performance is contained in
such Fund's annual report which may be obtained without charge by writing to
the address or calling the number set forth on the cover page of this
Prospectus.
Page 5
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVE
Each Fund's investment objective is to provide you with as high a
level of current income as is consistent with the preservation of capital. It
cannot be changed, as to a Fund, without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of such Fund's outstanding voting shares. There can be no
assurance that a Fund's investment objective will be achieved. Each Fund
pursues this objective in the manner described below.
MANAGEMENT POLICIES
Under normal market conditions, each Fund invests at least 65% of its
net assets in investment grade debt securities and securities with debt-like
characteristics of domestic and foreign issuers. These securities include
bonds, debentures, notes, money market instruments, mortgage-related
securities, asset-backed securities, municipal obligations, warrants,
convertible debt obligations and convertible preferred stock (collectively,
"Fixed-Income Securities"). See "Appendix_Certain Portfolio Securities." The
issuers may include domestic and foreign corporations, partnerships or
trusts, and governments or their political subdivisions, agencies or
instrumentalities. Each Fund may invest up to 30% of the value of its total
assets in securities of foreign issuers, including securities of companies
whose principal activities are in, or governments of, emerging markets. See
"Investment Considerations and Risks_Foreign Securities."
Under normal market conditions, the Short Term Income Fund will
invest in a portfolio of securities that has an effective duration of three
years or less and the Intermediate Term Income Fund will invest in a
portfolio of securities that has an effective duration ranging between three
and eight years. As a measure of a fixed-income security's cash flow,
duration is an alternative to the concept of "term to maturity" in assessing
the price volatility associated with changes in interest rates. Generally,
the longer the duration, the more volatility an investor should expect. For
example, the market price of a bond with a duration of two years would be
expected to decline 2% if interest rates rose 1%. Conversely, the market
price of the same bond would be expected to increase 2% if interest rates
fell 1%. The market price of a bond with a duration of four years would be
expected to increase or decline twice as much as the market price of a bond
with a two-year duration. Duration is a way of measuring a security's
maturity in terms of the average time required to receive the present value
of all interest and principal payments as opposed to its term to maturity.
The maturity of a security measures only the time until final payment is due;
it does not take account of the pattern of a security's cash flows over time,
which would include how cash flow is affected by prepayments and by changes
in interest rates. Incorporating a security's yield, coupon interest
payments, final maturity and option features into one measure, duration is
computed by determining the weighted average maturity of a bond's cash flows,
where the present values of the cash flows serve as weights. In computing the
duration of the Funds, The Dreyfus Corporation will estimate the duration of
obligations that are subject to features such as prepayment or redemption by
the issuer, put options retained by the investor or other imbedded options,
taking into account the influence of interest rates on prepayments and coupon
flows. This method of computing duration is known as option-adjusted
duration. See "Appendix_Certain Portfolio Securities_Mortgage-Related
Securities."
Investment grade Fixed-Income Securities are those rated at least Baa
by Moody's Investors Service, Inc. ("Moody's") or at least BBB by Standard &
Poor's Ratings Group ("S&P"), Fitch Investors Service, L.P. ("Fitch") or Duff
& Phelps Credit Rating Co. ("Duff"), or, if unrated, deemed to be of
comparable quality by The Dreyfus Corporation. Fixed-Income Securities rated
Baa by
Page 6
Moody's and BBB by S&P, Fitch and Duff are considered investment grade
obligations which lack outstanding investment characteristics and may have
speculative characteristics as well.
Each Fund may invest up to 35% of the value of its net assets in
Fixed-Income Securities rated lower than Baa by Moody's and BBB by S&P, Fitch
and Duff and as low as Caa by Moody's and CCC by S&P, Fitch and Duff, or, if
unrated, deemed to be of comparable quality by The Dreyfus Corporation.
Securities rated Caa by Moody's and CCC by S&P, Fitch and Duff are considered
to have predominantly speculative characteristics with respect to capacity to
pay interest and repay principal and to be of poor standing. Each Fund
currently intends to invest less than 35% of its net assets in Fixed-Income
Securities rated lower than investment grade or, if unrated, deemed to be of
comparable quality by The Dreyfus Corporation. See "Investment Considerations
and Risks_Lower Rated Securities" below for a discussion of certain risks,
and "Appendix" in the Statement of Additional Information.
Each Fund may invest in money market instruments consisting of U.S.
Government securities, certificates of deposit, time deposits, bankers'
acceptances, short-term investment grade corporate bonds and other short-term
debt instruments, and repurchase agreements, as set forth under
"Appendix_Certain Portfolio Securities_Money Market Instruments." Under
normal market conditions, neither Fund expects to have a substantial portion
of its assets invested in money market instruments. However, when The Dreyfus
Corporation determines that adverse market conditions exist, a Fund may adopt
a temporary defensive posture and invest all of its assets in money market
instruments. Each Fund also may invest in money market instruments in
anticipation of investing cash positions.
Annual portfolio turnover rate, under certain market conditions,
could exceed 200% for the Short Term Income Fund and is not expected to
exceed 100% for the Intermediate Term Fund. Higher portfolio turnover rates
usually generate additional brokerage commissions and expenses (which,
however, the Funds typically do not incur when they purchase portfolio
securities) and the short term gains realized from these transactions are
taxable to shareholders as ordinary income. Each Fund may engage in various
investment techniques, such as foreign currency transactions, options and
futures transactions, leveraging, and lending portfolio securities. The
Intermediate Term Income Fund also may engage in short-selling and interest
rate swaps. For a discussion of the investment techniques and their related
risks, see "Investment Considerations and Risks" and "Appendix_Investment
Techniques" below and "Investment Objective and Management
Policies_Management Policies" in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL_Each Fund's net asset value per share should be expected to
fluctuate. Investors should consider a Fund as a supplement to an overall
investment program and should invest only if they are willing to undertake
the risks involved. See "Investment Objective and Management
Policies_Management Policies" in the Statement of Additional Information for
a further discussion of certain risks.
FIXED-INCOME SECURITIES_Even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values
of Fixed-Income Securities also may be affected by changes in the credit
rating or financial condition of the issuer. Certain securities purchased by
a Fund, such as those rated Baa or lower by Moody's and BBB or lower by S&P,
Fitch and Duff, may be subject to such risk with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated fixed-income securities. Once the rating of a portfolio security has
been changed, the Fund will consider all circumstances deemed relevant in
determining whether to continue to hold the security. See "Lower Rated
Securities" and
Page 7
"Appendix_Certain Portfolio Securities_Ratings" below and "Appendix" in the
Statement of Additional Information.
LOWER RATED SECURITIES_Each Fund may invest up to 35% of its net assets in
higher yielding (and, therefore, higher risk) debt securities such as those
rated Ba by Moody's or BB by S&P, Fitch or Duff or as low as Caa by Moody's
or CCC by S&P, Fitch or Duff (commonly known as junk bonds). They may be
subject to certain risks with respect to the issuing entity and to greater
market fluctuations than certain lower yielding, higher rated fixed-income
securities. The retail secondary market for these securities may be less
liquid than that of higher rated securities; adverse conditions could make it
difficult at times for a Fund to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value. See
"Appendix_Certain Portfolio Securities_Ratings."
FOREIGN SECURITIES_Foreign securities markets generally are not as developed
or efficient as those in the United States. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the United States and, at times, volatility of price can be
greater than in the United States.
Because evidences of ownership of such securities usually are held
outside the United States, each Fund will be subject to additional risks
which include possible: adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental
restrictions which might adversely affect the payment of principal and
interest on the foreign securities or restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. See "Appendix_Investment
Techniques_Foreign Currency Transactions."
USE OF DERIVATIVES_Each Fund may invest in derivatives ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate.
The Derivatives each Fund may use include options and futures,
mortgage-related securities and asset-backed securities and, with respect to
the Intermediate Term Income Fund, interest rate swaps. While Derivatives can
be used effectively in furtherance of a Fund's investment objective, under
certain market conditions, they can increase the volatility of the Fund's net
asset value, can decrease the liquidity of the Fund's portfolio and make more
difficult the accurate pricing of the Fund's portfolio. See
"Appendix_Investment Techniques_Use of Derivatives" below and "Investment
Objective and Management Policies_Management Policies_Derivatives" in the
Statement of Additional Information.
