Dreyfus Short Term
Income Fund
ANNUAL REPORT
July 31, 1999
(reg.tm)
<PAGE>
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured
* Not Bank-Guaranteed
* May Lose Value
Year 2000 Issues
(Unaudited)
The fund could be adversely affected if the computer systems used by The Dreyfus
Corporation and the fund's other service providers do not properly process and
calculate date-related information from and after January 1, 2000. The Dreyfus
Corporation is working to avoid Year 2000-related problems in its systems and to
obtain assurances from other service providers that they are taking similar
steps. In addition, issuers of securities in which the fund invests may be
adversely affected by Year 2000-related problems. This could have an impact on
the value of the fund's investments and its share price.
<PAGE>
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
12 Statement of Financial Futures
13 Statement of Assets and Liabilities
14 Statement of Operations
15 Statement of Changes in Net Assets
16 Financial Highlights
17 Notes to Financial Statements
22 Report of Independent Auditors
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
<PAGE>
The Fund
Dreyfus Short Term
Income Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Short Term Income Fund,
covering the one-year period from August 1, 1998 through July 31, 1999. Inside,
you'll find valuable information about how the fund was managed during the
reporting period, including a discussion with Michael Hoeh, portfolio manager
and a member of the Dreyfus Taxable Fixed Income Team.
The past 12 months produced positive total returns for fund shareholders in a
highly volatile investment environment. During the final five months of 1998,
most sectors of the fixed-income marketplace recovered from the sharp declines
they had experienced during the global financial crises that occurred just
before the reporting period began.
However, stronger-than-expected economic conditions during the first seven
months of 1999 produced negative returns for most fixed-income securities. U.S.
Treasury securities were particularly hard hit by higher interest rates. Prices
of corporate bonds and mortgage-backed securities fell less sharply, however, as
investors shifted assets back into higher-yielding market sectors they had
avoided last summer and fall. The bond markets' declines so far in 1999 were
primarily a response to fears that inflationary pressures may re-emerge in a
fast-growing economy. To help forestall inflationary pressures, the Federal
Reserve raised short-term interest rates by one-quarter of a percentage point on
June 30, effectively reversing a portion of last fall's rate cuts.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Short Term Income Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
August 13, 1999
<PAGE>
DISCUSSION OF FUND PERFORMANCE
Michael Hoeh, Portfolio Manager
Dreyfus Taxable Fixed Income Team
How did Dreyfus Short Term Income Fund perform relative to its benchmark?
For the one-year period ended July 31, 1999, Dreyfus Short Term Income Fund
produced a total return of 2.52%.(1) In comparison, the fund's benchmark, the
Merrill Lynch Corporate and Government (1-5 years) Index, provided a total
return of 4.62% for the same time period.(2)
We attribute the fund's performance to extraordinary market conditions, which
effectively traversed a full interest-rate cycle over the past 12 months. The
first phase of that cycle -- which included a brief but dramatic period of
illiquidity last fall in the wake of economic turmoil in Asia and Russia -- saw
the lowest U.S. interest rates in about 30 years. The second half of the cycle
- -- which took place in 1999 -- saw interest rates rise as domestic and overseas
economies gained strength and the "flight to quality" demand for U.S. Treasuries
subsided.
What is the fund's investment approach?
The fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital. At least 65% of the fund must be
invested in investment-grade fixed-income securities, including U.S. government,
agency, corporate and mortgage-backed securities. Up to 35% of the fund may be
invested in securities rated below investment grade, including issuers of
emerging market securities.
When choosing investments for the fund, we evaluate four primary factors:
* The direction in which interest rates are likely to move under prevailing
economic conditions. If interest rates appear to be rising, we generally
reduce the fund's AVERAGE EFFECTIVE DURATION -- a measure of sensitivity to
changes ininterest rates -- to avoid the negative price movements of fixed
income securities. If interest rates appear to be
The Fund
<PAGE>
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
declining, we may increase the fund's average duration to lock in prevailing
yields.
