DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for Dreyfus Intermediate Term Income
Fund for the 12-month period ended July 31, 1998. Your Fund produced a total
return, including share price changes and dividend income generated, of 10.93%.*
This compares with a total return of 7.98% for the Merrill Lynch Domestic Master
Index during the same period.** Income dividends paid from net investment income
during the period amounted to approximately $0.892 per share, representing a
distribution rate per share of 6.50%.***
The Economy
Low inflation, low unemployment and low interest rates characterized the
economy over the reporting period. Consumer confidence was at a level not seen
in 30 years, and consumers spent freely. As a result, the demand for big ticket
items was robust. The housing market remained solid and cars and trucks sold at
the highest rate in a decade. (The Asian crisis actually aided the domestic
housing market since the flight to safety of foreign capital into U.S.
fixed-income markets helped lower mortgage rates.) Yet by the end of the
reporting period, there were signs that the economy was slowing of its own
accord: second-quarter economic growth slowed to 1.4%, the lowest rate in three
years and dramatically below the 5.5% rate reported for the first quarter.
Despite evidence of an economic slowdown, the Federal Reserve Board was
concerned about inflation, fearful that low unemployment and climbing
compensation costs could cause a rekindling of price pressures if demand
accelerates. The Fed has refrained from raising its target rate for Federal
Funds from the current 5.50% due to concern that such an action would further
complicate the Asian financial crisis. The last rise in short-term rates was in
March 1997. (The Federal Funds rate is the rate of interest that banks charge
each other for overnight loans.) Additionally, there has been a growing
expectation that a weakening in foreign demand for U.S. goods would serve to
restrain the U.S. economy, and that appears to be occurring. Fed Chairman Alan
Greenspan had expressed his view regarding the likelihood of the spillover
effect from the Asian crisis. In fact, export demand has slumped all year, and
consequently the trade deficit has widened dramatically. U.S. companies with
overseas exposure have begun to feel a profit pinch from the Asian economic
crisis. This weakness might expand beyond the manufacturing and agricultural
areas into the heretofore robust consumer and service sectors of our economy,
which are the sectors that have buffered the effects of the overseas slowdown on
the economy.
Inflation, recently cited as the primary worry of Fed Chairman Greenspan,
remained benign over the reporting period, as it has throughout the eight-year
economic expansion. The Consumer Price Index rose a mere 1.6% through midyear.
The much-watched Employment Cost Index -- a broad measure of compensation trends
- -- has shown some evidence of an upward drift in wage inflation. On June 30,
wages and salaries were 3.5% higher than a year ago, the best 12-month gain
since 1991. Thus as of midyear, real pay increases (after adjusting for
inflation) were almost 2% higher than a year ago, clear evidence of an extremely
tight labor market.
The Market Environment
The last time we wrote to you, in February of 1998, we mentioned our continued
optimism for lower interest rates in the bond market due to the balanced budget,
globally attractive rates, a strong dollar, and declining commodity prices. We
also talked about repercussions from Asia reverberating well into 1998 which
could contribute to a general slowdown in global economic growth. These trends
are still in place, as the economic crisis that started in Thailand has spread
beyond the smaller Asian markets to now include Japan and China, as well as
Latin America and Russia. It appears that the last areas of formerly solid
economic growth, Europe and the United States, are now experiencing a slowdown
in economic growth.
<PAGE>
These trends have appeared in the markets in the form of lower interest rates
across the U.S. Treasury maturity yield curve (despite a Federal Funds rate that
remains steady at 5.50% ). We have also experienced a steady widening of
corporate yield spreads relative to U.S. Treasuries as investors continue to
demand higher compensation for taking the increased risk of purchasing a
corporate obligation relative to a safer U.S. Government obligation. U.S.
Government mortgage pass-through spreads to U.S. Treasuries have also widened as
investors seek higher compensation for prepayment risks. As interest rates
decline, homeowners can refinance their mortgages at lower rates, which means
that mortgage pass-through holders who reinvest would receive lower interest
rates.
Portfolio Focus
The Portfolio' s performance during the reporting period can be attributed to
several factors: duration/yield curve adjustments, sector weightings, and
security selection. We adjusted the Fund's average effective duration several
times during the past year. At times we have been longer than our benchmark's
effective duration of 4.5 years, at times shorter. These adjustments generally
helped performance, because we were generally near the longer end of the range
when rates declined, and near the shorter end of the range while rates were
rising. Positioning on the yield curve has been to increase the five-year
maturity sector whenever possible, which was the best-performing sector of the
yield curve. The Fund's average effective duration currently is at 4.5 years and
we continue to increase the five-year maturity sector.
The portfolio has maintained the majority of its investments in both corporate
and mortgage-backed securities, despite a widening in their yield spreads to
U.S. Treasuries. While this has not helped performance during the second half
of the reporting period, we believe it will prove beneficial over the longer
term. We believe the income advantage of corporates and mortgages over U.S.
Treasuries potentially can provide superior long-term total returns,
particularly on securities with maturities shorter than five years.
Maintaining a fully invested posture in carefully selected issues has served
the Fund well over the years. In the corporate market, we continue to favor
names with improving fundamentals such as Sealed Air, Dual Drilling, and
Spanish Broadcasting System. In the mortgage sector, we favor both privately
issued commercial and residential securities that are expected to benefit from
stable real estate credit fundamentals and offer far better protection from
prepayments than typical U.S. Government 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
August 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, divided by the net asset value per share at
the end of the period, adjusted for capital gain distributions.
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND JULY 31, 1998
- -----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS INTERMEDIATE TERM
INCOME FUND AND THE MERRILL LYNCH DOMESTIC MASTER INDEX
Dollars
$13,141
Dreyfus Intermediate Term Income Fund
$11,775
Merrill Lynch Domestic Master Index*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
Average Annual Total Returns
- -----------------------------------------------------------------------------
One Year Ended From Inception (2/2/96)
July 31, 1998 to July 31, 1998
______________ ______________________
10.93% 11.59%
- ---------------
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Intermediate Term
Income Fund on 2/2/96 (Inception Date) to a $10,000 investment made in the
Merrill Lynch Domestic Master Index on that date. All dividends and capital gain
distributions are reinvested.
The Fund invests primarily in debt securities and securities with debt-like
characteristics of domestic and foreign issuers and maintains a dollar-weighted
average maturity ranging between five and ten years. The Fund's performance
shown in the line graph takes into account all applicable fees and expenses.
Unlike the Fund, the Merrill Lynch Domestic Master Index is an unmanaged
performance benchmark for portfolios that include U.S. Government, mortgage and
BBB or higher-rated corporate securities with maturities greater than or equal
to one year; corporate and Treasury securities in the Index must have par
amounts outstanding greater than or equal to $25 million and generic
mortgage-backed securities, $200 million per coupon. The Index does not take
into account charges, fees and other expenses. Further information relating to
Fund performance, including expense reimbursements, if applicable, is contained
in the Financial Highlights section of the Prospectus and elsewhere in this
report.