NON-DIVERSIFIED STATUS (SHORT TERM INCOME FUND ONLY)_The classification of
the Short-Term Income Fund as a "non-diversified" investment company means
that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the 1940 Act. A "diversified"
investment company is required by the 1940 Act generally, with respect to 75%
of its total assets,
Page 8
to invest not more than 5% of such assets in the securities of a single
issuer. Since a relatively high percentage of the Short Term Income Fund's
assets may be invested in the securities of a limited number of issuers, some
of which may be within the same industry, the Fund's portfolio may be more
sensitive to changes in the market value of a single issuer. However, to meet
Federal tax requirements, at the close of each quarter the Fund may not have
more than 25% of its total assets invested in any one issuer and, with respect
to 50% of total assets, not more than 5% of its total assets invested in any
one issuer. These limitations do not apply to U.S. Government securities.
SIMULTANEOUS INVESTMENTS_Investment decisions for each Fund are made
independently from those of the other investment companies advised by The
Dreyfus Corporation. If, however, such other investment companies desire to
invest in, or dispose of, the same securities as a Fund, available
investments or opportunities for sales will be allocated equitably to each
investment company. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by a Fund or the price paid
or received by a Fund.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER_The Dreyfus Corporation, located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as each Fund's investment
adviser. The Dreyfus Corporation is a wholly-owned subsidiary of Mellon Bank,
N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of June 30, 1997, The Dreyfus Corporation managed or
administered approximately $87 billion in assets for approximately 1.7
million investor accounts nationwide.
The Dreyfus Corporation supervises and assists in the overall
management of each Fund's affairs under a Management Agreement with the
Company, subject to the authority of the Company's Board in accordance with
Maryland law. The primary portfolio manager for each Fund is Kevin M.
McClintock. He has held that position since February 1, 1996 for the Short
Term Income Fund and for the Intermediate Term Income Fund since its
inception, and has been employed by The Dreyfus Corporation since November
1995. From 1993 through October 1995, Mr. McClintock was Managing Director,
Fixed Income Investments, for Aeltus Investment Management, Inc., a
subsidiary of the Aetna Corporation. Prior thereto, he was employed in
various capacities by the Aetna Corporation and its subsidiaries, including
head of Separate Account Portfolio Management for Aetna Investment
Management. The Funds' other portfolio managers are identified in the
Statement of Additional Information. The Dreyfus Corporation also provides
research services for the Funds and for other funds advised by The Dreyfus
Corporation through a professional staff of portfolio managers and securities
analysts.
Mellon is a publicly owned multibank holding company incorporated
under Pennsylvania law in 1971 and registered under the Federal Bank Holding
Company Act of 1956, as amended. Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Mellon is among the twenty-five largest bank holding companies in
the United States based on total assets. Mellon's principal wholly-owned
subsidiaries are Mellon Bank, N.A., Mellon Bank (DE) National Association,
Mellon Bank (MD), The Boston Company, Inc., AFCO Credit Corporation and a
number of companies known as Mellon Financial Services Corporations. Through
its subsidiaries, including The Dreyfus Corporation, Mellon managed
approximately $259 billion in assets as of March 31, 1997, including
approximately $88 billion in proprietary mutual fund assets. As of March 31,
1997, Mellon, through various subsidiaries, provided non-investment services,
such as custodial or administration services, for more than $1.061 trillion
in assets, including approximately $58 billion in mutual fund assets.
Page 9
Under the terms of the Management Agreement, the Company has agreed
to pay The Dreyfus Corporation a monthly fee at the annual rate of .50 of 1%
of the value of the Short Term Income Fund's average daily net assets and .75
of 1% of the value of the Intermediate Term Income Fund's average daily net
assets. From time to time, The Dreyfus Corporation may waive receipt of its
fees and/or voluntarily assume certain expenses of a Fund, which would have
the effect of lowering the expense ratio of the Fund and increasing yield to
investors. A Fund will not pay The Dreyfus Corporation at a later time for
any amounts it may waive, nor will the Fund reimburse The Dreyfus Corporation
for any amounts it may assume. For the fiscal year ended July 31, 1996, the
Short Term Income Fund paid The Dreyfus Corporation a monthly management fee
at the effective annual rate of .36 of 1% of the value of the Fund's average
daily net assets pursuant to undertakings by The Dreyfus Corporation. For the
period February 2, 1996 (commencement of operations) through July 31, 1996,
no management fee was paid by the Intermediate Term Income Fund to The
Dreyfus Corporation pursuant to undertakings by The Dreyfus Corporation.
In allocating brokerage transactions for the Funds, The Dreyfus
Corporation seeks to obtain the best execution of orders at the most
favorable net price. Subject to this determination, The Dreyfus Corporation
may consider, among other things, the receipt of research services and/or the
sale of shares of a Fund or other funds managed, advised or administered by
The Dreyfus Corporation as factors in the selection of broker-dealers to
execute portfolio transactions for the Fund. See "Portfolio Transactions" in
the Statement of Additional Information.
The Dreyfus Corporation may pay the Funds' distributor for
shareholder services from The Dreyfus Corporation's own assets, including
past profits but not including the management fee paid by the Funds. The
Funds' distributor may use part or all of such payments to pay Service Agents
in respect of these services.
EXPENSES_All expenses incurred in the operation of the Company are borne by
the Company, except to the extent specifically assumed by The Dreyfus
Corporation. The expenses borne by the Company include: organizational
costs, taxes, interest, loan commitment fees, interest and distributions paid
on securities sold short, brokerage fees and commissions, if any, fees of
Board members who are not officers, directors, employees or holders of 5% or
more of the outstanding voting securities of The Dreyfus Corporation or any
of its affiliates, Securities and Exchange Commission fees, state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of independent
pricing services, costs of maintaining the Company's existence, costs
attributable to investor services (including, without limitation, telephone
and personnel expenses), costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders, costs of shareholders' reports and
meetings, and any extraordinary expenses. Expenses attributable to a Fund are
charged against the assets of the Fund; other expenses of the Company are
allocated between the Funds on the basis determined by the Board, including,
but not limited to, proportionately in relation to the net assets of each
Fund.
DISTRIBUTOR_The Funds' distributor is Premier Mutual Fund Services, Inc.
(the "Distributor"), located at 60 State Street, Boston, Massachusetts 02109.
The Distributor's ultimate parent is Boston Institutional Group, Inc.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN_Dreyfus Transfer, Inc.,
a wholly-owned subsidiary of The Dreyfus Corporation, P.O. Box 9671,
Providence, Rhode Island 02940-9671,
Page 10
is the Funds' Transfer and Dividend Disbursing Agent (the "Transfer Agent").
Mellon Bank, N.A., located at One Mellon Bank Center, Pittsburgh, Pennsylvania
15258, serves as the Funds' Custodian.
HOW TO BUY SHARES
Fund shares are sold without a sales charge. You may be charged a
nominal fee if you effect transactions in Fund shares through a securities
dealer, bank or other financial institution (collectively, "Service Agents").
Stock certificates are issued only upon your written request. No certificates
are issued for fractional shares. Each Fund reserves the right to reject any
purchase order.
The minimum initial investment is $2,500, or $1,000 if you are a
client of a Service Agent which has made an aggregate minimum initial
purchase for its customers of $2,500. Subsequent investments must be at least
$100. However, the minimum initial investment for Dreyfus-sponsored Keogh
Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only one participant is $750,
with no minimum for subsequent purchases. Individuals who open an IRA also
may open a non-working spousal IRA with a minimum initial investment of $250.
Subsequent investments in a spousal IRA must be at least $250. The initial
investment must be accompanied by the Account Application. For full-time or
part-time employees of The Dreyfus Corporation or any of its affiliates or
subsidiaries, directors of The Dreyfus Corporation, Board members of a fund
advised by The Dreyfus Corporation, including members of the Company's Board,
or the spouse or minor child of any of the foregoing, the minimum initial
investment is $1,000. For full-time or part-time employees of The Dreyfus
Corporation or any of its affiliates or subsidiaries who elect to have a
portion of their pay directly deposited into their Fund account, the minimum
initial investment is $50. Each Fund reserves the right to offer Fund shares
without regard to minimum purchase requirements to employees participating in
certain qualified or non-qualified employee benefit plans or other programs
where contributions or account information can be transmitted in a manner and
form acceptable to the Fund. Each Fund reserves the right to vary further the
initial and subsequent investment minimum requirements at any time. Fund
shares also are offered without regard to the minimum initial investment
requirements through Dreyfus-Automatic Asset BuilderRegistration Mark,
Dreyfus Government Direct Deposit Privilege or Dreyfus Payroll Savings Plan
pursuant to the Dreyfus Step Program described under "Shareholder Services."