* The differences in yields -- or SPREADS -- between U.S. Treasury securities of
varying maturities, which also is known as the yield curve.
* Asset allocation: The mix of security types within the fund, including
relative exposure to government securities, corporate securities,
mortgage-backed securities, and foreign and high yield bonds.
* Individual security selection: Credit characteristics of individual
securities, including the financial health of the issuer and callability of
the security.
What other factors influenced the fund's performance?
When the annual reporting period began, the U.S. bond market was in the midst of
turmoil. The spread of the global credit and currency crisis from Russia to Asia
and the concurrent failure of a large U.S. hedge fund caused domestic and
overseas investors to shift assets away from all of the higher-yielding sectors
of the bond market. Sellers of these bonds found few willing buyers, causing
their prices to decline sharply. Credit-sensitive securities -- including
corporate, mortgage-backed and asset-backed securities -- were hard-hit, causing
their yields to rise dramatically relative to U.S. Treasury securities.
Fortunately, the Federal Reserve Board and many other nations' central banks
responded by reducing key short-term interest rates in an effort to restore
liquidity to the financial markets.
The central bankers' strategy evidently worked, because it became apparent early
in 1999 that the credit and currency crisis was dissipating. Faced with a robust
U.S. economy and the prospect of recovery overseas, investors once again became
comfortable with higher-yielding assets. As a result, interest rates rose,
prices of U.S. Treasury securities declined and the yield differences narrowed
between U.S. Treasuries and higher-yielding bonds. On June 30, the Federal
Reserve reversed course by raising short-term interest rates modestly,
effectively offsetting a portion of last fall's rate cuts.
<PAGE>
What is the fund's current strategy?
As of July 31, 1999, the fund was positioned to take advantage of prevailing
economic conditions. Accordingly, the fund's average effective duration as of
July 31, 1999 was 2.11 years, which is toward the short end of its range. This
enabled us to keep cash available to capture higher yields.
Within the fund's portfolio, we reduced our holdings of U.S. Treasury securities
in favor of high yield corporate bonds and mortgage-backed securities, which
comprised 13% and 39% of the fund, respectively, as of July 31, 1999. Our
emphasis on these higher-yielding sectors was designed to take advantage of
their ongoing recovery from last year's liquidity crisis. We also found
attractive income opportunities in asset-backed securities that are secured by
credit-card and utility receivables.
In the foreign sector, we increased our participation in high-quality, U.S.
dollar-denominated bonds. We had eliminated our holdings of foreign country
bonds during the global financial crisis, and have since gradually increased our
holdings to about 10% of the portfolio. We found attractive values in this
sector in Korea and Japan, where economic and market conditions appear to be
improving. On the other hand, we de-emphasized our exposure to emerging markets
because of continued economic uncertainty, especially in Latin America.
August 13, 1999
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND
INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION FUND SHARES MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
(2) SOURCE: MERRILL LYNCH, PIERCE, FENNER AND SMITH, INC. -- THE MERRILL LYNCH
CORPORATE AND GOVERNMENT (1 - 5 YEARS) INDEX IS AN UNMANAGED PERFORMANCE
BENCHMARK INCLUDING U.S. GOVERNMENT AND FIXED-COUPON DOMESTIC INVESTMENT-
GRADE CORPORATE BONDS WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR AND
LESS THAN FIVE YEARS.
The Fund
<PAGE>
FUND PERFORMANCE
$15,101
Dreyfus Short Term Income Fund
$14,803
Merrill Lynch Corporate and Government (1-5 Years) Index((+)
Comparison of change in value of $10,000 investment in Dreyfus Short Term Income
Fund and the Merrill Lynch Corporate and Government (1-5 Years) Index
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
Inception From
Date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8/18/92 2.52% 6.55% -- 6.11%
</TABLE>
((+)) SOURCE: MERRILL LYNCH, PIERCE, FENNER AND SMITH, INC.
