DREYFUS SHORT TERM INCOME FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for Dreyfus Short Term Income
Fund, a portfolio of Dreyfus Investment Grade Bond Fund, for the six-month
period ended January 31, 1998. Your Fund produced a total return, including
share price changes and dividend income generated, of 4.89%.* This compares
with a total return of 4.24% for the Merrill Lynch Corporate and Government
Master Index during the same period.** Income dividends paid from net
investment income during the period amounted to approximately $0.427 per
share, representing an annualized distribution rate per share of 7.00%.***
The Economy
Throughout the reporting period, the economy manifested remarkable
strength with few signs of upward price pressure. Measures of consumer
optimism remained near record high levels: Consumer spending, which accounts
for about two-thirds of all economic activity, increased 3.3% in 1997, the
largest gain since 1994. A greater percentage of Americans were employed at
the end of the reporting period than at any time since the government began
recording employment numbers in 1948. Plentiful jobs, low inflation, and low
interest rates have proved to be a winning combination. The unemployment rate
averaged only 4.9% for all of 1997, near a 25-year low. It had been widely
anticipated that such healthy employment conditions would ignite a resurgence
in inflation. Yet throughout this period of dramatic gains in new jobs,
inflation was quiescent. Fears that a tight labor market would result in
inflation-inducing wage hikes were not realized: Instead, enormous
investments in new equipment and technology enabled companies to offset
rising costs with gains in productivity. On the inflation front, the Consumer
Price Index rose only 1.7% in 1997, its smallest annual increase in 11 years,
and almost half the rate of 1996. The Producer Price Index, which measures
inflation at the wholesale level, actually fell 1.2% last year. In 1997, the
economy expanded by 3.8%, the fastest rate since 1988. Such economic growth
without inflation has caused tax revenues at national, state and local levels
to surge, and has resulted in prospects for the first balanced Federal budget
in almost 30 years!
Bond yields ended the reporting period at their lowest levels in decades.
Low inflation and the prospect of reduced Federal borrowing due to the
improved condition of the budget have been a tonic for U.S. credit markets.
Even the economic crisis in Asia has played a role in helping to reduce
interest rates as foreign capital sought a safer investment haven in U.S.
fixed income securities. Meanwhile, the Federal Reserve Board (the "Fed") has
chosen to keep monetary policy steady during the Asian economic turmoil of
the last several months. Of course, the lack of inflation has also played a
major role in staying the Fed's hand from raising interest rates, despite the
surging economy and tightening labor market. The last increase in short-term
rates came in March 1997 when the Federal Open Market Committee (FOMC), the
policy-making arm of the Fed, hiked the Federal Funds rate by one-quarter of
a percent to 5.5%.
That low interest rates have helped stimulate the economy can be seen in
two interest-rate-sensitive economic sectors, housing and automobiles, which
have remained strong. Economists estimate that new home sales for 1997 were
at a 19-year high.
The production side of the economy has remained strong. Through year-end,
industrial production had risen for 14 consecutive months. Many economists
(Fed Chairman Alan Greenspan among them) think that the Asian crisis may help
slow our rate of economic growth. If so, it may allow the Fed to refrain from
any monetary tightening over the near term. The dynamics are in place for
such a slowdown. The dollar has risen sharply versus Asian currencies, making
our exports more expensive. Because of this strength in the dollar, imports
to the U.S. from Asia are likely to become cheaper, further dampening
inflation. As Chairman Greenspan said in his testimony to the Senate Budget
Committee, "The likelihood
that we shall be seeing some lower prices on imported goods as a result of
the difficulties in Asia may afford some breathing room from inflation
pressures."
Of course, we are mindful that there are factors that can adversely
affect the current, almost ideal economic climate. Wage pressures, still in
check relative to inflation, began to inch higher at the end of the reporting
period. Asian demand may remain stronger than currently anticipated. It is
clear that the almost relentless strength in the economy has been a
continuing concern of the Fed.
Market Environment
The last time we wrote to you, in July of 1997, we mentioned our optimism
for lower rates in the bond market. Many of the same factors remain in place:
the balanced budget, globally attractive rates, a strong dollar, and
declining commodity prices. These factors came to fruition, but to a much
greater extent than even we had anticipated.
The turmoil in Asia was the wild card that caused commodity prices to
drop precipitously, drove the dollar stronger, and caused a flight to the
U.S. bond market. We believe the peak in the crisis has passed, but the
crisis is not over. The repercussions from Asia could reverberate well into
1998, which could manifest itself in the form of a general slowdown in world
economic growth.
Corporate securities came under pressure as the Asian crisis began
unfolding. This effect was seen in the form of wider spreads versus
comparable maturity Treasuries. Investors began to rethink whether they were
being compensated enough for the increased risk of corporate securities (the
spread to Treasuries narrows when economic conditions are generally thought
to be improving, thereby decreasing the likelihood of potential default). The
widening has continued to occur in some securities, but in general the risk
premium is great enough to view some corporate securities as attractive.
However, sector and individual credit selection will become even more
critical as global events continue to unfold.
The Fed, which was widely anticipated to raise rates in 1997, might be
more inclined to ease rates in 1998. The impact of an easing will be seen via
a steeper yield curve (the basis point spread between shorter and longer
maturity Treasury securities gets numerically larger).
Portfolio Overview
The portfolio's outperformance these last six months relative to its
benchmark can be attributed to several factors: duration/yield curve
adjustments, sector weightings, and security selection. During most of the
period, the portfolio's duration was modestly longer than that of the
benchmark, which helped performance in the generally declining interest rate
environment. Positioning on the yield curve has been to emphasize the
five-year maturity sector whenever possible, which has been the best performin
g sector of the yield curve. As of January 31, 1998, the Fund's duration was
2.5 years, and we continue to favor the five-year maturity sector.
The portfolio has remained overweighted in both corporates and
mortgage-backed securities despite considerable volatility in their yield
spreads to Treasuries. Spreads widened in November and again in January as
large new issue supply coincided with both corporate credit concerns and
mortgage prepayment fears. By the end of January, spreads had begun to narrow
as both supply and credit/prepayment fears began to subside. Maintaining a
fully invested posture in carefully selected issues served the Fund well
during this period of market volatility. In the corporate market we continue
to favor names with improving fundamentals such as A. H. Belo, Quantum, and
Rite Aid. In the mortgage sector we favor both commercial and residential
securities that will benefit from improving real estate credit fundamentals
and offer far better protection from prepayments than typical agency
mortgages.
As always, we will be monitoring all areas of the fixed income markets for
superior risk/reward relationships to capitalize
on in the Fund. It is both an honor and a pleasure to be managing your
investments.
Very truly yours,
[Kevin M. McClintock signature logo]
Kevin M. McClintock
Head of Taxable Fixed Income
February 18, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** SOURCE: MERRILL LYNCH, PIERCE, FENNER AND SMITH INC. - Unlike the Fund,
the Merrill Lynch Corporate and Government Master Index is an unmanaged
performance benchmark for investment-grade corporate securities and
government securities with maturities greater than or equal to one year, but
no longer than 4.99 years; issues in the Index must have par amounts
outstanding greater than or equal to $25 million.
***Distribution rate per share is based upon dividends per share paid from
net investment income during the period (annualized), divided by the net
asset value per share at the end of the period.