These services enable you to make regularly scheduled investments and may
provide you with a convenient way to invest for long-term financial goals.
You should be aware, however, that periodic investment plans do not guarantee
a profit and will not protect an investor against loss in a declining market.
You may purchase Fund shares by check or wire, or through the Dreyfus
TELETRANSFER Privilege described below. Checks should be made payable to "The
Dreyfus Family of Funds," or, if for Dreyfus retirement plan accounts, to
"The Dreyfus Trust Company, Custodian" and should specify the Fund in which
you are investing. Payments to open new accounts which are mailed should be
sent to The Dreyfus Family of Funds, P.O. Box 9387, Providence, Rhode Island
02940-9387, together with your Account Application. For subsequent
investments, your Fund account number should appear on the check and an invest
ment slip should be enclosed and sent to The Dreyfus Family of Funds, P.O.
Box 105, Newark, New Jersey 07101-0105. For Dreyfus retirement plan accounts,
both initial and subsequent investments should be sent to The Dreyfus Trust
Company, Custodian, P.O. Box 6427, Providence, Rhode Island 02940-6427.
Neither initial nor subsequent investments should be made by third party
check. Purchase orders may be delivered in person only to a Dreyfus Financial
Center. THESE ORDERS WILL BE FORWARDED TO THE FUND AND WILL BE PROCESSED ONLY
UPON RECEIPT THEREBY. For the location of the nearest Dreyfus Financial
Center, please call one of the telephone numbers listed under "General
Information."
Page 11
Wire payments may be made if your bank account is in a commercial
bank that is a member of the Federal Reserve System or any other bank having
a correspondent bank in New York City. Immediately available funds may be
transmitted by wire to The Bank of New York, together with the applicable
Fund's DDA# as shown below, for purchase of Fund shares in your name: DDA#
8900117028/Dreyfus Investment Grade Bond Funds, Inc./Dreyfus Short Term Income
Fund; or DDA#8900275944/Dreyfus Investment Grade Bond Funds, Inc./Dreyfus
Intermediate Term Income Fund. The wire must include your Fund account
number (for new accounts, your Taxpayer Identification Number ("TIN") should
be included instead), account registration and dealer number, if applicable.
If your initial purchase of Fund shares is by wire, you should call
1-800-645-6561 after completing your wire payment to obtain your Fund account
number. Please include your Fund account number on the Account Application
and promptly mail the Account Application to the Fund, as no redemptions will
be permitted until the Account Application is received. You may obtain
further information about remitting funds in this manner from your bank. All
payments should be made in U.S. dollars and, to avoid fees and delays, should
be drawn only on U.S. banks. A charge will be imposed if any check used for
investment in your account does not clear. Each Fund makes available to
certain large institutions the ability to issue purchase instructions through
compatible computer facilities.
Subsequent investments also may be made by electronic transfer of
funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member. You must direct the
institution to transmit immediately available funds through the Automated
Clearing House to The Bank of New York with instructions to credit your Fund
account. The instructions must specify your Fund account registration and
Fund account number PRECEDED BY THE DIGITS "1111."
Fund shares are sold on a continuous basis at the net asset value per
share next determined after an order in proper form is received by the
Transfer Agent or other agent. Net asset value per share is determined as of
the close of trading on the floor of the New York Stock Exchange (currently
4:00 p.m., New York time), on each day the New York Stock Exchange is open
for business. For purposes of determining net asset value, options and
futures contracts will be valued 15 minutes after the close of trading on the
floor of the New York Stock Exchange. Net asset value per share is computed
by dividing the value of a Fund's net assets (i.e., the value of its assets
less liabilities) by the total number of Fund shares outstanding. Each Fund's
investments are valued generally by using available market quotations or at
fair value which may be determined by one or more pricing services approved
by the Company's Board. Each pricing services' procedures are reviewed under
the general supervision of the Board. For further information regarding the
methods employed in valuing the Funds' investments, see "Determination of Net
Asset Value" in the Statement of Additional Information.
For certain institutions that have entered into agreements with the
Distributor, payment for the purchase of Fund shares may be transmitted, and
must be received by the Transfer Agent, within three business days after the
order is placed. If such payment is not received within three business days
after the order is placed, the order may be canceled and the institution
could be held liable for resulting fees and/or losses.
The Distributor may pay dealers a fee of up to .5% of the amount
invested through such dealers in Fund shares by employees participating in
qualified or non-qualified employee benefit plans or other programs where (i)
the employers or affiliated employers maintaining such plans or programs have
a minimum of 250 employees eligible for participation in such plans or
programs or (ii) such plan's or program's aggregate investment in the Dreyfus
Family of Funds or certain other products made available by the Distributor
to such plans or programs exceeds $1,000,000 ("Eligible Benefit Plans").
Shares of funds in the Dreyfus Family of Funds then held by Eligible Benefit
Plans will be aggregated to deter-
Page 12
mine the fee payable. The Distributor reserves the right to cease paying these
fees at any time. The Distributor will pay such fees from its own funds, other
than amounts received from a Fund, including past profits or any other source
available to it.
Federal regulations require that you provide a certified TIN upon
opening or reopening an account. See "Dividends, Distributions and Taxes" and
the Account Application for further information concerning this requirement.
Failure to furnish a certified TIN to a Fund could subject you to a $50
penalty imposed by the Internal Revenue Service (the "IRS").
DREYFUS TELETRANSFER PRIVILEGE_You may purchase shares (minimum $500,
maximum $150,000 per day) by telephone if you have checked the appropriate
box and supplied the necessary information on the Account Application or have
filed a Shareholder Services Form with the Transfer Agent. The proceeds will
be transferred between the bank account designated in one of these documents
and your Fund account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be so designated.
A Fund may modify or terminate this Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER purchase of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
SHAREHOLDER SERVICES
FUND EXCHANGES
You may purchase, in exchange for shares of a Fund, shares of certain
other funds managed or administered by The Dreyfus Corporation, to the extent
such shares are offered for sale in your state of residence. These funds have
different investment objectives which may be of interest to you. If you
desire to use this service, you should consult your Service Agent or call
1-800-645-6561 to determine if it is available and whether any conditions are
imposed on its use.
To request an exchange, you must give exchange instructions to the
Transfer Agent in writing or by telephone. Before any exchange, you must
obtain and should review a copy of the current prospectus of the fund into
which the exchange is being made. Prospectuses may be obtained by calling
1-800-645-6561. Except in the case of personal retirement plans, the shares
being exchanged must have a current value of at least $500; furthermore, when
establishing a new account by exchange, the shares being exchanged must have
a value of at least the minimum initial investment required for the fund into
which the exchange is being made. The ability to issue exchange instructions
by telephone is given to all Fund shareholders automatically, unless you
check the applicable "No" box on the Account Application, indicating that you
specifically refuse this Privilege. The Telephone Exchange Privilege may be
established for an existing account by written request, signed by all
shareholders on the account, by a separate signed Shareholder Services Form,
available by calling 1-800-645-6561 or, by oral request from any of the
authorized signatories on the account, also by calling 1-800-645-6561. If you
have established the Telephone Exchange Privilege, you may telephone exchange
instructions (including over The Dreyfus TouchRegistration Mark Automated
Telephone System) by calling 1-800-645-6561. If you are calling from
overseas, call 516-794-5452. See "How to Redeem Shares_Procedures." Upon an
exchange into a new account, the following shareholder services and
privileges, as applicable and where available, will be automatically carried
over to the fund into which the exchange is made: Telephone Exchange
Privilege, Check Redemption Privilege, Wire Redemption Privilege, Telephone
Redemption Privilege, Dreyfus TELETRANSFER Privilege and the dividend/capital
gain distribution option (except for Dreyfus Dividend Sweep) selected by the
investor.
Page 13
Shares will be exchanged at the next determined net asset value;
however, a sales load may be charged with respect to exchanges into funds
sold with a sales load. If you are exchanging into a fund that charges a
sales load, you may qualify for share prices which do not include the sales
load or which reflect a reduced sales load, if the shares you are exchanging
were: (a) purchased with a sales load, (b) acquired by a previous exchange
from shares purchased with a sales load, or (c) acquired through reinvestment
of dividends or distributions paid with respect to the foregoing categories
of shares. To qualify, at the time of the exchange you must notify the
Transfer Agent or your Service Agent must notify the Distributor. Any such
qualification is subject to confirmation of your holdings through a check of
appropriate records. See "Shareholder Services" in the Statement of
Additional Information. No fees currently are charged shareholders directly
in connection with exchanges, although each Fund reserves the right, upon not
less than 60 days' written notice, to charge shareholders a nominal fee in
accordance with rules promulgated by the Securities and Exchange Commission.