<PAGE>
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS JULY 31, 1998
Principal
Bonds and Notes--102.1% Amount Value
- ------------------------------------------------------- ____________ ____________
<S> <C> <C>
Asset Backed--1.5% GE Capital Mortgage Services,
Home Equity Loan Pass-Through Ctfs.,
Ser. 1996-HE4, Cl. B4, 9.338%, 2026 . . . . . . . . . $ 426,238 (a,b) $ 332,333
____________
Banking--4.3% SB Treasury Company, LLC,
Preferred Securities, Ser. A, 9.40%, 2049 . . . . . . 1,000,000 (a,b) 986,871
____________
Commercial Mortgage
Pass-Through Ctfs.--23.2% Countrywide Funding,
Ser. 1994-8, Cl. B2, 6%, 2009 . . . . . . . . . . . . 769,258 (a) 689,689
DLJ Mortgage Acceptance,
Ser. 1997-CF2, Cl. B-3, 6.99%, 2009 . . . . . . . 1,000,000 (a) 985,000
GMAC Commercial Mortgage Securities,
Ser. 1996-Cl, Cl. E, 7.86%, 2006 . . . . . . . . . 600,000 604,688
Nomura Depositor Trust,
Ser. 1998-STI, Cl. B-2, 9.906%, 2003 . . . . . . . 750,000 (a,b) 745,430
Resolution Trust:
Ser. 1992-CHF, Cl.D, 8.25%, 2020 . . . . . . . . . 506,110 506,901
Ser. 1993-C3, Cl.D, 7.10%, 2024 . . . . . . . . . 941,362 951,129
Structured Asset Securities, REMIC,
Ser. 1996-CFL, Cl. H, 7.75%, 2028 . . . . . . . . 1,000,000 (a) 850,000
____________
5,332,837
____________
Energy--6.8% Dual Drilling,
Gtd. Sr. Sub. Notes, 9.875%, 2004 . . . . . . . . 1,000,000 1,070,000
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 7.25%, 1998 . . . . . . . . . . . . . . 500,000 500,018
____________
1,570,018
____________
Foreign--2.3% Korea Electric Power,
Deb., Zero Coupon, 2016 . . . . . . . . . . . . . 5,000,000 (c) 524,110
____________
Foreign/Governmental--.2% Republic of Argentina (BOTE),
Floating Rate Notes, Ser. 10, 5.677%, 2000 . . . . 56,620 (b) 55,388
____________
Hotels & Motels--2.2% Hyatt Equities, L.L.C.,
Notes, 6.80%, 2000 . . . . . . . . . . . . . . . . 500,000 (a) 507,143
____________
Industrial--3.0% Waste Management,
Conv. Sub. Notes, 4%, 2002 . . . . . . . . . . . . 500,000 681,250
____________
Insurance--2.3% Presidential Life,
Sr. Notes, 9.50%, 2000 . . . . . . . . . . . . . . 525,000 536,908
____________
Railroads--1.0% Terminal Railroad Association,
First Mortgage, 4%, 2019 . . . . . . . . . . . . . 300,000 223,260
____________
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------- ____________ ____________
<S> <C> <C>
Real Estate
Investment Trusts--8.7% Crescent Real Estate Equities, L.P.,
Notes, 6.625%, 2002 . . . . . . . . . . . . . . . . . . . . $ 1,000,000 $ 987,179
Tanger Properties, Ltd.,
Notes, 7.875%, 2004 . . . . . . . . . . . . . . . . . . . . 1,000,000 1,019,184
___________
2,006,363
____________
Residential Mortgage
Pass-Through Ctfs.--21.9% Nomura Asset Securities,
Ser. 1998-D6, Cl. A4, 7.595%, 2028 . . . . . . . . . . . . . . 1,000,000 (b) 1,027,812
Norwest Asset Securities, REMIC:
Ser. 1998-9, Cl. B3, 6.50%, 2028 . . . . . . . . . . . . . . . 823,939 801,084
Ser. 1998-13, Cl. B3, 6.25%, 2028 . . . . . . . . . . . . . . 751,000 722,837
Residential Funding Mortgage Securities I, REMIC:
Ser. 1997-S16, Cl. M3, 6.75%, 2012 . . . . . . . . . . . . . . 747,863 742,434
Ser. 1997-S19, Cl. B3, 6.50%, 2012 . . . . . . . . . . . . . . 450,791 (a) 171,301
Ser. 1998-S1, Cl. M3, 6.50%, 2013 . . . . . . . . . . . . . . 555,550 533,734
Ser. 1998-S16, Cl. B1, 6.50%, 2013 . . . . . . . . . . . . . . 307,200 279,809
Structured Asset Securities,
REMIC, Ser. Greenpoint 1996-A,
Cl. B3, 8.373%, 2027 . . . . . . . . . . . . . . . . . . . . . 705,949 (b) 760,661
___________
5,039,672
____________
Technology--2.0% Quantum,
Conv. Sub. Notes, 7% , 2004 . . . . . . . . . . . . . . . . . . 500,000 465,000
____________
Telecommunications--2.6% MFS Communications,
Sr. Discount Notes, 9.375%, 2004 . . . . . . . . . . . . . . . 566,540 596,991
___________
Tobacco--3.6% Philip Morris Cos.,
Notes, 6.95%, 2001 . . . . . . . . . . . . . . . . . . . . . . 800,000 (d) 821,664
__________
U.S. Government Agency/
Mortgage Backed--9.6% Federal Home Loan Mortgage,
Multiclass Mortgage Participation Ctfs., REMIC:
Ser. 1499, Cl. E, 7%, 4/15/2023
(Interest Only Obligation) . . . . . . . . . . . . . 850,000 (e) 487,467
Ser. 1610, Cl. PW, 6.50%, 4/15/2022
(Interest Only Obligation) . . . . . . . . . . . . . 1,867,492 (e) 571,565
Federal National Mortgage Association:
9%, 8/1/2026 . . . . . . . . . . . . . . . . . . . . . . . 589,186 624,720
REMIC Trust, Gtd. Pass-Through Ctfs.,
Ser. 1997-40, Cl. PF, 7%, 12/18/2026
(Interest Only Obligation) . . . . . . . . . . . . . . 1,000,000 (e) 408,830
Government National Mortgage Association I,
9%, 11/15/2017 . . . . . . . . . . . . . . . . . . 103,483 112,246
____________
2,204,828
____________
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ------------------------------------------------------- ____________ ____________
<S> <C> <C>
U.S. Government--6.9% U.S. Treasury Bonds,
6.125%, 11/15/2027 . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000,000 $ 1,057,110
U.S. Treasury Notes,
6.50%, 5/15/2005 . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 526,205
____________
1,583,315
____________
TOTAL BONDS AND NOTES
(cost $22,928,326) . . . . . . . . . . . . . . . . . . . . . . . . $23,467,951
____________
Equity-Related Securities--15.5% Shares
- ------------------------------------------------------------------------------------------ ____________
Warrants--.7%
Broadcasting; Spanish Broadcasting System . . . . . . . . . . . . . 750 (a,f) $ 153,750
____________
Preferred Stocks--14.8%
Broadcasting--5.3% Spanish Broadcasting System,
$142.50 . . . . . . . . . . . . . . . . . . . . . 1,124 (a) 1,225,160
____________
Cable Television--2.6% Echostar Communications,
Ser. C, Conv., $3.375 . . . . . . . . . . . . . . 10,000 600,000
____________
Containers--2.9% Sealed Air,
Ser. A, Conv., $2.00 . . . . . . . . . . . . . . 15,000 667,500
____________
Transportation--4.0% Union Pacific Capital Trust,
Conv., $3.125 . . . . . . . . . . . . . . . . . . 20,000 (a) 910,000
____________
Total Preferred Stocks . . . . . . . . . . . . . . . . 3,402,660
____________
TOTAL EQUITY-RELATED SECURITIES
(cost $3,607,655) . . . . . . . . . . . . . . . . $ 3,556,410
____________
Principal
Short-Term Investments--.4% Amount
- ------------------------------------------------------------------------------------------ ____________
U.S. Treasury Bills; 4.93%, 10/22/1998
(cost $90,967) . . . . . . . . . . . . . . . . . . $ 92,000 (g) $ 90,956
____________
TOTAL INVESTMENTS (cost $26,626,948) . . . . . . . . . . . . . . . . . . . . . . . . . . . 118.0% $27,115,317
_______ _____________
LIABILITIES, LESS CASH AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . (18.0%) $ (4,138,783)
_______ _____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $22,976,534
_______ _____________
</TABLE>
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At July 31,
1998, these securities amounted to $7,556,677 or 32.9% of net assets.