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 $10,000 INVESTMENT MADE IN THE MERRILL
LYNCH CORPORATE AND GOVERNMENT (1-5 YEARS) INDEX ON THAT DATE. ALL DIVIDENDS AND
CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED.
THE FUND INVESTS PRIMARILY IN DEBT SECURITIES AND SECURITIES WITH DEBT-LIKE
CHARACTERISTICS OF DOMESTIC AND FOREIGN ISSUERS AND MAINTAINS A DOLLAR-WEIGHTED
AVERAGE MATURITY OF THREE YEARS OR LESS. THE FUND'S PERFORMANCE SHOWN IN THE
LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES. THE MERRILL
LYNCH CORPORATE AND GOVERNMENT (1-5 YEARS) INDEX IS AN UNMANAGED PERFORMANCE
BENCHMARK INCLUDING U.S. GOVERNMENT AND FIXED-COUPON DOMESTIC INVESTMENT-GRADE
CORPORATE BONDS WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR AND LESS THAN
FIVE YEARS. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER
EXPENSES. FURTHER INFORMATION RELATING TO FUND PERFORMANCE, INCLUDING EXPENSE
REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION
OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT.
<PAGE>
STATEMENT OF INVESTMENTS
July 31, 1999
<TABLE>
Principal
BONDS AND NOTES--106.5% Amount ($) Value ($)
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<S> <C> <C>
AIRCRAFT & AEROSPACE--2.0%
Aircraft Lease Portfolio Securitisation 96-1,
Pass-Through Trust, Ctfs.,
Cl. D, 12.75%, 2006 3,951,054 3,911,543
America West Airlines Pass-Through Trusts, Ctfs.:
Ser. 1996-1, Cl. D, 8.16%, 2002 1,631,094 1,629,928
Ser. 1997-1, Cl. D, 8.12%, 2001 1,462,781 1,461,677
7,003,148
ASSET-BACKED CTFS.--13.1%
Boston Edison,
Ser. 1999-1, Cl. A3, 6.62%, 2007 9,800,000 9,714,250
Bosque Asset,
7.66%, 2002 1,395,052 (a) 1,394,834
Copelco Capital Funding,
Ser. 1999-A, Cl. A5, 5.95%, 2004 4,800,000 (a) 4,647,000
GE Capital Mortgage Services,
REMIC, Ser. 1997-HE3, Cl. A6, 6.72%, 2027 5,000,000 4,947,075
Green Tree Financial,
Ser. 1999-3, Cl. A5, 6.16%, 2031 4,000,000 3,915,625
Nomura Depositor Trust:
Ser. 1998-STI, Cl. A5, 6.43%, 2003 11,500,000 (a,b) 10,648,281
Ser. 1998-STI, Cl. B2, 9.43%, 2003 6,750,000 (a,b) 5,946,328
Peco Energy Transition Trust,
Transition Bonds,
Ser. 1999-A, Cl. A2, 5.63%, 2005 6,000,000 5,864,790
47,078,183
ASSET-BACKED/AUTOMOBILE RECEIVABLES--9.0%
Honda Auto Lease Trust,
Ser. 1999-A, Cl. A5, 6.65%, 2005 17,000,000 16,984,063
Premier Auto Trust,
Ser. 1999-3, Cl. A4, 6.43%, 2004 6,500,000 6,479,655
WFS Financial Owner Trust,
Ser. 1999-B, Cl. A3, 6.32%, 2003 9,000,000 8,910,000
32,373,718
AUTO PARTS--.6%
Collins & Aikman Products,
Sr. Sub. Notes, 11.5%, 2006 2,000,000 2,050,000
BROADCASTING--1.4%
Scandinavian Broadcasting System:
Conv. Deb., 7%, 2004 3,000,000 3,622,500
Conv. Deb., 7%, 2004 1,200,000 (a) 1,449,000
5,071,500
The Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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CHEMICALS--.8%
ICI Wilmington
(Gtd. by Imperial Chemical Industries),
Notes, 7.05%, 2007 3,000,000 2,916,387
COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--22.4%
BKB Commercial Mortgage Trust:
Ser. 1997-C1, Cl. C, 7.45%, 2000 759,351 (a) 755,555
Ser. 1997-C1, Cl. E, 8.654%, 2001 4,000,000 (a,b) 3,865,804
BTC Mortgage Investors Trust,
Ser. 1997-S1, Cl. C, 6.645%, 2009 6,280,420 (a) 6,268,644
Chase Commercial Mortgage Securities,
Ser. 1998-SN1A, Cl. D, 6.009%, 2001 4,250,000 (a,b) 4,196,875
DLJ Mortgage Acceptance:
Ser. 1994-MF11, Cl. B1, 8.1%, 2004 7,000,000 7,106,260
Ser. 1997-CF2, Cl. B3, 6.99%, 2009 3,100,000 (a) 2,702,328
Ser. 1998-STIA, Cl. B3, 7.25%, 2000 5,250,000 (a,b) 5,200,781
GS Mortgage Securities II:
Ser. 1998-FL1, Cl. D, 5.983%, 2000 18,912,000 (a,b) 18,817,440
Ser. 1999-FL2A, Cl. G, 7.09%, 2013 3,000,000 (a,b) 2,789,520
Mall Asset Realty Trust,
Ser. 1999-1A, Cl. F, 5.703%, 2001 9,500,000 (a,b) 9,004,195
Merrill Lynch Mortgage Investors,
Ser. 1997-SD1, Cl. E, 6.25%, 2010 4,500,000 (a,b) 4,093,594
Morgan Stanley Capital I,
Ser. 1999-1251, Cl. A1, 6.16%, 2009 11,290,820 (a) 10,867,414
Resolution Trust,
Ser. 1994-C2, Cl. D, 8%, 2025 4,547,757 4,583,616
80,252,026
CONSUMER--.4%
Signature Brands USA,
Notes, 13%, 2002 (Units) 1,250,000 (c) 1,356,250
ENERGY--5.2%
Conoco,
Sr. Notes, 5.9%, 2004 3,750,000 3,623,085
Dual Drilling,
Sr. Sub. Notes, 9.875%, 2004 14,750,000 15,128,515
18,751,600
ENTERTAINMENT--1.4%
Time Warner,
Notes, 7.95%, 2000 5,000,000 5,045,115
FINANCE--5.5%
Capital One Bank:
Sr. Notes, 6.15%, 2001 5,000,000 4,944,330
<PAGE>
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCE (CONTINUED)
Capital One Bank (continued):
Sr. Notes, 7.15%, 2006 7,100,000 7,133,839
Sr. Notes, 7.35%, 2000 7,500,000 7,559,212
19,637,381
FINANCIAL--1.8%
Countrywide Home Loan, Ser. F,
Medium-Term Notes, 6.38%, 2002 6,585,000 6,467,168
FOOD & BEVERAGES--.5%
Envirodyne Industries,
Sr. Notes, 10.25%, 2001 2,000,000 1,625,000
FOREIGN/GOVERNMENTAL--.7%
Federative Republic of Brazil,
Floating Rate Notes, 5.875%, 2024 3,000,000 (b) 1,811,250
Republic of Argentina,
Bonds, 11.25%, 2004 827,500 742,681
2,553,931
MINING AND METALS--.5%
Inco,
Conv. Deb., 5.75%, 2004 2,000,000 1,860,000
OIL SERVICES--2.3%
Petroleum Geo-Services,
Sr. Notes, 6.25%, 2003 8,750,000 8,417,001
PHARMACEUTICAL--2.1%
CVS,
Notes, 5.5%, 2004 8,000,000 (a) 7,655,864
REAL ESTATE--3.1%
Crescent Real Estate Equities,
Notes, 7%, 2002 12,000,000 11,169,084
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--2.6%
GE Capital Mortgage Services,
Ser. 1996-12, Cl. M, 7.25%, 2011 1,353,368 1,351,254
Residential Asset Securities,
Ser. 1997-KS4, Cl. AI5, 6.98%, 2027 8,257,000 7,883,742