Each Fund reserves the right to reject any exchange request in whole or in
part. The availability of Fund Exchanges may be modified or terminated at any
time upon notice to shareholders. See "Dividends, Distributions and Taxes."
DREYFUS AUTO-EXCHANGE PRIVILEGE
Dreyfus Auto-Exchange Privilege enables you to invest regularly (on a
semi-monthly, monthly, quarterly or annual basis), in exchange for shares of
a Fund, in shares of certain other funds in the Dreyfus Family of Funds of
which you are a shareholder. The amount you designate, which can be expressed
either in terms of a specific dollar or share amount ($100 minimum), will be
exchanged automatically on the first and/or fifteenth day of the month
according to the schedule you have selected. Shares will be exchanged at the
then-current net asset value; however, a sales load may be charged with
respect to exchanges into funds sold with a sales load. See "Shareholder
Services" in the Statement of Additional Information. The right to exercise
this Privilege may be modified or canceled by a Fund or the Transfer Agent.
You may modify or cancel your exercise of this Privilege at any time by
mailing written notification to The Dreyfus Family of Funds, P.O. Box 9671,
Providence, Rhode Island 02940-9671. A Fund may charge a service fee for the
use of this Privilege. No such fee currently is contemplated. See "Dividends,
Distributions and Taxes." For more information concerning this Privilege and
the funds in the Dreyfus Family of Funds eligible to participate in this
Privilege, or to obtain a Dreyfus Auto-Exchange Authorization Form, please
call toll free 1-800-645-6561.
DREYFUS-AUTOMATIC ASSET BUILDERRegistration Mark
Dreyfus-AUTOMATIC Asset Builder permits you to purchase Fund shares
(minimum of $100 and maximum of $150,000 per transaction) at regular
intervals selected by you. Fund shares are purchased by transferring funds
from the bank account designated by you. At your option, the account
designated by you will be debited in the specified amount, and Fund shares
will be purchased, once a month, on either the first or fifteenth day, or
twice a month, on both days. Only an account maintained at a domestic
financial institution which is an Automated Clearing House member may be so
designated. To establish a Dreyfus-AUTOMATIC Asset Builder account, you must
file an authorization form with the Transfer Agent. You may obtain the
necessary authorization form by calling 1-800-645-6561. You may cancel your
participation in this Privilege or change the amount of purchase at any time
by mailing written notification to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427, and the notification will be effective three
business days following receipt. A Fund may modify or terminate this
Privilege at any time or charge a service fee. No such fee currently is
contemplated.
Page 14
DREYFUS GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Dreyfus Government Direct Deposit Privilege enables you to purchase
Fund shares (minimum of $100 and maximum of $50,000 per transaction) by
having Federal salary, Social Security, or certain veterans', military or
other payments from the Federal government automatically deposited into your
Fund account. You may deposit as much of such payments as you elect. To
enroll in Dreyfus Government Direct Deposit, you must file with the Transfer
Agent a completed Direct Deposit Sign-Up Form for each type of payment that
you desire to include in this Privilege. The appropriate form may be obtained
by calling 1-800-645-6561. Death or legal incapacity will terminate your
participation in this Privilege. You may elect at any time to terminate your
participation by notifying in writing the appropriate Federal agency. A Fund
may terminate your participation upon 30 days' notice to you.
DREYFUS PAYROLL SAVINGS PLAN
Dreyfus Payroll Savings Plan permits you to purchase Fund shares
(minimum of $100 per transaction) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have part or all of your
paycheck transferred to your existing Dreyfus account electronically through
the Automated Clearing House system at each pay period. To establish a
Dreyfus Payroll Savings Plan account, you must file an authorization form
with your employer's payroll department. Your employer must complete the
reverse side of the form and return it to The Dreyfus Family of Funds, P.O.
Box 9671, Providence, Rhode Island 02940-9671. You may obtain the necessary
authorization form by calling 1-800-645-6561. You may change the amount of
purchase or cancel the authorization only by written notification to your
employer. It is the sole responsibility of your employer, not the
Distributor, The Dreyfus Corporation, a Fund, the Transfer Agent or any other
person, to arrange for transactions under the Dreyfus Payroll Savings Plan. A
Fund may modify or terminate this Privilege at any time or charge a service
fee. No such fee currently is contemplated.
DREYFUS STEP PROGRAM
Dreyfus Step Program enables you to purchase Fund shares without
regard to the Fund's minimum initial investment requirements through Dreyfus-
AUTOMATIC Asset Builder, Dreyfus Government Direct Deposit Privilege or
Dreyfus Payroll Savings Plan. To establish a Dreyfus Step Program account,
you must supply the necessary information on the Account Application and file
the required authorization form(s) with the Transfer Agent. For more
information concerning this Program, or to request the necessary
authorization form(s), please call toll free 1-800-782-6620. You may
terminate your participation in this Program at any time by discontinuing
your participation in Dreyfus-AUTOMATIC Asset Builder, Dreyfus Government
Direct Deposit Privilege or Dreyfus Payroll Savings Plan, as the case may be,
as provided under the terms of such Privilege(s). A Fund may modify or
terminate this Program at any time. Investors who wish to purchase Fund
shares through the Dreyfus Step Program in conjunction with a
Dreyfus-sponsored retirement plan may do so only for IRAs, SEP-IRAs and IRA
"Rollover Accounts."
DREYFUS DIVIDEND OPTIONS
Dreyfus Dividend Sweep enables you to invest automatically dividends
or dividends and capital gain distributions, if any, paid by a Fund in
shares of another fund in the Dreyfus Family of Funds of which you are a
shareholder. Shares of the other fund will be purchased at the then-current
net asset value; however, a sales load may be charged with respect to
investments in shares of a fund sold with a sales load. If you are investing
in a fund that charges a sales load, you may qualify for share prices which
do not include the sales load or which reflect a reduced sales load. If you
are investing in a fund that charges a contingent deferred sales charge, the
shares purchased will be subject on redemption to the contingent deferred
sales charge, if any, applicable to the purchased shares. See "Shareholder
Services"
Page 15
in the Statement of Additional Information. Dreyfus Dividend ACH
permits you to transfer electronically dividends or dividends and capital
gain distributions, if any, from a Fund to a designated bank account. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. Banks may charge a fee for this
service.
For more information concerning these privileges or to request a
Dividend Options Form, please call toll free 1-800-645-6561. You may cancel
these privileges by mailing written notification to The Dreyfus Family of
Funds, P.O. Box 9671, Providence, Rhode Island 02940-9671. To select a new
fund after cancellation, you must submit a new Dividend Options Form.
Enrollment in or cancellation of these privileges is effective three business
days following receipt. These privileges are available only for existing
accounts and may not be used to open new accounts. Minimum subsequent
investments do not apply for Dreyfus Dividend Sweep. A Fund may modify or
terminate these privileges at any time or charge a service fee. No such fee
currently is contemplated. Shares held under Keogh Plans, IRAs or other
retirement plans are not eligible for Dreyfus Dividend Sweep.
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly or quarterly
basis if you have a $5,000 minimum account. An application for the Automatic
Withdrawal Plan can be obtained by calling 1-800-645-6561. The Automatic
Withdrawal Plan may be ended at any time by you, a Fund or the Transfer
Agent. Shares for which certificates have been issued may not be redeemed
through the Automatic Withdrawal Plan.
RETIREMENT PLANS
Each Fund offers a variety of pension and profit-sharing plans,
including Keogh Plans, IRAs, SEP-IRAs and IRA "Rollover Accounts," 401(k)
Salary Reduction Plans and 403(b)(7) Plans. Plan support services also are
available. You can obtain details on the various plans by calling the
following numbers toll free: for Keogh Plans, please call 1-800-358-5566; for
IRAs and IRA "Rollover Accounts," please call 1-800-645-6561; for SEP-IRAs,
401(k) Salary Reduction Plans and 403(b)(7) Plans, please call 1-800-322-7880.