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes-95.9% Amount Value
_____________ _____________
Aircraft & Aerospace-7.8% Aircraft Lease Portfolio Securitisation 96-1
Pass Through Trust, Ctfs.,
<S> <C> <C> <C>
Cl. D, 12 3/4%, 2006.................. $....4,387,911 $
4,738,944 America West Airlines Pass-Through Trusts, Ctfs.:
Ser. 1996-1, Cl. D, 8.16%, 2002...... 5,207,123 5,233,160
Ser. 1997-1, Cl. D, 8.12%, 2001...... 4,250,000 (a) 4,271,250
Fairchild,
Sub. Deb., 12%, 2001................. 10,150,000 10,200,750
_____________
24,444,104
_____________
Asset-Backed-4.1% Bosque Asset,
Asset-Backed Notes,
7.66%, 2002.......................... 3,390,244 (a) 3,416,730
Prime Finance, 1997-A Equipment Lease
Receivables-Backed Pay-Through Notes:
Cl. A-2, 7.13%, 2005.................. 4,994,718 (a) 5,082,126
Cl. A-3, 7.295%, 2005................. 2,670,172 (a) 2,699,378
Cl. B, 7.295%, 2005................... 1,857,975 (a) 1,760,432
_____________
12,958,666
_____________
Auto Related-.7% Collins & Aikman Products,
Gtd. Sr. Sub. Notes, 11 1/2%, 2006.... 2,000,000 2,260,000
_____________
Building Materials-1.5% Emcor Group,
Notes, Ser. C, 11%, 2001............. 4,495,700 4,698,006
_____________
Broadcasting-1.3% Scandinavian Broadcasting System SA,
Conv. Sub. Deb.:
7%, 2004.............................. 2,000,000 (a) 2,025,000
7 1/4%, 2005..................................... 2,000,000 2,027,500
_____________
4,052,500
_____________
Cable Television-.7% CCA Holdings,
Sr. Sub. Notes, Zero Coupon, 1999.... 2,798,521 2,182,500
_____________
Commercial
Mortgage Backed-16.1% BKB Commercial Mortgage Trust,
Multiclass Pass-Through Ctfs., Ser. 1997-C1:
Cl. C, 7.45%, 2000.................... 8,000,000 (a) 8,058,750
Cl. E, 8.94%, 2001.................... 4,000,000 (a,b) 4,008,750
BTC Mortgage Investors Trust,
Mortgage Pass-Through Ctfs.,
Ser. 1997-S1, Cl. C, 6.645%, 2009.... 10,395,000 (a) 10,437,230
CRIIMI MAE Trust I,
Commercial Mortgage Bonds, Ser. 1996-C1,
Cl. A-1, 6.77%, 2033................. 5,617,909 (a) 5,595,086
Merrill Lynch Mortgage Investors,
Mortgage Pass-Through Ctfs.:
Ser. 1997 SD1, 6.88%, 2010........... 4,500,000 4,504,219
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
_____________ _____________
Commercial
Mortgage Backed (continued) Resolution Trust,
Commercial Mortgage Pass-Through Ctfs.:
Ser. 1992-CHF:
Cl. C, 8 1/4%, 2020.......................... $....4,878,741 $ 4,881,791
Cl. D, 8 1/4%, 2020.......................... 1,217,450 1,222,016
Ser. 1992-C8,
Cl. B, 8.835%, 2023............... 5,000,000 5,107,813
Ser. 1993-C3,
Cl. D, 7.10%, 2024................ 1,894,902 1,909,114
Ser. 1994-C2,
Cl. D, 8%, 2025................... 4,629,474 4,798,740
_____________
50,523,509
_____________
Consumer-1.9% Revlon Worldwide,
Sr. Secured Discount Notes,
Zero Coupon, 1998.................... 4,500,000 4,473,711
Signature Brands USA,
Sr. Sub. Notes, 13%, 2002 (Units).... 1,250,000 (c) 1,356,250
_____________
5,829,961
_____________
Energy-12.1% DeepTech International,
Sr. Secured Notes, 11%, 2000......... 7,850,000 (a) 7,889,250
Dual Drilling,
Gtd. Sr. Sub. Notes, 97\8%, 2004..... 14,750,000 16,003,750
Loews,
Exchangeable Sub. Notes, 31\8%, 2007. 4,500,000 (d) 4,314,375
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 71\4%, 1998............... 6,500,000 6,545,260
Reading & Bates,
Conv. Deb., 4.878%, 1998............. 3,321,000 3,240,000
_____________
37,992,635
_____________
Entertainment-3.3% Tele-Communications,
Medium-Term Notes, 6.60%, 1998....... 5,000,000 5,000,165
Time Warner,
Notes, 7.95%, 2000................... 5,000,000 5,186,120
_____________
10,186,285
_____________
Finance-4.4% Bear Stearns Capital Trust I,
Gtd. Fixed/Adj. Rate Capital Securities,
7%, 2027............................. 4,000,000 (a,b) 4,100,516
CoreStates Capital III,
Floating Rate Capital Trust,
Gtd. Pass-Through Securities,
6.445%, 2027......................... 10,000,000 (a,b) 9,623,700
_____________
13,724,216
_____________
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
_____________ _____________
Foreign-2.7% Industrial Finance of Thailand,
Notes, 7 3/4%, 2002 .................. $4,000,000 (a,e) $3,795,124
Petroleos Mexicanos,
Gtd. Notes, 8%, 1998................. 4,500,000 (a) 4,522,500
_____________
8,317,624
_____________
Foreign/Governmental-5.1% Republic of Argentina,
Floating Rate Notes:
9 1/2%, 2002..................................... 10,000,000 (b) 10,062,500
(BOTE), Ser. 10, 5.906%, 2000......... 1,802,500 (b) 1,751,128
Sultanate of Oman,
Notes, 7 1/8%, 2002................... 4,000,000 (a) 4,090,000
_____________
15,903,628
_____________
Gaming-1.0% Waterford Gaming, L.L.C./Finance,
Sr. Notes, 12 3/4%, 2003.............. 2,838,000 3,135,990
_____________
Insurance-1.5% Presidential Life,
Sr. Notes, 9 1/2%, 2000............... 4,575,000 4,720,787
_____________
Mining & Metals-.6% Inco, Ltd.,
Conv. Deb., 5 3/4%, 2004.............. 2,000,000 1,942,500
_____________
Publishing-1.6% A.H. Belo,
Sr. Notes, 6 7/8%, 2002............... 5,000,000 5,136,800
_____________
Real Estate
Investment Trusts -3.3% Crescent Real Estate Equities, L.P.,
Notes, 6 5/8%, 2002................... 10,000,000 (a) 10,149,040
_____________
Residential Mortgage-2.3% DLJ Mortgage Acceptance,
Multifamily Mortgage Pass-Through Ctfs.,
Ser. 1994-MF11, Cl. B1, 8.10%, 2004.. 7,000,000 7,262,500
_____________
Retail-1.3% K Mart,
Medium-Term Notes, 7.96%, 1999....... 500,000 509,435
Rite Aid,
Conv. Sub. Notes, 5 1/4%, 2002........ 3,000,000 (a) 3,438,750
_____________
3,948,185
_____________
Steel-1.1% EES Coke Battery,
Sr. Secured Notes, Ser. A, 7 1/8%, 2002 3,298,750 (a) 3,337,434
_____________
Technology-.6% Quantum,
Conv. Sub. Notes, 7%, 2004 .......... 2,000,000 1,972,500
_____________
Telecommunications-2.2% Dial Call Communications,
Sr. Discount Notes, Zero Coupon, 1999 (Units) 4,000,000 (c,f) 3,940,000
Nextel Communications,
Sr. Redeemable Discount Notes, Zero Coupon, 1998......... 3,000,000 (g) 3,030,000
_____________
6,970,000
_____________
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
_____________ _____________
Tobacco-.7% Philip Morris Cos.,
Notes, 6.95%, 2001................... $....2,000,000 (h) $ 2,074,538
_____________
U.S. Government Agency/
Mortgage Backed-18.0% Federal Home Loan Mortgage:
6 1/2%, 3/1/2028...................... 15,000,000 (i) 14,943,750
Multiclass Mortgage Participation Ctfs, REMIC:
Ser. 1547, Cl. B, 7%, 2/15/2022
(Interest Only Obligation)........ 6,474,821 (j) 1,526,957
Ser. 1987, Cl. PI, 7%, 9/15/2012
(Interest Only Obligation)........ 2,680,571 (j) 690,247
Ser. 1999, Cl. PW, 7%, 8/15/2026
(Interest Only Obligation)........ 13,500,000 (j) 3,332,812
Federal National Mortgage Association:
9%, 6/1/2026-8/1/2026................ 15,097,158 16,104,221
REMIC Trust,
Gtd. Pass-Through Ctfs.:
Ser. 1993-198, Cl. M, 6 1/2%, 10/25/2023
(Interest Only Obligation)...... 4,830,000 (j) 1,913,133
Ser. 1997-40, Cl. PF, 7%, 12/18/2026
(Interest Only Obligation)...... 12,696,714 (j) 5,003,299
Ser. 1997-56, Cl. PM, 7%, 6/18/2026
(Interest Only Obligation)...... 3,000,000 (j) 890,625
Government National Mortgage Association I:
8%, 9/15/2008........................ 5,731,014 5,970,972
9%, 11/15/2017....................... 5,648,509 6,151,565
_____________
56,527,581
_____________
TOTAL BONDS AND NOTES
(cost $298,580,215).................. $300,251,489