(b) Variable rate security-interest rate subject to periodic change.
(c) Zero coupon until year shown at which time a stated coupon rate becomes
effective.
(d) Reflects date security can be redeemed at holders' option; the stated
maturity date is 6/1/2006.
(e) Notional face amount shown.
(f) Non-income producing.
(g) Held by the custodian in a segregated account as collateral for open
Financial Futures positions.
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL FUTURES JULY 31, 1998
Unrealized
Market Value Appreciation
Covered (Depreciation)
Financial Futures Short Contracts by Contracts Expiration at 7/31/98
____________________ ___________ ______________ ______________ ______________
<S> <C> <C> <C> <C>
U.S. Treasury 5 year Notes . . . . . . . . . . . . . . . 30 $3,284,531 September '98 $9,844
Financial Futures Long
___________________
U.S. Treasury 30 year Bonds. . . . . . . . . . . . . . . 44 5,394,125 September '98 (7,375)
_______
$2,469
_______
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1998
Cost Value
____________ ___________
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $26,626,948 $27,115,317
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 166,799
Interest receivable . . . . . . . . . . . . . . . . . . . 285,152
Receivable for futures variation margin--Note 4(a) . . . 1,844
Paydowns receivable . . . . . . . . . . . . . . . . . . . 683
Receivable for shares of Common Stock subscribed . . . . 42
Prepaid expenses and other assets . . . . . . . . . . . . 16,676
____________
27,586,513
____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 4,542
Due to Distributor . . . . . . . . . . . . . . . . . . . 5,267
Payable for shares of Common Stock redeemed . . . . . . . 2,703,481
Bank loan payable--Note 2 . . . . . . . . . . . . . . . . 1,831,900
Interest payable--Note 2 . . . . . . . . . . . . . . . . 33,533
Accrued expenses . . . . . . . . . . . . . . . . . . . . 31,256
____________
4,609,979
____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,976,534
____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $21,381,638
Accumulated undistributed investment income--net . . . . 27,329
Accumulated net realized gain (loss) on investments
and foreign currency transactions . . . . . . . . . . . 1,076,729
Accumulated net unrealized appreciation (depreciation)
on investments (including $2,469 net unrealized
appreciation on financial futures)--Note 4(b) . . . . . 490,838
____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,976,534
____________
SHARES OUTSTANDING
(500 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED). . . . . . . . . . . . . 1,717,019
NET ASSET VALUE, offering and redemption price per share . . . . . . . . . . . . . . . . . $13.38
_______
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1998
INVESTMENT INCOME
<S> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $1,691,556
Cash dividends . . . . . . . . . . . . . . . . . . . . . 167,032
___________
Total Income . . . . . . . . . . . . . . . . . . . $1,858,588
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . 152,467
Interest expense--Note 2 . . . . . . . . . . . . . . . . 78,290
Shareholder servicing costs--Note 3(b) . . . . . . . . . 78,217
Registration fees . . . . . . . . . . . . . . . . . . . . 24,850
Auditing fees . . . . . . . . . . . . . . . . . . . . . . 20,926
Prospectus and shareholders' reports . . . . . . . . . . 11,536
Custodian fees--Note 3(b) . . . . . . . . . . . . . . . . 6,370
Directors' fees and expenses--Note 3(c) . . . . . . . . . 3,128
Legal fees . . . . . . . . . . . . . . . . . . . . . . . 1,380
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 3,762
___________
Total Expenses . . . . . . . . . . . . . . . . . . 380,926
Less--reduction in management fee due to
undertaking--Note 3(a) . . . . . . . . . . . . . . . . (114,598)
___________
Net Expenses . . . . . . . . . . . . . . . . . . . 266,328
___________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592,260
___________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments . . . . . . . . . $1,029,007
Net realized gain (loss) on foreign currency
transactions . . . . . . . . . . . . . . . . . . . . . 55,523
Net realized gain (loss) on financial futures . . . . . . 360,148
___________
Net Realized Gain (Loss) . . . . . . . . . . . . . 1,444,678
Net unrealized appreciation (depreciation) on investments
[including ($96,437) net unrealized (depreciation) on
financial futures] . . . . . . . . . . . . . . . . . . (634,086)
___________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . 810,592
___________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . $2,402,852
___________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
July 31, 1998 July 31, 1997
____________ ____________
OPERATIONS:
<S> <C> <C>
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,592,260 $ 1,229,093
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . 1,444,678 239,930
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . (634,086) 1,152,489
____________ ____________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . 2,402,852 2,621,512
____________ ____________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,564,931) (1,230,426)
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (559,454) --------
____________ ____________
Total Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,124,385) (1,230,426)
____________ ____________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . 11,729,347 17,525,998
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,408,285 816,175
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,383,164) (7,545,368)
____________ ____________
Increase (Decrease) in Net Assets from Capital Stock Transactions . . . . . . . 754,468 10,796,805
____________ ____________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . 1,032,935 12,187,891
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,943,599 9,755,708
____________ ____________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,976,534 $ 21,943,599
____________ ____________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . $ 27,329 --------
____________ ____________
Shares Shares
____________ ____________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878,894 1,396,403
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . 106,245 64,742
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (927,231) (600,098)
____________ ____________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . 57,908 861,047
____________ ____________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of Common
Stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Year Ended July 31,
_________________________________
PER SHARE DATA: 1998 1997 1996(1)
______ ______ ______
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . $13.23 $12.22 $12.50
______ ______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91 .95 .46
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 1.01 (.28)
______ ______ ______
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 1.38 1.96 .18
______ ______ ______
Distributions:
Dividends from investment income--net . . . . . . . . . . . . . . . . . . . . . . . . (.89) (.95) (.46)
Dividends from net realized gain on investments . . . . . . . . . . . . . . . . . . . (.34) -- --
______ ______ ______
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.23) (.95) (.46)
______ ______ ______
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.38 $13.23 $12.22
______ ______ ______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.93% 16.70% 3.05%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets . . . . . . . . . . . . . . . . . . .80% .52% --
Ratio of interest expense to average net assets . . . . . . . . . . . . . . . . . . . .34% .06% --
Ratio of net investment income to average net assets . . . . . . . . . . . . . . . . 6.81% 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) . . . . .49% .98% 2.50%(2)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170.52% 321.59% 139.38%(3)
Net Assets, end of period (000's Omitted) . . . . . . . . . . . . . . . . . . . . . $ 22,977 $ 21,944 $ 9,756
- -----------------------------
(1) From February 2, 1996 (commencement of operations) to July 31, 1996.
(2) Annualized.