HOW TO REDEEM SHARES
GENERAL
You may request redemption of your shares at any time. Redemption
requests should be transmitted to the Transfer Agent as described below. When
a request is received in proper form, the Fund will redeem the shares at the
next determined net asset value.
Neither Fund imposes any charges when shares are redeemed. Service
Agents may charge their clients a nominal fee for effecting redemptions of
Fund shares. Any certificates representing Fund shares being redeemed must be
submitted with the redemption request. The value of the shares redeemed may
be more or less than their original cost, depending upon the Fund's
then-current net asset value.
Each Fund ordinarily will make payment for all shares redeemed within
seven days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. HOWEVER, IF YOU HAVE PURCHASED FUND SHARES BY CHECK, BY DREYFUS
TELETRANSFER PRIVILEGE OR THROUGH DREYFUS-AUTOMATIC ASSET BUILDER AND
SUBSEQUENTLY SUBMIT A WRITTEN REDEMPTION REQUEST TO THE TRANSFER AGENT, THE
REDEMPTION PROCEEDS WILL BE TRANSMITTED TO YOU PROMPTLY UPON BANK CLEARANCE
OF YOUR PURCHASE CHECK, DREYFUS TELETRANSFER PURCHASE OR DREYFUS-AUTOMATIC
ASSET BUILDER ORDER, WHICH MAY TAKE UP TO EIGHT BUSINESS DAYS OR MORE. IN
ADDITION, THE FUNDS WILL NOT HONOR REDEMPTION CHECKS UNDER THE CHECK
REDEMPTION PRIVILEGE, AND WILL REJECT REQUESTS TO REDEEM SHARES BY WIRE OR
TELEPHONE OR PURSUANT TO THE
Page 16
DREYFUS TELETRANSFER PRIVILEGE, FOR A PERIOD OF EIGHT BUSINESS DAYS AFTER
RECEIPT BY THE TRANSFER AGENT OF THE PURCHASE CHECK, THE DREYFUS TELETRANSFER
PURCHASE OR THE DREYFUS-AUTOMATIC ASSET BUILDER ORDER AGAINST WHICH SUCH
REDEMPTION IS REQUESTED. THESE PROCEDURES WILL NOT APPLY IF YOUR SHARES WERE
PURCHASED BY WIRE PAYMENT, OR IF YOU OTHERWISE HAVE A SUFFICIENT COLLECTED
BALANCE IN YOUR ACCOUNT TO COVER THE REDEMPTION REQUEST. PRIOR TO THE TIME ANY
REDEMPTION IS EFFECTIVE, DIVIDENDS ON SUCH SHARES WILL ACCRUE AND BE PAYABLE,
AND YOU WILL BE ENTITLED TO EXERCISE ALL OTHER RIGHTS OF BENEFICIAL OWNERSHIP.
Fund shares will not be redeemed until the Transfer Agent has received your
Account Application.
Each Fund reserves the right to redeem your account at its option
upon not less than 45 days' written notice if your account's net asset value
is $500 or less and remains so during the notice period.
PROCEDURES
You may redeem shares by using the regular redemption procedure
through the Transfer Agent, or, if you have checked the appropriate box and
supplied the necessary information on the Account Application or have filed a
Shareholder Services Form with the Transfer Agent. Clients of certain
securities dealers may redeem shares through their securities dealers. Each
Fund makes available to certain large institutions the ability to issue
redemption instructions through compatible computer facilities. Each Fund
reserves the right to refuse any request made by wire or telephone, including
requests made shortly after a change of address, and may limit the amount
involved or the number of such requests. A Fund may modify or terminate any
redemption Privilege at any time or charge a service fee upon notice to
shareholders. No such fee currently is contemplated. Shares held under Keogh
Plans, IRAs or other retirement plans, and shares for which certificates have
been issued, are not eligible for the Check Redemption, Wire Redemption,
Telephone Redemption or Dreyfus TELETRANSFER Privilege.
The Telephone Redemption Privilege or Telephone Exchange Privilege
(which is granted automatically unless you refuse it) authorizes the Transfer
Agent to act on telephone instructions (including over The Dreyfus
TouchRegistration
Mark Automated Telephone System) from any person representing himself or
herself to be you, and reasonably believed by the Transfer Agent to be
genuine. Each Fund will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm
that instructions are genuine and, if it does not follow such procedures, the
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent instructions. Neither the Funds nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be
genuine.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Transfer Agent by telephone to
request a redemption or exchange of Fund shares. In such cases, you should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in your redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, the Fund's net asset value may fluctuate.
REGULAR REDEMPTION_Under the regular redemption procedure, you may redeem
shares by written request mailed to The Dreyfus Family of Funds, P.O. Box
9671, Providence, Rhode Island 02940-9671, or, if for Dreyfus retirement plan
accounts, to The Dreyfus Trust Company, Custodian, P.O. Box 6427, Providence,
Rhode Island 02940-6427. Redemption requests may be delivered in person only
to a Dreyfus Financial Center. THESE REQUESTS WILL BE FORWARDED TO THE FUND
AND WILL BE PROCESSED ONLY UPON RECEIPT THEREBY. For the location of the
nearest Dreyfus Financial Center, please call one of the telephone numbers
listed under "General Information." Redemption requests must be signed by
each shareholder, including each owner of a joint account, and each signature
must be guaranteed. The Transfer Agent has
Page 17
adopted standards and procedures pursuant to which signature-guarantees in
proper form generally will be accepted from domestic banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from
participants in the New York Stock Exchange Medallion Signature Program, the
Securities Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges
Medallion Program. If you have any questions with respect to
signature-guarantees, please call one of the telephone numbers listed under
"General Information."
Redemption proceeds of at least $1,000 will be wired to any member
bank of the Federal Reserve System in accordance with a written
signature-guaranteed request.
CHECK REDEMPTION PRIVILEGE_You may write Redemption Checks drawn on your
Fund account. Redemption Checks may be made payable to the order of any
person in the amount of $500 or more. Potential fluctuations in the net asset
value of the Fund's shares should be considered in determining the amount of
the check. Redemption Checks should not be used to close your account.
Redemption Checks are free, but the Transfer Agent will impose a fee for
stopping payment of a Redemption Check upon your request or if the Transfer
Agent cannot honor a Redemption Check due to insufficient funds or other
valid reason. You should date your Redemption Checks with the current date
when you write them. Please do not postdate your Redemption Checks. If you
do, the Transfer Agent will honor upon presentment, even if presented before
the date of the check, all postdated Redemption Checks which are dated within
six months of presentment for payment, if they are otherwise in good order.
If you hold shares in a Dreyfus sponsored IRA account, you may be permitted
to make withdrawals from your IRA account using checks furnished to you by
The Dreyfus Trust Company. This Privilege will be terminated immediately,
without notice, with respect to any account which is, or becomes, subject to
backup withholding on redemptions (see "Dividends, Distributions and Taxes").
Any Redemption Check written on an account which has become subject to backup
withholding on redemptions will not be honored by the Transfer Agent.
WIRE REDEMPTION PRIVILEGE_You may request by wire or telephone that
redemption proceeds (minimum $1,000) be wired to your account at a bank which
is a member of the Federal Reserve System, or a correspondent bank if your
bank is not a member. Holders of jointly registered Fund or bank accounts may
have redemption proceeds of not more than $250,000 wired within any 30-day
period. You may telephone redemption requests by calling 1-800-645-6561 or,
if you are calling from overseas, call 516-794-5452. The Statement of
Additional Information sets forth instructions for transmitting redemption
requests by wire.
TELEPHONE REDEMPTION PRIVILEGE_You may request by telephone that redemption
proceeds (maximum $150,000 per day) be paid by check and mailed to your
address. You may telephone redemption instructions by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452. The telephone
redemption privilege is granted automatically unless you refuse it.
DREYFUS TELETRANSFER PRIVILEGE_You may request by telephone that redemption
proceeds (minimum $500 per day) be transferred between your Fund account and
your bank account. Only a bank account maintained in a domestic financial
institution which is an Automated Clearing House member may be designated.
Redemption proceeds will be on deposit in your account at an Automated
Clearing House member bank ordinarily two days after receipt of the
redemption request. Holders of jointly registered Fund or bank accounts may
redeem through the Dreyfus TELETRANSFER Privilege for transfer to their bank
account not more than $250,000 within any 30-day period.