=============
Preferred Stocks .1% Shares
_____________
Energy; Elf Overseas, Ltd.,
Ser. A, Gtd. Cum., $2.125
(cost $262,500)...................... 10,000 $ 266,250
=============
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1998 (UNAUDITED)
Principal
Short-Term Investments-7.4% Amount Value
______________ ____________
Time Deposit-7.1% Chase Manhattan Bank (London),
5 1/2%, 2/2/1998...................... $ 22,174,000 $ 22,174,000
_____________
U.S. Treasury Bills-.3% 5.17%, 3/5/1998......................... 517,000 (k) 514,648
5.04%, 3/12/1998....................... 507,000 (k) 504,202
5.07%, 4/2/1998........................ 128,000 (k) 126,900
_____________
1,145,750
_____________
TOTAL SHORT-TERM INVESTMENTS
(cost $23,319,774)................... $ 23,319,750
=============
TOTAL INVESTMENTS (cost $322,162,489)....................................... 103.4% $323,837,489
====== =============
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (3.4%) $ (10,631,700)
====== =============
NET ASSETS.................................................................. 100.0% $313,205,789
====== =============
</TABLE>
Notes to Statement of Investments:
(a) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At January 31,
1998, these securities amounted to $94,505,922 or 30.2% of net assets.
(b) Variable rate security-interest rate subject to periodic change.
(c) With warrants to purchase common stock.
(d) Exchangeable into the common stock of Diamond Offshore Drilling.
(e) Reflects date security can be redeemed at holders' option; the stated
maturity date is 8/4/2007.
(f) Zero coupon until 4/15/1999, date on which a stated coupon rate of 12
1/4% becomes effective; the stated maturity date is 4/15/2004.
(g) Zero coupon until 9/1/1998, date on which a stated coupon rate of 11
1/2% becomes effective; the stated maturity date is 9/1/2003.
(h) Reflects date security can be redeemed at holders' option; the stated
maturity date is 6/1/2006.
(i) Purchased on a forward commitment basis.
(j) Notional face amount shown.
(k) Held in a segregated account as collateral for Financial Futures
positions.
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL FUTURES JANUARY 31, 1998 (UNAUDITED)
Market Value Unrealized
Covered Appreciation
Financial Futures Contracts by Contracts Expiration at 1/31/98
_______________ _____________ _____________ _____________ _____________
<S> <C> <C> <C> <C>
U.S. Treasury 5yr. Notes (Long)................ 1,280 $140,760,000 March '98 $ 640,000
=============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1998 (UNAUDITED)
Cost Value
_____________ _____________
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $322,162,489 $323,837,489
Cash....................................... 1,764,637
Receivable for investment securities sold.. 28,528,728
Interest receivable........................ 4,462,913
Receivable for futures variation margin-Note 4(a) 160,000
Receivable for shares of Common Stock subscribed 53,383
Prepaid expenses and other assets.......... 26,011
_____________
358,833,161
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates 155,750
Due to Distributor......................... 51,900
Payable for investment securities purchased 44,644,604
Payable for shares of Common Stock redeemed 707,573
Interest payable-Note 2.................... 11,078
Accrued expenses........................... 56,467
_____________
45,627,372
_____________
NET ASSETS.................................................................. $313,205,789
=============
REPRESENTED BY: Paid-in capital............................ $321,440,894
Accumulated undistributed investment income-net 756,579
Accumulated net realized gain (loss) on investments........................... (11,306,684)
Accumulated net unrealized appreciation
(depreciation)
on investments (including $640,000 net unrealized
appreciation on financial futures)-Note 4(b) 2,315,000
_____________
NET ASSETS.................................................................. $313,205,789
=============
SHARES OUTSTANDING
(500 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED)............. 25,717,740
NET ASSET VALUE, offering and redemption price per share.................... $12.18
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF OPERATIONS SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
INVESTMENT INCOME
INCOME: Interest Income............................ $11,865,994
Cash dividends............................. 10,625
____________
Total Income......................... $11,876,619
EXPENSES: Management fee-Note 3(a)................... 728,891
Shareholder servicing costs-Note 3(b)...... 445,629
Professional fees.......................... 19,894
Registration fees.......................... 19,114
Directors' fees and expenses-Note 3(c)..... 18,272
Custodian fees-Note 3(b)................... 17,540
Interest expense-Note 2.................... 15,043
Prospectus and shareholders' reports....... 14,021
Miscellaneous.............................. 2,278
____________
Total Expenses....................... 1,280,682
Less-reduction in management fee due to
undertaking-Note 3(a).................. (3,975)
____________
Net Expenses......................... 1,276,707
____________
INVESTMENT INCOME-NET....................................................... 10,599,912
____________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $ 26,821
Net realized gain (loss) on financial futures 3,864,253
____________
Net Realized Gain (Loss)............. 3,891,074
Net unrealized appreciation (depreciation) on investments
(including $622,844 net unrealized appreciation
on financial futures).................. (427,819)
____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 3,463,255
____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $14,063,167
============
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS SHORT TERM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
January 31, 1998 Year Ended
(Unaudited) July 31, 1997
________________ ________________
OPERATIONS:
Investment income-net................................................. $ 10,599,912 $ 16,612,473
Net realized gain (loss) on investments............................... 3,891,074 (1,191,625)
Net unrealized appreciation (depreciation) on investments............. (427,819) 4,158,066
_____________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations..... 14,063,167 19,578,914
_____________ _____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net................................................. (10,262,288) (16,393,236)
_____________ _____________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold......................................... 91,299,550 178,300,093
Dividends reinvested.................................................. 9,610,562 12,757,874
Cost of shares redeemed............................................... (70,646,739) (104,794,887)
_____________ _____________
Increase (Decrease) in Net Assets from Capital Stock Transactions... 30,263,373 86,263,080
_____________ _____________
Total Increase (Decrease) in Net Assets........................... 34,064,252 89,448,758
NET ASSETS:
Beginning of Period................................................... 279,141,537 189,692,779
_____________ _____________
End of Period......................................................... $313,205,789 $279,141,537