9,234,996
RETAIL--1.0%
K Mart,
Medium-Term Notes, 7.96%, 1999 500,000 501,097
Saks,
Notes, 7.25%, 2004 3,150,000 3,118,286
3,619,383
The Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--1.5%
Electric Lightwave,
Notes, 6.05%, 2004 3,000,000 (a) 2,895,000
U.S. West Capital Funding,
Gtd. Notes, 6.125%, 2002 2,400,000 2,350,718
5,245,718
U.S. GOVERNMENT--2.6%
U.S. Treasury Notes,
5.25%, 5/15/2004 9,500,000 9,287,295
U.S. GOVERNMENT AGENCY--1.6%
Federal National Mortgage Association,
5.625%, 5/14/2004 6,000,000 5,802,876
U.S. GOVERNMENT AGENCY/MORTGAGE BACKED--14.0%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation Ctfs., REMIC
(Interest Only Obligation):
Ser. 1547, Cl. B, 7%, 2/15/2022 6,474,821 (d) 1,153,230
Ser. 1987, Cl. PI, 7%, 9/15/2012 2,484,066 (d) 492,938
Ser. 1999, Cl. PW, 7%, 8/15/2026 15,699,084 (d) 3,022,074
Ser. 2047, Cl. PJ, 7%, 2/15/2028 3,000,000 (d) 1,144,688
Federal National Mortgage Association,
REMIC Trust, Gtd. Pass-Through Ctfs.
(Interest Only Obligation):
Ser. 1997-56 Cl. PM, 7%, 6/18/2026 3,000,000 (d) 809,490
Ser. 1997-60 Cl. PJ, 7%, 9/18/2027 3,000,000 (d) 1,198,594
Government National Mortgage Association I:
6.5%, 4/15/2029 5,000,000 (e) 4,748,400
7%, 12/15/2023 5,787,285 5,649,837
8%, 9/15/2008 3,686,019 3,770,097
Government National Mortgage Association II,
Adjustable Rate Mortgage:
5%, 8/20/2029 12,500,000 (e) 12,316,375
5.5%, 9/20/2029 16,000,000 (e) 15,754,880
50,060,603
UTILITIES--4.2%
Niagara Mohawk Power, Ser. E,
Sr. Notes, 7.375%, 2003 15,000,000 15,035,685
YANKEE--6.2%
Korea Development Bank:
Bonds, 6.625%, 2003 13,000,000 12,304,500
Notes, 6.5%, 2002 10,400,000 9,981,920
22,286,420
TOTAL BONDS AND NOTES
(cost $390,861,776) 381,856,332
<PAGE>
PREFERRED STOCKS--2.7% Shares Value ($)
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BROADCASTING;
Paxson Communications,
Cum., $1,325 564 5,076,000
Spanish Broadcasting System,
Ser. A, Cum., $142.50 4,285 4,670,650
TOTAL PREFERRED STOCKS
(cost $9,947,950) 9,746,650
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Principal
SHORT-TERM INVESTMENTS--.8% Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--.8%
Dow Chemical,
5.1%, 8/2/1999 2,690,000 2,689,619
U.S. TREASURY BILLS--.0%
4.22%, 8/19/1999 35,000 (f) 34,918
4.5%, 9/16/1999 50,000 (f) 49,699
4.53%, 10/14/1999 50,000 (f) 49,533
134,150
TOTAL SHORT-TERM INVESTMENTS
(cost $2,823,792) 2,823,769
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TOTAL INVESTMENTS (cost $403,633,518) 110.0% 394,426,751
LIABILITIES, LESS CASH AND RECEIVABLES (10.0%) (35,982,312)
NET ASSETS 100.0% 358,444,439
(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, 1999,
THESE SECURITIES AMOUNTED TO $103,198,457 OR 28.8% OF NET ASSETS.