If you have selected the Dreyfus TELETRANSFER Privilege, you may
request a Dreyfus TELETRANSFER redemption of shares by calling 1-800-645-6561
or, if you are calling from overseas, call 516-794-5452.
Page 18
SHAREHOLDER SERVICES PLAN
The Company has adopted a Shareholder Services Plan with respect to
each Fund, pursuant to which it pays the Distributor for the provision of
certain services to Fund shareholders a fee at the annual rate of .20 of 1%
of the value of the Short Term Income Fund's average daily net assets and .25
of 1% of the value of the Intermediate Term Income Fund's average daily net
assets. The services provided may include personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding the
Fund and providing reports and other information, and services related to the
maintenance of shareholder accounts. The Distributor may make payments to
Service Agents in respect of these services. The Distributor determines the
amounts to be paid to Service Agents.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Under the Internal Revenue Code of 1986, as amended (the "Code"),
each Fund is treated as a separate corporation for purposes of qualification
and taxation as a regulated investment company. Each Fund ordinarily declares
dividends from its net investment income on each day the New York Stock
Exchange is open for business. Each Fund's earnings for Saturdays, Sundays
and holidays are declared as dividends on the next business day. Dividends
usually are paid on the last business day of each month. If you redeem all
shares in your account at any time during the month, all dividends to which
you are entitled will be paid to you along with the proceeds of the
redemption. If you are an omnibus accountholder and indicate in a partial
redemption request that a portion of any accrued dividends to which such
account is entitled belongs to an underlying accountholder who has redeemed
all shares in his or her account, such portion of the accrued dividends will
be paid to you along with the proceeds of the redemption. Distributions from
net realized securities gains, if any, generally are declared and paid once a
year, but a Fund may make distributions on a more frequent basis to comply
with the distribution requirements of the Code, in all events in a manner
consistent with the provisions of the 1940 Act. Neither Fund will make
distributions from net realized securities gains unless capital loss
carryovers, if any, have been utilized or have expired. You may choose
whether to receive dividends and distributions in cash or to reinvest in
additional shares at net asset value. All expenses are accrued daily and
deducted before declaration of dividends to investors.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by a Fund will be taxable to U.S. shareholders as
ordinary income whether received in cash or reinvested in additional shares.
No dividend paid by a Fund will qualify for the dividends received deduction
allowable to certain U.S. corporations. Distributions from net realized
long-term securities gains of a Fund will be taxable to U.S. shareholders as
long-term capital gains for Federal income tax purposes, regardless of how
long shareholders have held their Fund shares and whether such distributions
are received in cash or reinvested in additional Fund shares. The Code
provides that the net capital gain of an individual generally will not be
subject to Federal income tax at a rate in excess of 28%. Dividends and
distributions may be subject to state and local taxes.
Dividends derived from net investment income, together with
distributions from net realized short-term securities gains and all or a
portion of any gains realized from the sale or other disposition of certain
market discount bonds, paid by a Fund to a foreign investor generally are
subject to U.S. nonresident withholding taxes at the rate of 30%, unless the
foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from net realized long-term securities gains paid by a
Fund to a foreign investor as well as the proceeds of any redemptions from a
foreign investor's account, regardless
Page 19
of the extent to which gain or loss may be realized, generally will not be
subject to U.S. nonresident withholding tax. However, such distributions may
be subject to backup withholding, as described below, unless the foreign
investor certifies his non-U.S. residency status.
Notice as to the tax status of your dividends and distributions will
be mailed to you annually. You also will receive periodic summaries of your
account which will include information as to dividends and distributions from
securities gains, if any, paid during the year.
The exchange of shares of one fund for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by
the shareholder and, therefore, an exchanging shareholder may realize a
taxable gain or loss.
Federal regulations generally require a Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN
furnished in connection with opening an account is correct or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a Federal income tax return. Furthermore, the IRS may
notify a Fund to institute backup withholding if the IRS determines a
shareholder's TIN is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the
record owner of the account, and may be claimed as a credit on the record
owner's Federal income tax return.
Management of the Company believes that each Fund has qualified for
the fiscal year ended July 31, 1996 as a "regulated investment company" under
the Code. Each Fund intends to continue to so qualify if such qualification
is in the best interests of its shareholders. Qualification as a regulated
investment company relieves the Fund of any liability for Federal income tax
to the extent its earnings are distributed in accordance with applicable
provisions of the Code. Each Fund is subject to a non-deductible 4% excise
tax, measured with respect to certain undistributed amounts of taxable
investment income and capital gains.
You should consult your tax adviser regarding specific questions as
to Federal, state or local taxes.
PERFORMANCE INFORMATION
For purposes of advertising, performance may be calculated on several
bases, including current yield, average annual total return and/or total
return.
Current yield refers to a Fund's annualized net investment income per
share over a 30-day period, expressed as a percentage of the net asset value
per share at the end of the period. For purposes of calculating current
yield, the amount of net investment income per share during that 30-day
period, computed in accordance with regulatory requirements, is compounded by
assuming that it is reinvested at a constant rate over a six-month period. An
identical result is then assumed to have occurred during a second six-month
period which, when added to the result for the first six months, provides an
"annualized" yield for an entire one-year period. Calculations of current
yield may reflect absorbed expenses pursuant to any undertaking that may be
in effect. See "Management of the Funds."
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment was purchased with an initial
payment of $1,000 and that the investment was redeemed at the
Page 20
end of a stated period of time, after giving effect to the reinvestment of
dividends and distributions during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis, would result
in the redeemable value of the investment at the end of the period.
Advertisements of a Fund's performance will include the Fund's average annual
total return for one, five and ten year periods, or for shorter periods
depending upon the length of time during which the Fund has operated.
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset
value per share at the beginning of the period. Advertisements may include
the percentage rate of total return or may include the value of a
hypothetical investment at the end of the period which assumes the
application of the percentage rate of total return.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a
basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Under normal market conditions, the Intermediate Term Income Fund
will seek to provide performance results that equal or exceed the Lehman
Brothers Aggregate Bond Index, which is a broad investment grade bond index
that measures the total investment return (capital change plus income)
provided by a universe of over 6,000 fixed-income securities, weighted by the
market value outstanding of each security.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Lehman Brothers Aggregate Bond Index, Moody's Bond Survey
Bond Index, Bond Buyer's 20-Bond Index, Morningstar, Inc. and other industry
publications. Each Fund's yield should generally be higher than money market
funds (neither Fund, however, seeks to maintain a stabilized price per share
nor may it be able to return an investor's principal), and its price per
share should fluctuate less than long term bond funds (which generally have
somewhat higher yields).
GENERAL INFORMATION
The Company was incorporated under Maryland law on June 26, 1992, and
commenced operations on August 18, 1992. Before November 8, 1995, the
Company's name was Dreyfus Short-Term Income Fund, Inc. The Company is
authorized to issue one billion shares of Common Stock (with 500 million
shares allocated to each Fund), par value $.001 per share. Each share has one
vote.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for a Fund to hold annual meetings of shareholders. As a result,
Fund shareholders may not consider each year the election of Board members or
the appointment of auditors. However, pursuant to the Company's By-Laws, the
holders of at least 10% of the shares outstanding and entitled to vote may
require the Company to hold a special meeting of shareholders for purposes of
removing a Board member from office or for any other purpose. Shareholders
may remove a Board member by the affirmative vote of a majority of the
Company's outstanding voting shares. In addition, the Board will call a
meeting of shareholders for the purpose of electing Board members if, at any
time, less than a majority of the Board members then holding office have been
elected by shareholders.
The Company is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for
certain matters under the 1940 Act and for other purposes. A
Page 21
shareholder of one portfolio is not deemed to be a shareholder of any other
portfolio. For certain matters shareholders vote together as a group; as to
others they vote separately by portfolio. By this Prospectus, shares of each
Fund are being offered. Other portfolios may be sold pursuant to other
offering documents.
To date, the Board has authorized the creation of two series of
shares. All consideration received by the Company for shares of one of the
series and all assets in which such consideration is invested will belong to
that series (subject only to the rights of creditors of the Company) and will
be subject to the liabilities related thereto. The income attributable to,
and the expenses of, one series are treated separately from those of the
other series. The Company has the ability to create, from time to time, new
series without shareholder approval.
The Transfer Agent maintains a record of your ownership and sends you
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Company at 144
Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or by calling toll
free 1-800-645-6561. In New York City, call
1-718-895-1206; outside the U.S. and Canada, call 516-794-5452.