============= =============
UNDISTRIBUTED INVESTMENT INCOME-NET..................................... $ 756,579 $ 418,955
_____________ _____________
Shares Shares
_____________ _____________
CAPITAL SHARE TRANSACTIONS:
Shares sold........................................................... 7,576,857 14,929,236
Shares issued for dividends reinvested................................ 798,169 1,069,474
Shares redeemed....................................................... (5,867,269) (8,776,684)
_____________ _____________
Net Increase (Decrease) in Shares Outstanding....................... 2,507,757 7,222,026
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Six Months Ended
January 31, 1998 Year Ended July 31,
_____________________________________________
PER SHARE DATA: (Unaudited) 1997 1996 1995 1994 1993(1)
________________ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period. $12.03 $11.86 $11.89 $11.94 $12.47 $12.50
______ ______ ______ ______ ______ ______
Investment Operations:
Investment income-net................ .44 .86 .78 .85 .84 .89
Net realized and unrealized gain (loss)
on investments..................... . .14 .17 (.04) (.05) (.54) (.01)
______ ______ ______ ______ ______ ______
Total from Investment Operations..... .58 1.03 .74 .80 .30 .88
______ ______ ______ ______ ______ ______
Distributions:
Dividends from investment income-net. (.43) (.86) (.77) (.85) (.83) (.89)
Dividends from net realized gain on investments .- .- .- .- .- (.02)
______ ______ ______ ______ ______ ______
Total Distributions.................. (.43) (.86) (.77) (.85) (.83) (.91)
______ ______ ______ ______ ______ ______
Net asset value, end of period....... $12.18 $12.03 $11.86 $11.89 $11.94 $12.47
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN.................. 9.70%(2) 8.95% 6.42% 7.05% 2.47% 7.68%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets .87%(2) .80% .80% .61% .24% -
Ratio of interest expense to average net assets .01%(2) .02% - - - -
Ratio of net investment income
to average net assets.............. 7.27%(2) 7.28% 6.52% 7.26% 6.79% 7.58%(2)
Decrease reflected in above expense ratios
due to undertakings by the Manager. .00%(3) .11% .14% .34% .71% 1.12%(2)
Portfolio Turnover Rate.............. 93.51%(4) 292.99% 291.35% 511.62% 74.90% 54.59%(4)
Net Assets, end of period (000's Omitted) $313,206 $279,142 $189,693 $210,524 $277,028 $205,736
</TABLE>
(1) From August 18, 1992 (commencement of operations) to July 31, 1993.
(2) Annualized.
(3) Amount represents less than .01%.
(4) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Short Term Income Fund (the "Fund") is a series of Dreyfus
Investment Grade Bond Funds, Inc.
(the "Company") which is registered under the Investment Company Act of 1940
("Act") as an open-end management investment company and operates as a series
company currently offering two series, including the Fund. The Fund is a
non-diversified series. The Fund's investment objective is to provide
investors with as high a level of current income as is consistent with the
preservation of capital. The Dreyfus Corporation ("Manager") serves as the
Fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank,
N.A. ("Mellon"). Premier Mutual Fund Services, Inc.
(the "Distributor") is the distributor of the Fund's shares, which are sold
to the public without a sales charge.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (excluding short-term
investments, financial futures and U.S. Government obligations) are valued
each business day by an independent pricing service ("Service") approved by
the Board of Directors. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. Securities for which
there are no such valuations are valued at fair value as determined in good
faith under the direction of the Board of Directors. Investments in U.S.
Government obligations, including U. S. Treasury Bills, are valued at the
mean between quoted bid and asked prices. Short-term investments, excluding
U. S. Treasury Bills, are carried at amortized cost, which approximates
value. Financial futures are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market on each business day. Investments
denominated in foreign currencies are translated to U.S. dollars at the
prevailing rates of exchange.
(b) Securities transactions and investment income: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including,
where applicable, amortization of discount on investments, is recognized on
the accrual basis.
(c) Dividends to shareholders: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Fund has an unused capital loss carryover of approximately $14,220,000
available for Federal income tax purposes to be
applied against future net securities profits, if any, realized subsequent to
July 31, 1997. The carryover does not include net realized securities losses
from November 1, 1996 through July 31, 1997 which are treated, for Federal
income tax purposes, as arising in fiscal 1998. If not applied, $9,958,000 of
the carryover expires in fiscal 2003, $2,947,000 expires in fiscal 2004 and
$1,315,000 expires in fiscal 2005.
NOTE 2-BANK LINE OF CREDIT:
The Fund may borrow up to $10 million for leveraging purposes under a
short-term unsecured line of credit and participates with other
Dreyfus-managed funds in a $100 million unsecured line of credit primarily to
be utilized for temporary or emergency purposes, including the financing of
redemptions. Interest is charged to the Fund at rates which are related to
the Federal Funds rate in effect at the time of borrowings.
The average daily amount of borrowings outstanding under both
arrangements during the period ended January 31, 1998 was approximately
$529,600, with a related weighted average annualized interest rate of 5.63%.
NOTE 3-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) Pursuant to a management agreement with the Manager, the management
fee is computed at the annual rate of
.50 of 1% of the value of the Fund's average daily net assets and is payable
monthly. The Manager had undertaken from August 1, 1997 through January 31,
1998, to reduce the management fee paid by the Fund, to the extent that the
Fund's aggregate expenses (exclusive of taxes, brokerage, interest on
borrowings, commitment fees and extraordinary expenses) exceeded .80 of 1% of
the value of the Fund's average daily net assets. The reduction in management
fee, pursuant to the undertaking, amounted to $3,975 during the period ended
January 31, 1998.
(b) Under the Shareholder Services Plan, the Fund pays the Distributor at
the annual rate of .20 of 1% of the value of the Fund's average daily net
assets for the provision of certain services. The services provided may
include personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
The Distributor may make payments to Service Agents (a securities dealer,
financial institution or other industry professional) in respect of these
services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended January 31, 1998, the Fund was charged
$291,557 pursuant to the Shareholder Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. During the
period ended January 31, 1998, the Fund was charged $51,910 pursuant to the
transfer agency agreement.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended January 31, 1998,
the Fund was charged $17,540 pursuant to the custody agreement.