(3) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Intermediate Term Income Fund (the "Fund") is a separate diversified
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'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 (the "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, other than U.S. Treasury Bills, and financial futures) 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. 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) FOREIGN CURRENCY TRANSACTIONS: The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in the market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and maturities
of short-term securities, sales of foreign currencies, currency gains or losses
realized on securities transactions and the difference between the amount of
dividends, interest and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities, resulting from
changes in exchange rates. Such gains and losses are included with net realized
and unrealized gain or loss on investments.
(c) 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. Under the terms of the
custodian agreement, the Fund receives net earnings credits based on available
cash balances left on deposit.
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(d) 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.
(e) 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.
NOTE 2--BANK LINES 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 July 31, 1998 was approximately $1,319,700, with a
related weighted average annualized interest rate of 5.93%.
NOTE 3--MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) Effective February 15, 1998, pursuant to an amended management agreement
with the Manager, the management fee is computed at the annual rate of .55 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 February 14, 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 specified annual percentages of the Fund's
average daily net assets, and thereafter, through July 31, 1998 to reduce the
management fee paid by the Fund, to the extent that the Fund's aggregate
expenses (excluding certain expenses as described above) exceeded .65 of 1% of
the value of the Fund's average daily net assets. The reduction in management
fee, pursuant to the undertakings, amounted to $114,598 during the period ended
July 31, 1998.
Prior to February 15, 1998, the management fee was computed at an annual rate
of .75 of 1% of the value of the Fund's average daily net assets.
(b) Under the Shareholder Services Plan, the Fund pays the Distributor at the
annual rate of .25 of 1% of the value of the Fund's average daily net assets for
the provision of certain services. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund and providing reports and other information, and
services related to the maintenance of shareholder accounts. The Distributor may
make payments to Service Agents (a securities dealer, financial institution or
other industry professional) in respect of these services. The Distributor
determines the amounts to be paid to Service Agents. During the period ended
July 31, 1998, the Fund was charged $58,430 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 July 31, 1998, the Fund was charged $13,765 pursuant to the transfer
agency agreement.
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended July 31, 1998, the Fund was
charged $6,370 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, financial futures and
forward currency exchange contracts, during the period ended July 31, 1998
amounted to $46,446,242 and $43,797,161, respectively.
The Fund enters into forward currency exchange contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings. When executing forward currency exchange contracts, the Fund is
obligated to buy or sell a foreign currency at a specified rate on a certain
date in the future. With respect to sales of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract increases
between the date the forward contract is opened and the date the forward
contract is closed. The Fund realizes a gain if the value of the contract
decreases between those dates. With respect to purchases of forward currency
exchange contracts, the Fund would incur a loss if the value of the contract
decreases between the date the forward contract is opened and the date the
forward contract is closed. The Fund realizes a gain if the value of the
contract increases between those dates. The Fund is also exposed to credit risk
associated with counter party nonperformance on these forward currency exchange
contracts which is typically limited to the unrealized gain on each open
contract. At July 31, 1998, there were no forward currency exchange contracts
outstanding.
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 investments require
initial margin deposits with a custodian, which consist of cash or cash
equivalents, up to approximately 10% of the contract amount. The amount of these
deposits is determined by the exchange or Board of Trade on which the contract
is traded and is subject to change. Contracts open at July 31, 1998 are set
forth in the Statement of Financial Futures.
(b) At July 31, 1998, accumulated net unrealized appreciation on investments
and financial futures was $490,838, consisting of $952,179 gross unrealized
appreciation and $461,341 gross unrealized depreciation.
At July 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).
<PAGE>
DREYFUS INTERMEDIATE TERM INCOME FUND
- -----------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS INTERMEDIATE TERM INCOME FUND
We have audited the accompanying statement of assets and liabilities,
including the statements of investments and financial futures, of Dreyfus
Intermediate Term Income Fund (one of the series constituting Dreyfus Investment
Grade Bond Funds, Inc.) , as of July 31, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and financial highlights for
each of the years indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held as of July 31, 1998 and confirmation of
securities not held by the custodian by correspondence with others. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus Intermediate Term Income Fund at July 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated years, in conformity with generally accepted accounting
principles.
[Ernst & Young LLP signature logo]
New York, New York
September 8, 1998
IMPORTANT TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates $.1200 per share as a
long-term capital gain distribution (of which 54.17% is subject to the 20%
maximum Federal tax rate) of the $.3400 per share paid on December 18, 1997.
<PAGE>
(reg.tm)
(reg.tm)
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. 082AR987
Intermediate Term
Income Fund
Annual Report
July 31, 1998
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to report the performance for Dreyfus Short Term Income Fund
for the 12-month period ended July 31, 1998. Your Fund produced a total return,
including share price changes and dividend income generated, of 7.92%.* This
compares with a total return of 6.44% for the Merrill Lynch Corporate and
Government (1-4.99 Years) Index during the same period.** Income dividends paid
from net investment income during the period amounted to approximately $0.834
per share, representing a distribution rate per share of 6.88%.***
The Economy
Low inflation, low unemployment and low interest rates characterized the
economy over the reporting period. Consumer confidence was at a level not seen
in 30 years, and consumers spent freely. As a result, the demand for big ticket
items was robust. The housing market remained solid, and cars and trucks sold at
the highest rate in a decade. (The Asian crisis actually aided the domestic
housing market since the flight to safety of foreign capital into U.S.
fixed-income markets helped lower mortgage rates.) Yet by the end of the
reporting period, there were signs that the economy was slowing of its own
accord: second-quarter economic growth slowed to 1.4%, the lowest rate in three
years and dramatically below the 5.5% rate reported for the first quarter.
Despite evidence of an economic slowdown, the Federal Reserve Board was
concerned about inflation, fearful that low unemployment and climbing
compensation costs could cause a rekindling of price pressures if demand
accelerates. The Fed has refrained from raising its target rate for Federal
Funds from the current 5.50% due to concern that such an action would further
complicate the Asian financial crisis. The last rise in short-term rates was in
March 1997. (The Federal Funds rate is the rate of interest that banks charge
each other for overnight loans.) Additionally, there has been a growing
expectation that a weakening in foreign demand for U.S. goods would serve to
restrain the U.S. economy, and that appears to be occurring. Fed Chairman Alan
Greenspan had expressed his view regarding the likelihood of the spillover
effect from the Asian crisis. In fact, export demand has slumped all year, and
consequently the trade deficit has widened dramatically. U.S. companies with
overseas exposure have begun to feel a profit pinch from the Asian economic
crisis. This weakness might expand beyond the manufacturing and agricultural
areas into the heretofore robust consumer and service sectors of our economy,
which are the sectors that have buffered the effects of the overseas slowdown on
the economy.
Inflation, recently cited as the primary worry of Fed Chairman Greenspan,
remained benign over the reporting period, as it has throughout the eight-year
economic expansion. The Consumer Price Index rose a mere 1.6% through midyear.
The much-watched Employment Cost Index -- a broad measure of compensation trends
- -- has shown some evidence of an upward drift in wage inflation. On June 30,
wages and salaries were 3.5% higher than a year ago, the best 12-month gain
since 1991. Thus as of midyear, real pay increases (after adjusting for
inflation) were almost 2% higher than a year ago, clear evidence of an extremely
tight labor market.