Page 22
APPENDIX
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS_Foreign currency transactions may be entered
into for a variety of purposes, including: to fix in U.S. dollars, between
trade and settlement date, the value of a security the Fund has agreed to buy
or sell; to hedge the U.S. dollar value of securities a Fund already owns,
particularly if it expects a decrease in the value of the currency in which
the foreign security is denominated; or to gain exposure to the foreign
currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, a Fund's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Fund agreeing to
exchange an amount of a currency it did not currently own for another
currency at a future date in anticipation of a decline in the value of the
currency sold relative to the currency the Fund contracted to receive in the
exchange. A Fund's success in these transactions will depend principally on
The Dreyfus Corporation's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
Currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention by U.S. or
foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the United States or abroad.
LEVERAGE_Leveraging exaggerates the effect on net asset value of any
increase or decrease in the market value of a Fund's portfolio. Money
borrowed for leveraging will be limited to 33-1/3% of the value of the Fund's
total assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in certain
cases, interest costs may exceed the return received on the securities
purchased.
Each Fund may enter into reverse repurchase agreements with banks,
brokers or dealers. This form of borrowing involves the transfer by the Fund
of an underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Fund repurchases the security at principal plus accrued
interest. Except for these transactions, each Fund's borrowings generally
will be unsecured.
SHORT-SELLING_(INTERMEDIATE TERM INCOME FUND ONLY) In these transactions,
the Fund sells a security it does not own in anticipation of a decline in the
market value of the security. To complete the transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund is obligated to
replace the security borrowed by purchasing it subsequently at the market
price at the time of replacement. The price at such time may be more or less
than the price at which the security was sold by the Fund, which would result
in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not sell short
the securities of any single issuer listed on a national securities exchange
to the extent of more than 5% of the value of the Fund's net assets. The Fund
may not make a short sale which results in the Fund having sold short in the
aggregate more than 5% of the outstanding securities of any class of an
issuer.
The Intermediate Term Income Fund also may make short sales "against
the box," in which the Fund enters into a short sale of a security it owns in
order to hedge an unrealized gain on the security.
Page 23
At no time will more than 15% of the value of the Fund's net assets be in
deposits on short sales against the box.
USE OF DERIVATIVES_Each Fund may invest in the types of Derivatives
enumerated under "Description of the Funds_Investment Considerations and
Risks_Use of Derivatives." These instruments and certain related risks are
described more specifically under "Investment Objective and Management
Policies_Management Policies_Derivatives" in the Statement of Additional
Information.
Derivatives can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as a Fund can increase or decrease the level of
the risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives
could have a large potential impact on a Fund's performance.
If a Fund invests in Derivatives at inappropriate times or judges
market conditions incorrectly, such investments may lower the Fund's return
or result in a loss. A Fund also could experience losses if it were unable to
liquidate its position because of an illiquid secondary market. The market
for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although neither Fund will be a commodity pool, Derivatives subject
the Fund to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Fund can invest in certain Derivatives. Each Fund may
invest in futures contracts and options with respect thereto for hedging
purposes without limit. The Intermediate Term Income Fund may invest in
futures contracts and options thereon for other than hedging purposes.
However, the Intermediate Term Income Fund may not invest in such contracts
and options for other purposes if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceed 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on such contracts and options; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
The Intermediate Term Income Fund also may invest up to 5% of its
assets, represented by the premium paid, in the purchase of call and put
options. The Intermediate Term Income Fund may write (i.e., sell) covered
call and put option contracts to the extent of 20% of the value of its net
assets at the time such option contracts are written. When required by the
Securities and Exchange Commission, the Fund will set aside permissible
liquid assets in a segregated account to cover its obligations relating to
its transactions in Derivatives. To maintain this required cover, the Fund
may have to sell portfolio securities at disadvantageous prices or times
since it may not be possible to liquidate a Derivative position at a
reasonable price.
LENDING PORTFOLIO SECURITIES_Each Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest or other distributions
payable on the loaned securities which affords the Fund an opportunity to
earn interest on the amount of the loan and on the loaned securities'
collateral. Loans of portfolio securities may not exceed 331\3% of the value
of the Fund's total assets, and the Fund will receive collateral consisting
of cash, U.S. Government securities or irrevocable letters of credit which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Such loans are terminable by
the Fund at any time
Page 24
upon specified notice. The Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Fund.
FORWARD COMMITMENTS_Each Fund may purchase or sell securities on a forward
commitment, when-issued or delayed delivery basis, which means that delivery
and payment take place a number of days after the date of the commitment to
purchase or sell the securities at a predetermined price and/or yield.
Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the Fund
assumes the rights and risks of ownership of the security, including the risk
of price and yield fluctuations, and takes such fluctuations into account
when determining its net asset value. Because the Fund is not required to pay
for these securities until the delivery date, these risks are in addition to
the risks associated with the Fund's other investments. If the Fund is fully
or almost fully invested when forward commitment purchases are outstanding,
such purchases may result in a form of leverage. The Fund intends to engage
in forward commitments to increase its portfolio's financial exposure to the
types of securities in which it invests. Leveraging the portfolio in this
manner will increase the Fund's exposure to changes in interest rates and
will increase the volatility of its returns. A segregated account of the Fund
consisting of permissible liquid assets at least equal at all times to the
amount of the Fund's purchase commitments will be established and maintained
at the Fund's custodian bank. At no time will the Fund have more than 331\3%
of its assets committed to purchase securities on a forward commitment basis.
FORWARD ROLL TRANSACTIONS_To enhance current income, each Fund may enter
into forward roll transactions with respect to mortgage-related securities.
In a forward roll transaction, the Fund sells a mortgage-related security to
a financial institution, such as a bank or broker-dealer, and simultaneously
agrees to repurchase a similar security from the institution at a later date
at an agreed upon price. The securities that are repurchased will bear the
same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different pre-payment histories than those
sold. During the period between the sale and repurchase, the Fund will not be
entitled to receive interest and principal payments on the securities sold.
Proceeds of the sale will be invested in short-term instruments, particularly
repurchase agreements, and the income from these investments, together with
any additional fee income received on the sale will generate income for the
Fund exceeding the yield on the securities sold. Forward roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the purchase price of those securities. A segregated account of
the Fund consisting of cash, U.S. Government securities or other high quality
liquid debt securities at least equal to the amount of the repurchase price
(including accrued interest) will be established and maintained at the Fund's
custodian bank.
CERTAIN PORTFOLIO SECURITIES
MORTGAGE-RELATED SECURITIES_Mortgage-related securities are a form of
Derivative collateralized by pools of mortgages. The mortgage-related
securities which may be purchased include those with fixed, floating and
variable interest rates, those with interest rates that change based on
multiples of changes in interest rates and those with interest rates that
change inversely to changes in interest rates, as well as stripped
mortgage-backed securities. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions of interest
and principal distributions on a pool of mortgage-backed securities or whole
loans. A common type of stripped mortgage-backed security will have one class
receiving some of the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the interest and the
remainder of the principal. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value
of the security, which may fluctuate, is not secured. If a mortgage-related
security is purchased at a premium, all or
Page 25
part of the premium may be lost if there is a decline in the market value of
the security, whether resulting from changes in interest rates or prepayments
on the underlying mortgage collateral.
The mortgage-related securities in which each Fund may invest also
include multi-class pass through certificates secured principally by mortgage
loans on commercial properties. These mortgage-related securities are
structured similarly to mortgage-related securities secured by pools of
residential mortgages. Commercial lending, however, generally is viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial lending, for example, typically involves large
r loans to single borrowers or groups of related borrowers than residential
one- to four-family mortgage loans. In addition, the repayment of loans
secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on commercial properties than on those secured by
loans on residential properties.
Each Fund also may invest in subordinated mortgage-related securities
("Subordinated Securities"), which are issued or sponsored by commercial
banks, savings and loan institutions, mortgage bankers, private mortgage
insurance companies and other non-governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some
manner as to the payment of principal and/or interest to the holders of more
senior mortgage-related securities arising out of the same pool of mortgages.
The holders of Subordinated Securities typically are compensated with a
higher stated yield than are the holders of more senior mortgage-related
securities. On the other hand, Subordinated Securities typically subject the
holder to greater risk than senior mortgage-related securities and tend to be
rated in a lower rating category, and frequently a substantially lower rating
category, than the senior mortgage-related securities issued in respect of
the same pool of mortgages. Subordinated Securities generally are likely to
be more sensitive to changes in prepayment and interest rates and the market
for such securities may be less liquid than is the case for traditional
fixed-income securities and senior mortgage-related securities.