(B) VARIABLE RATE SECURITY-INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(C) WITH WARRANTS TO PURCHASE COMMON STOCK.
(D) NOTIONAL FACE AMOUNT SHOWN.
(E) PURCHASED ON A FORWARD COMMITMENT BASIS.
(F) HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN
FINANCIAL FUTURES POSITIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
<PAGE>
STATEMENT OF FINANCIAL FUTURES
July 31, 1999
<TABLE>
Market Value Unrealized
Covered by Appreciation
Contracts Contracts ($) Expiration at 7/31/99 ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL FUTURES SHORT
U.S. Treasury 5 year Notes 118 12,788,250 September '99 48,266
U.S. Treasury 10 year Notes 30 3,309,375 September '99 62,109
U.S. Treasury 30 year Bonds 3 344,906 September '99 8,273
118,648
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
Cost Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS ($):
Investments in securities--See Statement of Investments 403,633,518 394,426,751
Cash 173,738
Interest receivable 3,651,286
Receivable for shares of Common Stock subscribed 39,200
Receivable for futures variation margin--Note 4(a) 14,627
Prepaid expenses and other assets 20,163
398,325,765
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LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 176,015
Due to Distributor 61,006
Payable for investment securities purchased 39,010,693
Payable for shares of Common Stock redeemed 565,311
Interest payable--Note 2 163
Accrued expenses 68,138
39,881,326
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NET ASSETS ($) 358,444,439
- -----------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 383,511,023
Accumulated undistributed investment income--net 208,136
Accumulated net realized gain (loss) on investments and financial futures
(16,186,601)
Accumulated net unrealized appreciation (depreciation) on investments
(including $118,648 net unrealized appreciation on financial futures)--Note 4(b) (9,088,119)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ($) 358,444,439
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized) 30,826,346
NET ASSET VALUE, offering and redemption price per share ($) 11.63
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
Year Ended July 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME ($):
INCOME:
Interest 25,208,059
Cash dividends 1,142,096
TOTAL INCOME 26,350,155
EXPENSES:
Management fee--Note 3(a) 1,776,946
Shareholder servicing costs--Note 3(b) 1,082,736
Registration fees 82,297
Professional fees 45,725
Prospectus and shareholders' reports 36,488
Directors' fees and expenses--Note 3(c) 27,485
Custodian fees--Note 3(b) 27,221
Interest expense--Note 2 15,112
Miscellaneous 11,750
TOTAL EXPENSES 3,105,760
INVESTMENT INCOME--NET 23,244,395
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (5,725,107)
Net realized gain (loss) on financial futures (866,081)
NET REALIZED GAIN (LOSS) (6,591,188)
Net unrealized appreciation (depreciation) on investments
(including $267,086 net unrealized appreciation on financial futures) (8,251,040)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (14,842,228)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 8,402,167
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended July 31,
-----------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS ($):
Investment income--net 23,244,395 21,700,737
Net realized gain (loss) on investments (6,591,188) 5,313,929
Net unrealized appreciation (depreciation)
on investments (8,251,040) (3,579,898)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 8,402,167 23,434,768
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (23,537,455) (21,330,080)
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 196,523,280 213,054,516
Dividends reinvested 18,793,560 18,595,594
Cost of shares redeemed (200,463,317) (154,170,131)
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 14,853,523 77,479,979
TOTAL INCREASE (DECREASE) IN NET ASSETS (281,765) 79,584,667
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 358,726,204 279,141,537
END OF PERIOD 358,444,439 358,726,204
Undistributed investment income--net 208,136 789,612
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 16,682,542 17,595,243
Shares issued for dividends reinvested 1,602,380 1,537,622
Shares redeemed (17,062,762) (12,738,692)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,222,160 6,394,173
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
Year Ended July 31,
--------------------------------------------
1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($):
Net asset value, beginning of period 12.12 12.03 11.86 11.89 11.94
Investment Operations:
Investment income--net .76 .84 .86 .78 .85
Net realized and unrealized
gain (loss) on investments (.47) .08 .17 (.04) (.05)