The Market Environment
The last time we wrote to you, in February of 1998, we mentioned our continued
optimism for lower interest rates in the bond market due to the balanced budget,
globally attractive rates, a strong dollar, and declining commodity prices. We
also talked about repercussions from Asia reverberating well into 1998 which
could contribute to a general slowdown in global economic growth. These trends
are still in place, as the economic crisis that started in Thailand has spread
beyond the smaller Asian markets to now include Japan and China, as well as
Latin America and Russia. It appears the last areas of formerly solid economic
growth, Europe and the United States, are now experiencing a slowdown in
economic growth.
<PAGE>
These trends have appeared in the markets in the form of lower interest rates
across the U.S. Treasury maturity yield curve (despite a Federal Funds rate
remaining steady at 5.50% ). We have also experienced a steady widening of
corporate yield spreads relative to U.S. Treasuries as investors continue to
demand higher compensation for taking the increased risk of purchasing a
corporate obligation relative to a safer U.S. Government obligation. U.S.
Government mortgage pass-through spreads to U.S. Treasuries have also widened as
investors want higher compensation for prepayment risks. As interest rates
decline, homeowners can refinance their mortgages at lower rates, which means
that mortgage pass-through holders who reinvest would receive lower interest
rates.
Portfolio Focus
The portfolio' s performance during the reporting period can be attributed to
several factors: duration/yield curve adjustments, sector weightings and
security selection. We adjusted the Fund's average effective duration several
times during the past six months, between a band of one and three years. These
adjustments generally helped performance because we were generally near the
longer end of the range when rates declined, and near the shorter end of the
range while rates were rising. Positioning on the yield curve has been to
increase the five-year maturity sector whenever possible, which was the best-
performing sector of the yield curve. The Fund's average effective duration
currently is at 1.2 years, and we continue to increase the five-year maturity
sector.
The portfolio has maintained the majority of its investments in both corporate
and mortgage-backed securities, despite a widening in their yield spreads to
U.S. Treasuries. While this has not helped performance during the second half of
the reporting period, we believe it will prove beneficial over the longer term.
We believe the income advantage of corporates and mortgages over U.S. Treasuries
potentially can provide superior long-term total returns, particularly on
securities with maturities shorter than five years.
Maintaining a fully invested posture in carefully selected issues has served
the Fund well over the years. In the corporate market, we continue to favor
names with improving fundamentals such as Sealed Air, Niagara Mohawk Power and
Time Warner. In the mortgage sector, we favor both privately issued commercial
and residential securities that are expected to benefit from stable real estate
credit fundamentals and offer far better protection from prepayments than
typical U.S. Government 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
August 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 (1-4.99 Years) Index is an unmanaged
performance benchmark for investment grade corporate securities and government
securities with maturities greater than or equal to $100 million.
*** Distribution rate per share is based upon dividends per share paid from net
investment income during the period, divided by the net asset value per share at
the end of the period.
<PAGE>
DREYFUS SHORT TERM INCOME FUND JULY 31, 1998
- -----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS SHORT TERM INCOME
FUND AND THE MERRILL LYNCH CORPORATE AND GOVERNMENT (1-4.99 YEARS) INDEX
Dollars
$14,730
Dreyfus Short Term Income Fund
$14,149
Merrill Lynch Corporate and Government (1-4.99 Years) Index*
*Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
Average Annual Total Returns
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
One Year Ended Five Years Ended From Inception (8/18/92)
July 31, 1998 July 31, 1998 to July 31, 1998
____________________ ____________________ __________________________
<S> <C> <C> <C>
7.92% 6.54% 6.73%
- ------------------------
</TABLE>
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus Short Term Income
Fund on 8/18/92 (Inception Date) to a $10,000 investment made in the Merrill
Lynch Corporate and Government (1-4.99 Years) Index on that date. All dividends
and capital gain distributions are reinvested.
The Fund invests primarily in debt securities and securities with debt-like
characteristics of domestic and foreign issuers and maintains a dollar-weighted
average maturity of three years or less. The Fund's performance shown in the
line graph takes into account all applicable fees and expenses. Unlike the Fund,
the Merrill Lynch Corporate and Government (1-4.99 Years) 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 $100 million. The Index does not take into account charges, fees and
other expenses. Further information relating to Fund performance, including
expense reimbursements, if applicable, is contained in the Financial Highlights
section of the Prospectus and elsewhere in this report.
<PAGE>
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS JULY 31, 1998
Principal
Bonds and Notes--89.5% Amount Value
- ----------------------------------------------------- _____________ ______________
<S> <C> <C>
Aircraft & Aerospace--3.2% Aircraft Lease Portfolio Securitisation 96-1
Pass Through Trust, Ctfs.,
Cl. D, 12.75%, 2006 . . . . . . . . . . . . . $ 4,387,910 $ 4,519,548
America West Airlines Pass-Through Trusts, Ctfs.:
Ser. 1996-1, Cl. D, 8.16%, 2002 . . . . . . . 3,993,124 4,028,164
Ser. 1997-1, Cl. D, 8.12%, 2001 . . . . . . . 2,979,226 (a) 3,004,833
_____________
11,552,545
_____________
Asset-Backed--.5% Bosque Asset,
Asset-Backed Notes,
7.66%, 2002 . . . . . . . . . . . . . . . . . 2,028,947 (a) 2,040,043
_____________
Auto Related--.6% Collins & Aikman Products,
Gtd. Sr. Sub. Notes, 11.50%, 2006 . . . . . . 2,000,000 2,220,000
_____________
Banking--3.0% Fuji Finance:
Gtd. Floating Rate Notes, 6.743%, 2049 . ....... 5,000,000 (b) 4,100,000
Preferred Securities, Ser. A, 9.87%, 2049 ....... 2,000,000 (a,b) 1,743,094
IBJ Preferred Capital, L.L.C.,
Preferred Securities, Ser. A, 8.79%, 2049 .... 2,000,000 (a) 1,853,534
SB Treasury Company, L.L.C.,
Preferred Securities, Ser. A, 9.40%, 2049 .... 3,000,000 (a,b) 2,960,613
_____________
10,657,241
_____________
Broadcasting--.4% Scandinavian Broadcasting System SA,
Conv. Sub. Deb., 7%, 2004 ............................ 1,200,000 1,428,000
_____________
Cable Television--.7% CCA Holdings,
Sr. Sub. Notes, Zero Coupon, 1999 ................ 2,798,521 2,343,750
_____________
Commercial Mortgage
Pass-Through Ctfs.--24.6% BKB Commercial Mortgage Trust, Ser. 1997-C1:
Cl. C, 7.45%, 2000 . . . . . . . . . . . . . . 8,000,000 (a) 7,998,476
Cl. E, 8.738%, 2001 . . . . . . . . . . . .... 4,000,000 (a,b) 3,994,232
BTC Mortgage Investors Trust,
Ser. 1997-S1, Cl. C, 6.645%, 2009 . . . . . . 10,395,000 (a) 10,495,702
CRIIMI MAE Trust I,
Commercial Mortgage Bonds, Ser. 1996-C1,
Cl. A-1, 6.77%, 2033 . . . . . . . . . . . . . 3,854,007 (a) 3,832,328
Chase Commercial Mortgage Securities,
Ser. 1998-SN1A, Cl. D, 6.49%, 2001 . . . . . . 4,250,000 (a,b) 4,250,000