(c) Each director who is not an "affiliated person," as defined in the
Act receives from the Company an annual fee of $2,500 and an attendance fee
of $625 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 4-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities and financial futures, during the period
ended January 31, 1998 amounted to $299,911,497 and $286,326,302,
respectively.
DREYFUS SHORT TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The
Fund is exposed to market risk as a result of changes in the value of the
underlying financial instruments. Investments in financial futures require
the Fund to "mark to market" on a daily basis, which reflects the change in
market value of the contracts at the close of each day's trading. Typically,
variation margin payments are received or made to reflect daily unrealized
gains and losses. When the contracts are closed, the Fund recognizes a
realized gain or loss. These investments require initial margin deposits with
a custodian, which consist of cash or cash equivalents, up to approximately
10% of the contract amount. The amount of these deposits is determined by the
exchange or Board of Trade on which the contract is traded and is subject to
change. Contracts open at January 31, 1998 and their related unrealized
appreciation are set forth in the Statement of Financial Futures.
(b) At January 31, 1998, accumulated net unrealized appreciation on
investments and financial futures was $2,315,000, consisting of $3,996,183
gross unrealized appreciation and $1,681,183 gross unrealized depreciation.
At January 31, 1998, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
Registration Mark
[Dreyfus lion "d" logo]
DREYFUS SHORT TERM INCOME FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 083AR981
Short Term
Income Fund
Semi-Annual Report
January 31, 1998
Registration Mark
[Dreyfus logo]
DREYFUS INTERMEDIATE TERM INCOME FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for Dreyfus Intermediate Term
Income Fund, a portfolio of Dreyfus Investment Grade Bond Fund, for the
six-month period ended January 31, 1998. Your Fund produced a total return,
including share price changes and dividend income generated, of 6.98%.* This
compares with a total return of 5.75% for the Merrill Lynch Domestic Master
Index during the same period.** Income dividends paid from net investment
income during the period amounted to approximately $0.446 per share,
representing an annualized distribution rate per share of 6.51%.***
The Economy
Throughout the reporting period, the economy manifested remarkable
strength with few signs of upward price pressure. Measures of consumer
optimism remained near record high levels: Consumer spending, which accounts
for about two-thirds of all economic activity, increased 3.3% in 1997, the
largest gain since 1994. A greater percentage of Americans were employed at
the end of the reporting period than at any time since the government began
recording employment numbers in 1948. Plentiful jobs, low inflation, and low
interest rates have proved to be a winning combination. The unemployment rate
averaged only 4.9% for all of 1997, near a 25-year low. It had been widely
anticipated that such healthy employment conditions would ignite a resurgence
in inflation. Yet throughout this period of dramatic gains in new jobs,
inflation was quiescent. Fears that a tight labor market would result in
inflation-inducing wage hikes were not realized. Instead, enormous
investments in new equipment and technology enabled companies to offset
rising costs with gains in productivity. On the inflation front, the Consumer
Price Index rose only 1.7% in 1997, its smallest annual increase in 11 years,
and almost half the rate of 1996. The Producer Price Index, which measures
inflation at the wholesale level, actually fell 1.2% last year. In 1997, the
economy expanded by 3.8%, the fastest rate since 1988. Such economic growth
without inflation has caused tax revenues at national, state and local levels
to surge, and has resulted in prospects for the first balanced Federal budget
in almost 30 years!
Bond yields ended the reporting period at their lowest levels in decades.
Low inflation and the prospect of reduced Federal borrowing due to the
improved condition of the budget have been a tonic for U.S. credit markets.
Even the economic crisis in Asia has played a role in helping to reduce
interest rates as foreign capital sought a safer investment haven in U.S.
fixed income securities. Meanwhile, the Federal Reserve Board (the "Fed") has
chosen to keep monetary policy steady during the Asian economic turmoil of
the last several months. Of course, the lack of inflation has also played a
major role in staying the Fed's hand from raising interest rates, despite the
surging economy and tightening labor market. The last increase in short-term
rates came in March 1997 when the Federal Open Market Committee (FOMC), the
policy-making arm of the Fed, hiked the Federal Funds rate by one-quarter of
a percent to 5.5%.
That low interest rates have helped stimulate the economy can be seen in
two interest-rate-sensitive economic sectors, housing and automobiles, which
have remained strong. Economists estimate that new home sales for 1997 were
at a 19-year high.
The production side of the economy has remained strong. Through year-end,
industrial production had risen for 14 consecutive months. Many economists
(Fed Chairman Alan Greenspan among them) think that the Asian crisis may help
slow our rate of economic growth. If so, it may allow the Fed to refrain from
any monetary tightening over the near term. The dynamics are in place for
such a slowdown. The dollar has risen sharply versus Asian currencies, making
our exports more expensive. Because of this strength in the dollar, imports
to the U.S. from Asia are likely to become cheaper, further dampening
inflation. As Chairman Greenspan said in his testimony to the Senate Budget
Committee, "The likelihood that we shall be seeing some lower prices on
imported goods as a result of the difficulties in Asia may afford some
breathing room from inflation pressures."
Of course, we are mindful that there are factors that can adversely
affect the current, almost ideal economic climate. Wage pressures, still in
check relative to inflation, began to inch higher at the end of the reporting
period. Asian demand may remain stronger than currently anticipated. It is
clear that the almost relentless strength in the economy has been a
continuing concern of the Fed.
Market Environment
The last time we wrote to you, in July of 1997, we mentioned our optimism
for lower rates in the bond market. Many of the same factors remain in place:
the balanced budget, globally attractive rates, a strong dollar, and
declining commodity prices. These factors came to fruition, but to a much
greater extent than even we had anticipated.
The turmoil in Asia was the wild card that caused commodity prices to
drop precipitously, drove the dollar stronger, and caused a flight to the
U.S. bond market. We believe the peak in the crisis has passed, but the
crisis is not over. The repercussions from Asia could reverberate well into
1998, which could manifest itself in the form of a general slowdown in world
economic growth.
Corporate securities came under pressure as the Asian crisis began
unfolding. This effect was seen in the form of wider spreads versus
comparable maturity Treasuries. Investors began to rethink whether they were
being compensated enough for the increased risk of corporate securities (the
spread to Treasuries narrows when economic conditions are generally thought
to be improving, thereby decreasing the likelihood of potential default). The
widening has continued to occur in some securities, but in general the risk
premium is great enough to view some corporate securities as attractive.
However, sector and individual credit selection will become even more
critical as global events continue to unfold.
The Fed, which was widely anticipated to raise rates in 1997, might be
more inclined to ease rates in 1998. The impact of an easing will be seen via
a steeper yield curve (the basis point spread between shorter and longer
maturity Treasury securities gets numerically larger).
Portfolio Overview
The portfolio's outperformance these last six months relative to its
benchmark can be attributed to several factors: duration/yield curve
adjustments, sector weightings, and security selection. During most of the
period, the portfolio's duration was modestly longer than that of the
benchmark, which helped performance in the generally declining interest rate
environment. Positioning on the yield curve has been to emphasize the
five-year maturity sector whenever possible, which has been the best performin
g sector of the yield curve. As of January 31, 1998, the Fund's duration was
5.1 years, and we continue to favor the five-year maturity sector.