As with other interest-bearing securities, the prices of certain
mortgage-related securities are inversely affected by changes in interest
rates. However, although the value of a mortgage-related security may decline
when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to be prepaid. For this and other reasons, a mortgage-related
security's stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages, and, therefore, it is not possible to predict
accurately the security's return to a Fund. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, a Fund may fail
to fully recoup its initial investment even if the securities are rated in
the highest rating category by a nationally recognized statistical rating
organization. During periods of rapidly rising interest rates, prepayments of
mortgage-backed securities may occur at slower than expected rates. Slower
prepayments effectively may change a mortgage-backed security that was
considered short- or intermediate-term at the time of purchase into a
long-term security. The values of long-term securities generally fluctuate
more widely in response to changes in interest rates than short- or
intermediate-term securities. Were the prepayments on a Fund's
mortgage-backed securities to decrease broadly, the Fund's effective
duration, and thus sensitivity to interest rate fluctuations, would increase.
Depending on the circumstances, such an increase could result in an effective
duration of more than three years with respect to the Short Term Income Fund
and more than eight years with respect to
Page 26
the Intermediate Term Income Fund. For further discussion concerning the
investment considerations involved, see "Description of the Funds_Investment
Considerations and Risks_Fixed-Income Securities" and "Illiquid Securities"
below.
ASSET-BACKED SECURITIES_Asset-backed securities are a form of Derivative.
The securitization techniques used for asset-backed securities are similar to
those used for mortgage-related securities. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. Each Fund may
invest in these and other types of asset-backed securities that may be
developed in the future.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may provide a Fund
with a less effective security interest in the related collateral than do
mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available
to support payments on these securities.
CONVERTIBLE SECURITIES_Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the subordination feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities. Each Fund may invest in convertible preferred
stocks that offer enhanced yield features and higher dividend income than is
available on a company's common stock. The Short Term Income Fund intends to
purchase only those convertible securities trading below the stated
conversion price.
WARRANTS_A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time. Each Fund may
invest up to 5% of its net assets in warrants, except that this limitation
does not apply to warrants purchased by the Fund that are sold in units with,
or attached to, other securities. Included in such amount, but not to exceed
2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York or American Stock Exchange.
MUNICIPAL OBLIGATIONS_Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities. Municipal obligations bear fixed,
floating or variable rates of interest. Certain municipal obligations are
subject to redemption at a date earlier than their stated maturity pursuant
to call options, which may be separated from the related municipal
obligations and purchased and sold separately. Each Fund also may acquire
call options on specific municipal obligations. A Fund generally would
purchase these call options to protect the Fund from the issuer of the
related municipal obligation redeeming, or other holder of the call option
from calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain municipal obligations are taxable
obligations, offering yields comparable to, and in some cases greater than,
the yields available on other permissible Fund investments. Dividends
received by shareholders on Fund shares which are attributable to interest
income received by the Fund from municipal obligations generally will be
subject to Federal income tax. Each Fund may invest in municipal obligations,
the ratings of which correspond
Page 27
with the ratings of other permissible Fund investments. Each Fund currently
intends to invest no more than 25% of its assets in municipal obligations.
However, this percentage may be varied from time to time without shareholder
approval.
ZERO COUPON SECURITIES_Each Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Bonds that have been stripped of
their unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Zero coupon securities also are issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool
of underlying U.S. Treasury securities. A zero coupon security pays no
interest to its holder during its life and is sold at a discount to its face
value at maturity. The amount of the discount fluctuates with the market
price of the security. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
MONEY MARKET INSTRUMENTS_Each Fund may invest in the following types of
money market instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit
of the agency or instrumentality. These securities bear fixed, floating or
variable rates of interest. While the U.S. Government provides financial
support to such U.S. Government-sponsored agencies and instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund buys, and
the seller agrees to repurchase, a security at a mutually agreed upon time
and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve risks in the event of a default
or insolvency of the other party to the agreement, including possible delays
or restrictions upon a Fund's ability to dispose of the underlying
securities. Each Fund may enter into repurchase agreements with certain banks
or non-bank dealers.
BANK OBLIGATIONS. Each Fund may purchase certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations issued
by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign subsidiaries or foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, a Fund may be
subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Description of the Funds_Investment Considerations and
Risks_Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven
days) at a stated interest rate.
Page 28
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by a Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's,
A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued by companies having an
outstanding unsecured debt issue currently rated at least A3 by Moody's or A-
by S&P, Fitch or Duff, or (c) if unrated, determined by The Dreyfus
Corporation to be of comparable quality to those rated obligations which may
be purchased by the Fund.
ILLIQUID SECURITIES_Each Fund may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Fund's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, certain mortgage-related
securities, and certain privately negotiated, non-exchange traded options and
securities used to cover such options. As to these securities, the Fund is
subject to a risk that should the Fund desire to sell them when a ready buyer
is not available at a price the Fund deems representative of their value, the
value of the Fund's net assets could be adversely affected.
RATINGS_Securities rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured and often the
protection of interest and principal payments may be very moderate.
Securities rated BB by S&P, Fitch or Duff are regarded as having
predominantly speculative characteristics and, while such obligations have
less near-term vulnerability to default than other speculative grade debt,
they face major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. Securities rated Caa by Moody's
are of poor standing and may be in default or there may be present elements
of danger with respect to principal or interest. S&P, Fitch and Duff
typically assign a CCC rating to debt which has a current identifiable
vulnerability to default and is dependent upon favorable business, financial
and economic conditions to meet timely payments of interest and repayment of
principal. Such securities, though high yielding, are characterized by great
risk. See "Appendix" in the Statement of Additional Information for a general
description of securities ratings.
The ratings of Moody's, S&P, Fitch and Duff represent their opinions
as to the quality of the obligations which they undertake to rate. Ratings
are relative and subjective and, although ratings may be useful in evaluating
the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, The Dreyfus
Corporation also will evaluate these securities and the ability of the issuers
of such securities to pay interest and principal. A Fund's ability to
achieve its investment objective may be more dependent on The Dreyfus
Corporation's credit analysis than might be the case for a fund that invested
in higher rated securities.
Page 29
The average distribution of investments of the Short Term Income Fund
in corporate bonds by ratings for the fiscal year ended July 31, 1996,
calculated monthly on a dollar weighted basis, was as follows:
MOODY'S OR S&P, FITCH OR DUFF PERCENTAGE
------- ----------------- ----------
Aaa AAA 36.2%
Aa AA 6.0%
A A 23.8%
Baa BBB 17.5%
Ba BB 9.1%
B B 5.3%
NR NR 1.3%*
-----
99.2%**
=======
The actual distribution of the Short Term Income Fund's corporate
bond investments by ratings on any given date will vary, and the distribution
of the Fund's investments by ratings as set forth above should not be
considered as representative of the Fund's future portfolio composition.
* These unrated securities have been determined by The Dreyfus Corporation
to be of comparable quality to securities rated B.
**Approximately .8% of the Fund's assets were invested in cash or cash
equivalents.
The average distribution of investments of the Intermediate Term
Income Fund in corporate bonds (excluding preferred stock, convertible
preferred stock and convertible bonds) by ratings for the period from
February 2, 1996 (commencement of operations) to July 31, 1996, calculated
monthly on a dollar weighted basis, was as follows:
MOODY'S OR S&P, FITCH OR DUFF PERCENTAGE
------ ----------------- ---------
Aaa AAA 55.3%
Aa AA .9%
A A 3.0%
Baa BBB 15.6%
Ba BB 7.2%
B B 15.6%
Caa CCC 2.1%
NR NR 2.0%*
____---
101.7%**
=======
The actual distribution of the Intermediate Term Income Fund's
corporate bond investments by ratings on any given date will vary, and the
distribution of the Intermediate Term Income Fund's investments by ratings as
set forth above should not be considered as representative of the Intermediate
Term Income Fund's future portfolio composition.
* These unrated securities have been determined by The Dreyfus Corporation
to be of comparable quality to securities rated BB.
** The Fund also owns preferred stock (.35%), convertible bonds_BBB (1.52%)
and convertible bonds_B (1.35%). Approximately (4.9%) of the Fund's
assets were invested in cash or cash equivalents.
Page 30
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS'
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