DLJ Mortgage Acceptance:
Ser. 1997-CF2, Cl. B-3, 6.99%, 2009 . . . . . 3,100,000 (a) 3,053,500
Ser. 1998-STFA, Cl. B-1, 6.693%, 2000 . . . . 5,400,000 (a,b) 5,400,000
GS Mortgage Securities,
Ser. 1998-GS1, Cl. D, 6.456%, 2000 . . . . . . 18,912,000 (a,b) 18,835,170
Merrill Lynch Mortgage Investors,
Ser. 1997 SD1, 6.88%, 2010 . . . . . . . . . . 4,500,000 4,507,031
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ----------------------------------------------------- _____________ _____________
Commercial Mortgage
Pass-Through Ctfs. (continued) Nomura Depositor Trust:
Ser. 1998-ST1, Cl. A-5, 6.906%, 2003 . . . . . $ 11,500,000 (a,b) $ 11,446,094
Ser. 1998-ST1, Cl. B-2, 9.906%, 2003 . . . . . 6,750,000 (a,b) 6,708,867
Resolution Trust:
Ser. 1992-CHF, Cl. D, 8.25%, 2020 . . . . . . 1,072,034 1,073,709
Ser. 1993-C3, Cl. D, 7.10%, 2024 . . . . . .... 1,882,724 1,902,258
Ser. 1994-C2, Cl. D, 8%, 2025 . . . . . . . . 4,595,690 4,710,284
_____________
88,207,651
_____________
Consumer--.4% Signature Brands USA,
Sr. Sub. Notes, 13%, 2002 (Units) . . . . . . 1,250,000 (c) 1,412,500
_____________
Energy--9.4% DeepTech International,
Sr. Secured Notes, 11%, 2000 ................ 7,850,000 (a) 8,203,250
Dual Drilling,
Gtd. Sr. Sub. Notes, 9.875%, 2004 . . . . . . 14,750,000 15,782,500
PDV America (Gtd. by Propernyn B.V. and
Venezuelan Petroleum),
Sr. Notes, 7.25%, 1998 . . . . . . . . . . . . 6,500,000 6,500,234
Reading & Bates,
Conv. Deb., 4.878%, 1998 . . . . . . . . . . . 3,321,000 3,280,500
_____________
33,766,484
_____________
Entertainment--1.4% Time Warner,
Notes, 7.95%, 2000 . . . . . . . . . . . . . . 5,000,000 5,127,255
_____________
Finance--1.1% Bear Stearns Capital Trust I,
Gtd. Fixed/Adj. Rate Capital Securities,
7%, 2027 . . . . . . . . . . . . . . . . . . . 4,000,000 (a,b) 4,079,104
_____________
Food & Beverage--.5% Envirodyne Industries,
Sr. Notes, 10.25%, 2001 . . . . . . . . . . . 2,000,000 2,010,000
_____________
Foreign/Governmental--5.1% Republic of Argentina,
Floating Rate Notes:
9.15%, 2002 . . . . . . . . . . . . . . . . 10,000,000 (b) 10,012,500
(BOTE), Ser. 10, 5.677%, 2000 . . . . . . . 1,415,500 (b) 1,384,707
Republic of Colombia,
Floating Rate Notes, 8.82%, 2005 . . . . . . . 2,500,000 (b) 2,503,750
Sultanate of Oman,
Notes, 7.125%, 2002 . . . . . . . . . . . . . 4,000,000 (a) 4,090,000
_____________
17,990,957
_____________
Gaming--.8% Waterford Gaming, L.L.C./Finance,
Sr. Notes, 12.75%, 2003 . . . . . . . . . . . 2,838,000 3,150,180
_____________
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ----------------------------------------------------- _____________ _____________
Insurance--1.3% Presidential Life,
Sr. Notes, 9.50%, 2000 . . . . . . . . . . . . $ 4,575,000 $ 4,678,770
_____________
Mining & Metals--.5% Inco, Ltd.,
Conv. Deb., 5.75%, 2004 . . . . . . . . . . . 2,000,000 1,805,000
_____________
Publishing--1.4% A.H. Belo,
Sr. Notes, 6.875%, 2002 . . . . . . . . . . . 5,000,000 5,122,240
_____________
Real Estate
Investment Trusts--2.8% Crescent Real Estate Equities, L.P.,
Notes, 6.625%, 2002 . . . . . . . . . . . . . 10,000,000 9,871,790
_____________
Residential Mortgage
Pass-Through Ctfs.--2.1% DLJ Mortgage Acceptance, Multifamily,
Ser. 1994-MF11, Cl. B1, 8.10%, 2004 . . . . . 7,000,000 7,494,375
_____________
Retail--.1% K Mart,
Medium-Term Notes, 7.96%, 1999 . . . . . . . . 500,000 505,094
_____________
Steel--.8% EES Coke Battery,
Sr. Secured Notes, Ser. A, 7.125%, 2002 . . . 2,973,262 (a) 2,982,459
_____________
Technology--.8% Quantum,
Conv. Sub. Notes, 7%, 2004 . . . . . . . . . . 3,000,000 2,790,000
____________
Telecommunications--.7% U.S. West Capital Funding,
Gtd. Notes, 6.125%, 2002 . . . . . . . . . . . 2,400,000 2,404,366
_____________
Tobacco--.6% Philip Morris Cos.,
Notes, 6.95%, 2001 . . . . . . . . . . . . . . 2,000,000 (d) 2,054,160
_____________
Utilities--7.1% Niagara Mohawk Power,
Sr. Notes, Ser. E, 7.375%, 2003 . . . . . . . 25,000,000 25,250,000
_____________
U.S. Government Agency/
Mortgage Backed--14.0% Federal Home Loan Mortgage Corp.:
6.50%, 3/1/2028 . . . . . . . . . . . . . . . 15,000,000 14,934,300
Multiclass Mortgage Participation Ctfs., REMIC:
Ser. 1547, Cl. B, 7%, 2/15/2022
(Interest Only Obligation) . . . . . . . 6,474,821 (e) 1,440,518
Ser. 1987, Cl. PI, 7%, 9/15/2012
(Interest Only Obligation) . . . . . . . 2,680,571 (e) 635,108
Ser. 1999, Cl. PW, 7%, 8/15/2026
(Interest Only Obligation) . . . . . . . 13,500,000 (e) 3,050,156
Federal National Mortgage Association:
9%, 6/1/2026-8/1/2026 . . . . . . . . . . . . 11,311,949 11,996,766
REMIC Trust, Gtd. Pass-Through Ctfs.:
Ser. 1993-198, Cl. M, 6.50%, 10/25/2023
(Interest Only Obligation) . . . . . . . 4,830,000 (e) 1,822,794
Ser. 1997-40, Cl. PF, 7%, 12/18/2026
(Interest Only Obligation) . . . . . . . 12,696,714 (e) 5,190,798
Ser. 1997-56, Cl. PM, 7%, 6/18/2026
(Interest Only Obligation) . . . . . . . 3,000,000 (e) 841,620
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1998
Principal
Bonds and Notes (continued) Amount Value
- ----------------------------------------------------- _____________ _____________
U.S. Government Agency/
Mortgage Backed (continued) Government National Mortgage Association I:
8%, 9/15/2008 . . . . . . . . . . . . . . . . $ 5,041,563 $ 5,238,487
9%, 11/15/2017 . . . . . . . . . . . . . . . . 4,789,399 5,194,966
_____________
50,345,513
_____________
U.S. Government--5.6% U.S. Treasury Notes:
5.50%, 3/31/2003 . . . . . . . . . . . . . . . 5,000,000 4,989,350
5.375%, 6/30/2003 . . . . . . . . . . . . . . 15,000,000 14,919,450
_____________
19,908,800
_____________
TOTAL BONDS AND NOTES
(cost $320,477,609) . . . . . . . . . . . . . $321,198,277
_____________
Preferred Stocks--7.8% Shares
- --------------------------------------------------------------------------------------- _____________
Banking--.8% St. George Bank, Ltd.,
Conv., $4.50 . . . . . . . . . . . . . . . . 60,000 (a) $ 2,940,000
_____________
Consumer--1.4% Paxson Communications,
$125.00 . . . . . . . . . . . . . . . . . . . 5,000 (a) 4,975,000
_____________
Containers--1.1% Sealed Air,
Ser. A, Conv., $2.00 . . . . . . . . . . . . . 85,000 3,782,500
_____________
Energy--.1% Elf Overseas, Ltd.,
Ser. A, Gtd., $2.125 . . . . . . . . . . . . . 10,000 261,875
_____________
Finance--.9% AES Trust II,
Ser. B, Gtd. Conv., $2.75 ................... 65,000 3,323,125
_____________
Retail--2.2% CVS Automatic Common Exchange Security Trust,
Trust Automatic Common
Exchange Securities, $4.23 . . . . . . . . . . 50,000 3,906,250
United Rentals Trust I,
Gtd. Conv., $3.25 ........................... 80,000 (a) 4,030,000
_____________
7,936,250
_____________
Transportation--1.3% Union Pacific Capital Trust,
Conv., $3.125 . . . . . . . . . . . . . . . . 100,000 (a) 4,550,000
_____________
TOTAL PREFERRED STOCKS
(cost $29,178,059) . . . . . . . . . . . . . . $ 27,768,750
_____________
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) JULY 31, 1998
Principal
Short-Term Investments--8.2% Amount Value
- ----------------------------------------------------- __________ ___________
Time Deposit; Chase Manhattan Bank (London),
5.5625%, 8/3/1998
(cost $29,536,000) . . . . . . . . . . . . . . $ 29,536,000 $ 29,536,000
_____________
TOTAL INVESTMENTS (cost $379,191,668). . . . . . . . . . . . . . . . . . . . . . . . . 105.5% $378,503,027
_______ ______________
LIABILITIES, LESS CASH AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . (5.5%) $ (19,776,823)
_______ ______________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $358,726,204
_______ ______________
Notes to Statement of Investments:
- -----------------------------------------------------------------------------
(a) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At July 31,
1998, these securities amounted to $123,466,299 or 34.4% of net assets.
(b) Variable rate security-interest rate subject to periodic change.
(c) With warrants to purchase common stock.
(d) Reflects date security can be redeemed at holders' option; the stated
maturity date is 6/1/2006.
(e) Notional face amount shown.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF FINANCIAL FUTURES JULY 31, 1998
Market Value Unrealized
Covered (Depreciation)
Financial Futures Long Contracts by Contracts Expiration at 7/31/98
_____________________ ____________ _______________ ______________ ______________
<S> <C> <C> <C> <C>
U.S. Treasury 5 year Notes . . . . . . . . . . . . . . . 500 $54,742,188 September '98 $(148,438)
__________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1998
Cost Value
_____________ _____________
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments . . $379,191,668 $378,503,027
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 1,378,856
Interest receivable . . . . . . . . . . . . . . . . . . . 3,564,790
Receivable for shares of Common Stock subscribed . . . . 247,756
Prepaid expenses and other assets . . . . . . . . . . . . 143,649
_____________
383,838,078
_____________
LIABILITIES: Due to The Dreyfus Corporation and affiliates . . . . . . 171,783
Due to Distributor . . . . . . . . . . . . . . . . . . . 59,313
Payable for investment securities purchased . . . . . . . 24,234,063
Payable for shares of Common Stock redeemed . . . . . . . 567,578
Payable for futures variation margin--Note 4(a) . . . . . 7,811
Accrued expenses . . . . . . . . . . . . . . . . . . . . 71,326
_____________
25,111,874
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $358,726,204
_____________
REPRESENTED BY: Paid-in capital . . . . . . . . . . . . . . . . . . . . . $368,657,500
Accumulated undistributed investment income--net . . . . 789,612
Accumulated net realized gain (loss) on investments
and foreign currency transactions . . . . . . . . . . . (9,883,829)
Accumulated net unrealized appreciation (depreciation)
on investments [including ($148,438) net unrealized
(depreciation) on financial futures]--Note 4(b) . . . . (837,079)
_____________
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $358,726,204
_____________
SHARES OUTSTANDING
(500 MILLION SHARES OF $.001 PAR VALUE COMMON STOCK AUTHORIZED). . . . . . . . . . . . . . 29,604,186
NET ASSET VALUE, offering and redemption price per share . . . . . . . . . . . . . . . . . $12.12
_______
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED JULY 31, 1998
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . $24,280,263
Cash dividends . . . . . . . . . . . . . . . . . . . . . 187,700
____________
Total Income . . . . . . . . . . . . . . . . . . . $24,467,963
EXPENSES: Management fee--Note 3(a) . . . . . . . . . . . . . . . . 1,550,660
Shareholder servicing costs--Note 3(b) . . . . . . . . . 963,720
Registration fees . . . . . . . . . . . . . . . . . . . . 54,799
Interest expense--Note 2 . . . . . . . . . . . . . . . . 47,791
Professional fees . . . . . . . . . . . . . . . . . . . . 40,503
Custodian fees--Note 3(b) . . . . . . . . . . . . . . . . 40,165
Directors' fees and expenses--Note 3(c) . . . . . . . . . 37,313
Prospectus and shareholders' reports . . . . . . . . . . 29,720
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 6,530
____________
Total Expenses . . . . . . . . . . . . . . . . . . 2,771,201
Less--reduction in management fee due to
undertaking--Note 3(a) . . . . . . . . . . . . . . . . (3,975)
____________
Net Expenses . . . . . . . . . . . . . . . . . . . 2,767,226
____________
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,700,737
____________
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments . . . . . . . . . $ 667,629
Net realized gain (loss) on foreign currency
transactions . . . . . . . . . . . . . . . . . . . . . 373,462
Net realized gain (loss) on financial futures . . . . . . 4,272,838
____________
Net Realized Gain (Loss) . . . . . . . . . . . . . 5,313,929
Net unrealized appreciation (depreciation) on investments
[including ($165,594) net unrealized (depreciation) on
financial futures] . . . . . . . . . . . . . . . . . . (3,579,898)
____________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . . . . . . . . . 1,734,031
____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . . . $23,434,768
____________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
July 31, 1998 July 31, 1997
______________ ______________
<S> <C> <C>
OPERATIONS:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,700,737 $ 16,612,473
Net realized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . 5,313,929 (1,191,625)
Net unrealized appreciation (depreciation) on investments . . . . . . . . . . . . . . (3,579,898) 4,158,066
______________ ______________
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . . . . 23,434,768 19,578,914
______________ ______________
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,330,080) (16,393,236)
______________ ______________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,054,516 178,300,093
Dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,595,594 12,757,874
Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (154,170,131) (104,794,887)
______________ ______________
Increase (Decrease) in Net Assets from Capital Stock Transactions . . . . . . . . 77,479,979 86,263,080
______________ ______________
Total Increase (Decrease) in Net Assets . . . . . . . . . . . . . . . . . . . 79,584,667 89,448,758
NET ASSETS:
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279,141,537 189,692,779
______________ ______________
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 358,726,204 $ 279,141,537
______________ ______________
UNDISTRIBUTED INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . . . . . . . . . . $ 789,612 $ 418,955
______________ ______________
Shares Shares
______________ ______________
CAPITAL SHARE TRANSACTIONS:
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,595,243 14,929,236
Shares issued for dividends reinvested . . . . . . . . . . . . . . . . . . . . . . . 1,537,622 1,069,474
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,738,692) (8,776,684)
______________ ______________
Net Increase (Decrease) in Shares Outstanding . . . . . . . . . . . . . . . . . . 6,394,173 7,222,026
______________ ______________
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended July 31,
_____________________________________________________________
PER SHARE DATA: 1998 1997 1996 1995 1994
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . $12.03 $11.86 $11.89 $11.94 $12.47
______ ______ ______ ______ ______
Investment Operations:
Investment income--net . . . . . . . . . . . . . . . . . .84 .86 .78 .85 .84
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . .08 .17 (.04) (.05) (.54)
______ ______ ______ ______ ______
Total from Investment Operations . . . . . . . . . . . . .92 1.03 .74 .80 .30
______ ______ ______ ______ ______
Distributions:
Dividends from investment income--net . . . . . . . . . . (.83) (.86) (.77) (.85) (.83)
______ ______ ______ ______ ______
Net asset value, end of period . . . . . . . . . . . . . $12.12 $12.03 $11.86 $11.89 $11.94
______ ______ ______ ______ ______
TOTAL INVESTMENT RETURN. . . . . . . . . . . . . . . . . . . 7.92% 8.95% 6.42% 7.05% 2.47%
RATIOS/SUPPLEMENTAL DATA:
Ratio of operating expenses to average net assets . . . . .87% .80% .80% .61% .24%
Ratio of interest expense to average net assets . . . . . .02% .02% -- -- --
Ratio of net investment income
to average net assets . . . . . . . . . . . . . . . . 7.01% 7.28% 6.52% 7.26% 6.79%
Decrease reflected in above expense ratios
due to undertakings by the Manager . . . . . . . . . .00%* .11% .14% .34% .71%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . 185.77% 292.99% 291.35% 511.62% 74.90%
Net Assets, end of period (000's Omitted) . . . . . . . $358,726 $279,142 $189,693 $210,524 $277,028
- -----------------------------
* Amount represents less than .01%.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Short Term Income Fund (the "Fund") is a separate non-diversified
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'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 (the "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, other than U.S. Treasury Bills, and financial futures) 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. 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) FOREIGN CURRENCY TRANSACTIONS: The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in the market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and maturities
of short-term securities, sales of foreign currencies, currency gains or losses
realized on securities transactions and the difference between the amount of
dividends, interest and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities, resulting from
changes in exchange rates. Such gains and losses are included with net realized
and unrealized gain or loss on investments.
(c) 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. Under the terms of the custodian agreement, the Fund received net
earnings credits of $49,291 during the period ended July 31, 1998 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(d) 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.
(e) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the applicable provisions of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes.
The Fund has an unused capital loss carryover of approximately $9,708,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to July 31, 1998. If not
applied, $5,447,000 of the carryover expires in fiscal 2003, $2,947,000 expires
in fiscal 2004 and $1,314,000 expires in fiscal 2005.
NOTE 2--BANK LINES 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 July 31, 1998 was approximately $795,800, with a related
weighted average annualized interest rate of 6.01%.
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 to July 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 specified annual percentages of the value of the Fund's
average daily net assets. The reduction in management fee, pursuant to the
undertakings, amounted to $3,975 during the period ended July 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
July 31, 1998, the Fund was charged $620,264 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 July 31, 1998, the Fund was charged $213,504 pursuant to the transfer
agency agreement.
The Fund compensates Mellon under a custody agreement for providing custodial
services for the Fund. During the period ended July 31, 1998, the Fund was
charged $40,165 pursuant to the custody agreement.
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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
(including paydowns) , excluding short-term securities, financial futures and
forward currency exchange contracts, during the period ended July 31, 1998
amounted to $651,804,391 and $588,188,639, respectively.
The Fund enters into forward currency exchange contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings. When executing forward currency exchange contracts, the Fund is
obligated to buy or sell a foreign currency at a specified rate on a certain
date in the future. With respect to sales of forward currency exchange
contracts, the Fund would incur a loss if the value of the contract increases
between the date the forward contract is opened and the date the forward
contract is closed. The Fund realizes a gain if the value of the contract
decreases between those dates. With respect to purchases of forward currency
exchange contracts, the Fund would incur a loss if the value of the contract
decreases between the date the forward contract is opened and the date the
forward contract is closed. The Fund realizes a gain if the value of the
contract increases between those dates. The Fund is also exposed to credit risk
associated with counter party nonperformance on these forward currency exchange
contracts which is typically limited to the unrealized gain on each open
contract. At July 31, 1998, there were no forward currency exchange contracts
outstanding.
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. Accordingly, variation margin payments are received or
made to reflect daily unrealized gains and losses. When the contracts are
closed, the Fund recognizes a realized gain or loss. These investments require
initial margin deposits with a custodian, which consist of cash or cash
equivalents, up to approximately 10% of the contract amount. The amount of these
deposits is determined by the exchange or Board of Trade on which the contract
is traded and is subject to change. Contracts open at July 31, 1998 are set
forth in the Statement of Financial Futures.
(b) At July 31, 1998, accumulated net unrealized depreciation on investments
and financial futures was $837,079, consisting of $3,434,813 gross unrealized
appreciation and $4,271,892 gross unrealized depreciation.
At July 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).
<PAGE>
DREYFUS SHORT TERM INCOME FUND
- -----------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
DREYFUS SHORT TERM INCOME FUND
We have audited the accompanying statement of assets and liabilities,
including the statements of investments and financial futures, of Dreyfus Short
Term Income Fund (one of the series constituting Dreyfus Investment Grade Bond
Funds, Inc.) , as of July 31, 1998, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the years
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund' s management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held as of July 31, 1998 and confirmation of
securities not held by the custodian by correspondence with others. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus Short Term Income Fund at July 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the indicated
years, in conformity with generally accepted accounting principles.
[Ernst & Young LLP signature logo]
New York, New York
September 8, 1998
<PAGE>
(reg.tm)
(reg.tm)
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. 083AR987
Short Term
Income Fund
Annual Report
July 31, 1998
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS INTERMEDIATE TERM INCOME FUND AND THE
MERRILL LYNCH DOMESTIC MASTER INDEX
EXHIBIT A:
MERRILL LYNCH DREYFUS
DOMESTIC INTERMEDIATE
MASTER TERM
PERIOD INDEX * INCOME FUND
2/2/96 10,000 10,000
7/31/96 9,843 10,151
7/31/97 10,905 11,846
7/31/98 11,775 13,141
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS SHORT TERM INCOME FUND AND THE MERRILL
LYNCH CORPORATE AND GOVERNMENT MASTER INDEX
EXHIBIT A:
MERRILL LYNCH
CORPORATE AND
GOVERNMENT DREYFUS
PERIOD MASTER SHORT TERM
INDEX * INCOME FUND
8/18/92 10,000 10,000
7/31/93 10,618 10,732
7/31/94 10,806 10,997
7/31/95 11,672 11,773
7/31/96 12,305 12,528
7/31/97 13,293 13,649
7/31/98 14,149 14,730
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