The portfolio has remained overweighted in both corporates and
mortgage-backed securities despite considerable volatility in their yield
spreads to Treasuries. Spreads widened in November and again in January as
large new issue supply coincided with both corporate credit concerns and
mortgage prepayment fears. By the end of January, spreads had begun to narrow
as both supply and credit/prepayment fears began to subside. Maintaining a
fully invested posture in carefully selected issues served the Fund well
during this period of market volatility. In the corporate market we continue
to favor names with improving fundamentals such as Rockwell International,
Quantum, and Rite Aid. In the mortgage sector we favor both commercial and
residential securities that will benefit from improving real estate credit
fundamentals and offer far better protection from prepayments than typical
Agency mortgages.
As always, we will be monitoring all areas of the fixed income markets for
superior risk/reward relationships to capitalize on in the Fund. It is both an
honor and a pleasure to be managing your investments.
Very truly yours,
[Kevin M. McClintock signature logo]
Kevin M. McClintock
Head of Taxable Fixed Income
February 18, 1998
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** SOURCE: MERRILL LYNCH, PIERCE, FENNER AND SMITH INC. - Unlike the Fund,
the Merrill Lynch Domestic Master Index is an unmanaged performance benchmark
for portfolios that include U.S. Government, mortgage and BBB or higher-rated
corporate securities with maturities greater than or equal to one year;
corporate and Treasury securities in the Index must have par amounts
outstanding greater than or equal to $25 million and generic mortgage-backed
securities at $200 million per coupon.
***Distribution rate per share is based upon dividends per share paid from
net investment income during the period (annualized), divided by the net
asset value per share at the end of the period, adjusted for capital gain
distributions.
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes-96.7% Amount Value
____________ ____________
Aircraft &
Aerospace-2.2% Fairchild,
<S> <C> <C> <C> <C>
Sub. Deb., 12%, 2001................. $ 500,000 $502,500
____________
Asset Backed-1.5% GE Capital Mortgage Services,
Home Equity Loan Pass-Through Ctfs.,
Ser. 1996-HE4, Cl. B4, 9.367%, 2026.. 430,961 (a,b) 333,456
____________
Commercial Mortgage
Backed-19.5% Countrywide Funding,
Mortgage Pass-Through Ctfs.,
Ser. 1994-8, Cl. B2, 6%, 2009........ 795,149 (a) 685,320 GMAC
Commercial Mortgage Securities,
Mortgage Pass-Through Ctfs.,
Ser. 1996-C1, Cl. E, 7.86%, 2006..... 600,000 616,781
G S Mortgage Securities II,
Mortgage Pass-Through Ctfs.,
Ser. 1997-GL, Cl. G, 7.779%, 2030.... 800,000 (b) 821,250
Resolution Trust,
Commercial Mortgage Pass-Through Ctfs.:
Ser. 1992-CHF, Cl. D, 8 1/4%, 2020............... 574,761 576,917
Ser. 1993-C3, Cl. D, 7.10%, 2024...... 947,451 954,557
Structured Asset Securities,
Multiclass Pass-Through Ctfs., REMIC,
Ser. 1996-CFL, Cl. H, 7 3/4%, 2028.... 1,000,000 (a) 792,188
____________
4,447,013
____________
Energy-10.1% Dual Drilling,
Gtd. Sr. Sub. Notes, 9 7/8%, 2004..... 1,000,000 1,085,000
Loews,
Exchangeable Sub. Notes, 3 1/8%, 2007. 500,000 ( c) 479,375
Louisiana Land & Exploration,
Deb., 7.65%, 2023.................... 200,000 221,065
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 7 1/4%, 1998............... 500,000 503,481
____________
2,288,921
____________
Foreign-4.0% Industrial Finance of Thailand,
Notes, 7 3/4%, 2002................... 250,000 (a,d) 237,195
Korea Electric Power,
Deb., Zero Coupon, 2016.............. 5,000,000 (e) 675,000
____________
912,195
____________
Foreign/Governmental-.3% Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5.906%, 2000 72,100 (b) 70,045
____________
Hotels & Motels-2.2% Hyatt Equities, L.L.C.,
Notes, 6.80%, 2000................... 500,000 (a) 510,730
____________
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
____________ ____________
Industrial-3.3% Rockwell International,
Sr. Notes, 5.20%, 1998............... $ 1,000,000 $ 757,500
____________
Insurance-2.4% Presidential Life,
Sr. Notes, 9 1/2%, 2000............... 525,000 541,730
____________
Publishing-3.6% A.H. Belo,
Sr. Deb., 7 3/4%, 2027................ 750,000 827,824
____________
Real Estate
Investment Trusts-11.2% Crescent Real Estate Equities, L.P.,
Notes, 6 5/8%, 2002................... 1,000,000 (a) 1,014,904
FelCor Suities, L.P.,
Gtd. Sr. Notes, 7 5/8%, 2007.......... 500,000 (a) 514,186
Tanger Properties, Ltd.,
Notes, 7 7/8%, 2004................... 1,000,000 1,026,221
____________
2,555,311
____________
Residential Mortgage
Backed-9.9% Bear Stearns Mortgage Securities,
Mortgage Pass-Through Ctfs.,
REMIC, Ser. 1995-1:
Cl. 1B4, 6.475%, 2010................. 306,416 (a,b) 276,732
Cl. 2B4, 7.40%, 2010.................. 246,855 (a) 233,047
Chase Mortgage Finance,
Multi-Class Mortgage Pass-Through Ctfs.,
REMIC, Ser. 1994E, Cl. B5, 6 1/4%, 2010 167,338 (a) 150,395
GE Capital Mortgage Services,
REMIC Multi-Class Pass-Through Ctfs.:
Ser. 1994-21, Cl. B4, 6 1/2%, 2009............... 281,259 (a) 253,749
Ser. 1994-22, Cl. B2, 6%, 2009........ 177,214 172,894
Prudential Home Mortgage Securities,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1996-7, Cl. B2, 6 3/4%, 2011..... 232,624 234,660
Residential Funding Mortgage Securities I,
Mortgage Pass-Through Ctfs., REMIC,
Ser. 1997-S19, Cl. B3, 6 1/2%, 2012... 461,051 (a) 161,368
Structured Asset Securities,
Mortgage Pass-Through Ctfs.,
REMIC, Ser. Greenpoint 1996-A,
Cl. B3, 8.408%, 2027................. 711,383 (b) 770,073
____________
2,252,918
____________
Retail-4.9% Rite Aid,
Conv. Sub. Notes, 5 1/4%, 2002........ 500,000 (a) 573,125
Smith's Food & Drug Centers,
Pass-Through Trusts,
Pass-Through Ctfs.,
Ser. 1994-A2, 8.64%, 2012............ 500,000 544,375
____________
1,117,500
____________
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1998 (UNAUDITED)
Principal
Bonds and Notes (continued) Amount Value
____________ ____________
Technology-2.2% Quantum,
Conv. Sub. Notes, 7%, 2004........... $ 500,000 $ 493,125
____________
Telecommunications-2.2% Scandinavian Broadcasting System SA,
Conv. Sub. Notes, 7%, 2004........... 500,000 (a) 506,250
____________
Tobacco-3.6% Philip Morris Cos.,
Notes, 6.95%, 2001................... 800,000 (f) 829,815
____________
Utilities-2.7% Indiantown Cogeneration,
First Mortgage, Ser. A-10, 9.77%, 2020 500,000 624,429
____________
U.S. Government Agency/
Mortgage Backed-10.9% Federal Home Loan Mortgage,
Multiclass Mortgage Participation Ctfs., REMIC:
Ser. 1499, Cl. E, 7%, 4/15/2023
(Interest Only Obligation)........ 850,000 (g) 485,758
Ser. 1610, Cl. PW, 6 1/2%, 4/15/2022
(Interest Only Obligation)........ 1,867,492 (g) 605,476
Federal National Mortgage Association:
9%, 8/1/2026......................... 801,314 854,402
REMIC Trust, Gtd. Pass-Through Ctfs.,
Ser. 1997-40, Cl. PF, 7%, 12/18/2026
(Interest Only Obligation)........ 1,000,000 (g) 394,063
Government National Mortgage Association I,
9%, 11/15/2017....................... 122,045 132,915
____________
2,472,614
____________
TOTAL BONDS AND NOTES
(cost $21,134,512)................... $22,043,876
============
Equity-Related Securities-5.6% Shares
____________
Warrants-.7%
Broadcasting; Spanish Broadcasting System 750 (a) $ 150,000
____________
Preferred Stocks-4.9%
Broadcasting; Spanish Broadcasting System,
Cum., $142.50........................ 1,050 (a) 1,118,250
____________
TOTAL EQUITY-RELATED SECURITIES
(cost $1,059,921).................... $ 1,268,250
============
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF INVESTMENTS (CONTINUED) JANUARY 31, 1998 (UNAUDITED)
Principal
Short-Term Investments-.2% Amount Value
____________ ____________
U.S. Treasury Bills: 5.17%, 3/5/1998 $ 31,000 (h) $ 30,859
5.04%, 3/12/1998....................... 22,000 (h) 21,879
____________
(cost $52,738)....................... $ 52,738
============
TOTAL INVESTMENTS (cost $22,247,171)........................................ 102.5% $23,364,864
======= ============
LIABILITIES, LESS CASH AND RECEIVABLES...................................... (2.5%) $ (572,612)
======= ============
NET ASSETS.................................................................. 100.0% $22,792,252
======= ============
</TABLE>
Notes to Statement of Investments:
(a) Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