Total from Investment Operations .29 .92 1.03 .74 .80
Distributions:
Dividends from investment income--net (.78) (.83) (.86) (.77) (.85)
Net asset value, end of period 11.63 12.12 12.03 11.86 11.89
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TOTAL RETURN (%) 2.52 7.92 8.95 6.42 7.05
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RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses
to average net assets .87 .87 .80 .80 .61
Ratio of interest expense to
average net assets .00 (a) .02 .02 -- --
Ratio of net investment income
to average net assets 6.54 7.01 7.28 6.52 7.26
Decrease reflected in above expense ratios
due to undertakings by the Manager -- .00(a) .11 .14 .34
Portfolio Turnover Rate 204.98 185.77 292.99 291.35 511.62
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Net Assets, end of period ($ x 1,000) 358,444 358,726 279,142 189,693 210,524
(A) AMOUNT REPRESENTS LESS THAN .01%.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
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, as amended (the "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
The Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
(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. Under the terms of the custody agreement, the fund received net
earnings credits of $4,257 during the period ended July 31, 1999 based on
available cash balances left on deposit. Interest earned under this arrangement
is included in interest income.
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 of 1986, as amended (the
"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 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 $11,526,000
available for Federal income tax purposes to be applied
<PAGE>
against future net securities profits, if any, realized subsequent to July 31,
1999. The carryover does not include net realized securities losses from
November 1, 1998 through July 31, 1999 which are treated, for Federal income tax
purposes, as arising in fiscal 2000. If not applied, $5,447,000 of the carryover
expires in fiscal 2003, $2,947,000 expires in fiscal 2004, $1,314,000 expires in
fiscal 2005 and $1,818,000 expires in fiscal 2007.
During the period ended July 31, 1999, the fund reclassified $288,416 between
accumulated undistributed investment income-net and accumulated net realized
gain (loss) on investments. Net assets were not affected by this
reclassification.
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, 1999 was approximately $281,500, with a related
weighted average annualized interest rate of 5.37%.
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.
(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
The Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1999, the
fund was charged $710,779 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, 1999, the fund was charged $222,212 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, 1999, the fund was
charged $27,221 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
(including paydowns), excluding short-term securities and financial futures,
during the period ended July 31, 1999 amounted to $756,096,746 and $699,430,659,
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 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,
<PAGE>
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, 1999 are set forth in the
Statement of Financial Futures.
(b) At July 31, 1999, accumulated net unrealized depreciation on investments and
financial futures was $9,088,119, consisting of $1,313,136 gross unrealized
appreciation and $10,401,255 gross unrealized depreciation.
At July 31, 1999, 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).
The Fund
<PAGE>
REPORT OF 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, 1999, 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 the financial highlights. Our procedures included verification by
examination of securities held as of July 31, 1999 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, 1999, 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 7, 1999
<PAGE>
<PAGE>
NOTES
<PAGE>
For More Information
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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE
Call 1-800-645-6561
BY MAIL Write to:
The Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request
to [email protected]
ON THE INTERNET Information
can be viewed online or
downloaded from:
http://www.dreyfus.com
(c) 1999 Dreyfus Service Corporation 083AR997
<PAGE>
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
EXHIBIT A:
MERRILL LYNCH
CORPORATE AND DREYFUS
PERIOD GOVERNMENT (1-4.99) SHORT TERM
YEARS 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
7/31/99 14,803 15,101
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.