January 31, 1998, these securities amounted to $7,510,895 or 33.0% of net
assets.
(b) Variable rate security-interest rate subject to periodic change.
(c) Exchangeable into the common stock of Diamond Offshore Drilling.
(d) Reflects date security can be redeemed at holder's option; the
stated maturity date is 8/4/2007.
(e) Zero coupon until 4/1/2016, date on which a stated coupon rate of
7.95% becomes effective; the stated maturity date is 4/1/2096.
(f) Reflects date security can be redeemed at holders' option; the
stated maturity date is 6/1/2006.
(g) Notional face amount shown.
(h) Held by the custodian in a segregated account as collateral for open
Financial Futures positions.
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL FUTURES JANUARY 31, 1998 (UNAUDITED)
Market Value Unrealized
Covered Appreciation
Financial Futures Long Contracts by Contracts Expiration at 1/31/98
___________________ ____________ ____________ _____________ _____________
<S> <C> <C> <C> <C>
U.S. Treasury 5 Yr. Notes.................... 61 $6,708,094 March '98 $36,219
========
</TABLE>
<TABLE>
<CAPTION>
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1998 (UNAUDITED)
Cost Value
____________ ___________
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $22,247,171 $23,364,864
Cash....................................... 125,510
Receivable for investment securities sold.. 3,509,950
Interest receivable........................ 278,152
Receivable for futures variation margin-Note 4(a) 7,625
Prepaid expenses and other assets.......... 16,803
____________
27,302,904
____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates 7,765
Due to Distributor......................... 4,767
Payable for investment securities purchased 3,494,879
Bank loan payable-Note 2................... 911,000
Payable for shares of Common Stock redeemed 63,354
Interest payable-Note 2.................... 5,100
Accrued expenses........................... 23,787
____________
4,510,652
____________
NET ASSETS.................................................................. $22,792,252
============
REPRESENTED BY: Paid-in capital............................ $21,272,041
Accumulated undistributed investment income-net 16,350
Accumulated net realized gain (loss) on investments 349,949
Accumulated net unrealized appreciation (depreciation) on
investments (including $36,219 unrealized appreciation
on financial futures)-Note 4(b)............. 1,153,912
____________
NET ASSETS.................................................................. $22,792,252
============
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized)............. 1,708,629
NET ASSET VALUE, offering and redemption price per share.................... $13.34
=======
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF OPERATIONS SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
INVESTMENT INCOME
INCOME: Interest income............................ $ 814,113
Cash dividends............................. 51,182
___________
Total Income......................... $ 865,295
EXPENSES: Management fee-Note 3(a)................... 83,145
Shareholder servicing costs-Note 3(b)...... 36,602
Registration fees.......................... 12,579
Auditing fees.............................. 9,682
Interest expense-Note 2.................... 7,728
Prospectus and shareholders' reports....... 6,785
Custodian fees-Note 3(b)................... 3,412
Directors' fees and expenses-Note 3(c)..... 1,659
Legal fees................................. 806
Miscellaneous.............................. 2,951
___________
Total Expenses....................... 165,349
Less-reduction in management fee due to
undertaking-Note 3(a).................. (57,848)
___________
Net Expenses......................... 107,501
___________
INVESTMENT INCOME-NET....................................................... 757,794
___________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $ 386,056
Net realized gain (loss) on financial futures 331,842
___________
Net Realized Gain (Loss)............. 717,898
Net unrealized appreciation (depreciation) on investments
[including ($62,687) net unrealized depreciation on
financial futures].................... 28,988
___________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 746,886
___________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $1,504,680
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
January 31, 1998 Year Ended
(Unaudited) July 31, 1997
____________ _____________
OPERATIONS:
<S> <C> <C>
Investment income-net.................................................... $ 757,794 $ 1,229,093
Net realized gain (loss) on investments.................................. 717,898 239,930
Net unrealized appreciation (depreciation) on investments................ 28,988 1,152,489
____________ ____________
Net Increase (Decrease) in Net Assets Resulting from Operations........ 1,504,680 2,621,512
____________ ____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net.................................................... (741,444) (1,230,426)
Net realized gain on investments......................................... (559,454) ----
____________ ____________
Total Dividends........................................................ (1,300,898) (1,230,426)
____________ ____________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................ 3,276,366 17,525,998
Dividends reinvested..................................................... 879,883 816,175
Cost of shares redeemed.................................................. (3,511,378) (7,545,368)
____________ ____________
Increase (Decrease) in Net Assets from Capital Stock Transactions...... 644,871 10,796,805
____________ ____________
Total Increase (Decrease) in Net Assets.............................. 848,653 12,187,891
NET ASSETS:
Beginning of Period...................................................... 21,943,599 9,755,708
____________ ____________
End of Period............................................................ $22,792,252 $21,943,599
============ ============
Undistributed investment income-net........................................ $ 16,350 ----
____________ ____________
Shares Shares
____________ ____________
CAPITAL SHARE TRANSACTIONS:
Shares sold.............................................................. 248,101 1,396,403
Shares issued for dividends reinvested................................... 66,805 64,742
Shares redeemed.......................................................... (265,388) (600,098)
____________ ____________
Net Increase (Decrease) in Shares Outstanding.......................... 49,518 861,047
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Six Months Ended
January 31, 1998 Year Ended July 31,
_____________________
PER SHARE DATA: (Unaudited) 1997 1996(1)
__________ ______ ______
<S> <C> <C> <C>
Net asset value, beginning of period....................... $13.23 $12.22 $12.50
______ ______ ______
Investment Operations:
Investment income-net...................................... .46 .95 .46
Net realized and unrealized gain (loss) on investments..... .44 1.01 (.28)
______ ______ ______
Total from Investment Operations........................... .90 1.96 .18
______ ______ ______
Distributions:
Dividends from investment income-net....................... (.45) (.95) (.46)
Dividends from net realized gain on investments............ (.34) - -
______ ______ ______
Total Distributions........................................ (.79) (.95) (.46)
______ ______ ______
Net asset value, end of period............................. $13.34 $13.23 $12.22
====== ====== ======
TOTAL INVESTMENT RETURN........................................ 13.85%(2) 16.70% 3.05%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets.......... .90%(2) .52% -
Ratio of interest expense to average net assets............ .07%(2) .06% -
Ratio of net investment income to average net assets....... 6.84%(2) 7.45% 7.70%(2)
Decrease reflected in above expense ratios due to undertakings by the
Manager (limited to the expense limitation provision of the
management agreement).................................... .52%(2) .98% 2.50%(2)
Portfolio Turnover Rate.................................... 108.60%(3) 321.59% 139.38%(3)
Net Assets, end of period (000's Omitted).................. $22,792 $21,944 $9,756
</TABLE>
____________________
(1) From February 2, 1996 (commencement of operations) to July 31, 1996.
(2) Annualized.
(3) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
DREYFUS INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Intermediate Term Income Fund (the "Fund") is a series of Dreyfus
Investment Grade Bond Funds, Inc. (the "Company") which is registered under the
Investment Company Act of 1940 ("Act") as an open-end management investment
company and operates as a series company currently offering two series including
the Fund. The Fund is a diversified series. The Fund's investment objective is
to provide investors with as high a level of current income as is consistent
with the preservation of capital. The Dreyfus Corporation ("Manager") serves as
the Fund's investment adviser. The Manager is a direct subsidiary of Mellon
Bank, N.A. ("Mellon"). Premier Mutual Fund Services, Inc. (the "Distributor")
is the distributor of the Fund's shares, which are sold to the public without a
sales charge.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (excluding short-term
investments, financial futures and U.S. Government obligations) are valued
each business day by an independent pricing service ("Service") approved by
the Board of Directors. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
securities of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. Securities for which
there are no such valuations are valued at fair
value as determined in good faith under the direction of the Board of
Directors. Investments in U.S. Government obligations,
including U.S. Treasury Bills, are valued at the mean between quoted bid and
asked prices. Short-term investments, excluding U.S. Treasury Bills, are
carried at amortized cost, which approximates value. Financial futures are
valued at the last sales price on the securities exchange on which such
securities are primarily traded or at the last sales price on the national
securities market on each business day. Investments denominated in foreign
currencies are translated to U.S. dollars at the prevailing rates of exchange.
(b) Securities transactions and investment income: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, including, where applicable, amortization of discount on investments,
is recognized on the accrual basis.
(c) Dividends to shareholders: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain are normally declared and paid
annually, but the Fund may make distributions on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the applicable
provisions of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 2-BANK LINE OF CREDIT:
The Fund may borrow up to $10 million for leveraging purposes under a
short-term unsecured line of credit and participates with other
Dreyfus-managed funds in a $100 million unsecured line of credit primarily to
be utilized for temporary or emergency purposes, including the financing of
redemptions. Interest is charged to the Fund at rates which are related to
the Federal Funds rate in effect at the time of borrowings.
The average daily amount of borrowings outstanding under both
arrangements during the period ended January 31, 1998 was approximately
$277,400, with a related weighted average annualized interest rate of 5.53%.
NOTE 3-MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) Pursuant to a management agreement with the Manager, the management
fee is computed at the annual rate of .75 of 1% of the value of the Fund's
average daily net assets and is payable monthly. The Manager has currently
undertaken from August 1, 1997 through January 31, 1998, to reduce the
management fee paid by the Fund, to the extent that the Fund's aggregate
expenses exclusive of taxes, brokerage, interest on borrowings, commitment
fees and extraordinary expenses exceed .90 of 1% of the value of the Fund's
average daily net assets. The reduction in management fee, pursuant to the
undertaking, amounted to $57,848 during the period ended January 31, 1998.
(b) Under the Shareholder Services Plan, the Fund pays the Distributor at
the annual rate of .25 of 1% of the value of the Fund's average daily net
assets for the provision of certain services. The services provided may
include personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
The Distributor may make payments to Service Agents (a securities dealer,
financial institution or other industry professional) in respect of these
services. The Distributor determines the amounts to be paid to Service
Agents. During the period ended January 31, 1998, the Fund was charged
$27,715 pursuant to the Shareholder Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
the Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the Fund. During the
period ended January 31, 1998, the Fund was charged $6,268 pursuant to the
transfer agency agreement.
The Fund compensates Mellon under a custody agreement to provide
custodial services for the Fund. During the period ended January 31, 1998,
the Fund was charged $3,412 pursuant to the custody agreement.
(c) Each director who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $2,500 and an attendance fee of
$625 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 4-SECURITIES TRANSACTIONS:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities and financial futures,
during the period ended January 31, 1998 amounted to $25,579,267 and
$26,635,577 respectively.
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is exposed to
market risk as a result of changes in the value of the underlying financial
instruments. Investments in financial futures require the fund to "mark to
market" on a daily basis, which reflects the change in the market value of
the contracts at the close of each day's trading. Typically, variation margin
payments are received or made to reflect daily unrealized gains or losses.
When the contracts are closed, the Fund recognizes a realized gain or loss.
These
DREYFUS INTERMEDIATE TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
investments require initial margin deposits with a custodian, which consist
of cash or cash equivalents, up to approximately 10% of the contract amount.
The amount of these deposits is determined by the exchange or Board of Trade
on which the contract is traded and is subject to change. Contracts open at
January 31, 1998, and their related unrealized appreciation are set forth in
the Statement of Financial Futures.
(b) At January 31, 1998, accumulated net unrealized appreciation on
investments and financial futures was $1,153,912, consisting of $1,273,196
gross unrealized appreciation and $119,284 gross unrealized depreciation.
At January 31, 1998, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
Registration Mark
[Dreyfus lion "d" logo]
DREYFUS INTERMEDIATE TERM INCOME FUND
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 082SA981
Intermediate Term
Income Fund
Semi-Annual
Report
January 31, 1998
Registration Mark
[Dreyfus logo]
