Dreyfus Intermediate 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
23 Important Tax Information
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
<PAGE>
The Fund
Dreyfus Intermediate Term Income Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Intermediate 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 Intermediate Term Income Fund.
Sincerely,
[Stephen E. Canter signature logo]
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 Intermediate Term Income Fund perform relative to its
benchmark?
For the one-year period ended July 31, 1999, Dreyfus Intermediate Term Income
Fund produced a total return of 4.18%.(1) In comparison, the portfolio's
benchmark, the Merrill Lynch Domestic Master Index, provided a total return of
2.45% 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 in interest 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, foreign and high yield bonds.
* Individual security selection: credit characteristics of individual
securities, including the financial health of the issuer and the
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 4.49 years, which is considered neutral relative to the fund's
benchmark. This position helped us maintain the flexibility we needed in a
rising interest rate environment while enabling us to take advantage of current
income opportunities among longer-maturity securities.
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 16.5% and 35.0% 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.
Although we maintained a reduced exposure to foreign securities relative to our
benchmark, within the foreign sector we focused primarily on 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
positions. 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
DOMESTIC MASTER INDEX IS AN UNMANAGED PERFORMANCE BENCHMARK COMPOSED OF U.S.
TREASURY AND AGENCY, AND MORTGAGE AND INVESTMENT-GRADE CORPORATE SECURITIES WITH
MATURITIES GREATER THAN OR EQUAL TO ONE YEAR.
The Fund
<PAGE>
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Intermediate Term
Income Fund and the Merrill Lynch Domestic Master Index
- --------------------------------------------------------------------------------
Average Annual Total Returns
Inception From
Date 1 Year 5 Years 10 Years Inception
- --------------------------------------------------------------------
2/2/96 4.18% -- -- 9.42%
((+)) 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 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. THE
MERRILL LYNCH DOMESTIC MASTER INDEX IS AN UNMANAGED PERFORMANCE BENCHMARK
COMPOSED OF U.S. TREASURY AND AGENCY, AND MORTGAGE AND INVESTMENT-GRADE
CORPORATE SECURITIES WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR. 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.
$13,690
Dreyfus Intermediate Term Income Fund
$12,064
Merrill Lynch Domestic Master Index((+))
<PAGE>
STATEMENT OF INVESTMENTS
July 31, 1999
<TABLE>
<CAPTION>
Principal
BONDS AND NOTES--103.6% Amount ($) Value ($)
- --------------------------------------------------------------------------------
ASSET-BACKED CTFS.--4.0%
Boston Edison,
<S> <C> <C>
Ser. 1999-1, Cl. A3, 6.62%, 2007 400,000 396,500
Nomura Depositor Trust,
Ser. 1998-STI, Cl. B2, 9.43%, 2003 750,000 (a,b) 660,703
Peco Energy Transition Trust,
Transition Bonds,
Ser. 1999-A, Cl. A2, 5.63%, 2005 500,000 488,732
1,545,935
ASSET-BACKED/AUTOMOBILE RECEIVABLES--2.0%
Honda Auto Lease Trust,
Ser. 1999-A, Cl. A5, 6.65%, 2005 750,000 749,297
CHEMICALS--8.5%
Great Lakes Chemical,
Notes, 7%, 2009 750,000 737,029
ICI Wilmington
(Gtd. by Imperial Chemical Industries),
Notes, 7.05%, 2007 1,000,000 972,129
Rohm and Haas,
Deb., 7.85%, 2029 1,500,000 (a) 1,516,080
3,225,238
COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--11.5%
DLJ Mortgage Acceptance:
Ser. 1997-CF2, Cl. B3, 6.99%, 2009 1,000,000 (a) 871,719
Ser. 1998-ST1A, Cl. B3, 7.25%, 2000 750,000 (a,b) 742,969
Ser. 1999-CG2, Cl. B2, 7.854%, 2009 500,000 (b) 463,594
GMAC Commercial Mortgage Securities,
Ser. 1996-C, Cl. E, 7.86%, 2006 600,000 564,844
Heller Financial Commercial Mortgage Asset,
Ser. 1999-PH-1, Cl. A2, 6.847%, 2031 1,000,000 971,250
Structured Asset Securities, REMIC,
Ser. 1996-CFL, Cl. H, 7.75%, 2028 1,000,000 (a) 723,315
4,337,691
COMPUTERS--2.6%
Sun Microsystems,
Sr. Notes, 7.65%, 2009 1,000,000 995,470
ENERGY--3.9%
Conoco,
Notes, 6.95%, 2029 500,000 464,234
Dual Drilling,
Sr. Sub. Notes, 9.875%, 2004 1,000,000 1,025,662
1,489,896
The Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- --------------------------------------------------------------------------------
FINANCE--4.4%
Capital One Bank,
Medium-Term Notes, 6.7%, 2008 750,000 687,650
Capital One Financial,
Sr. Notes, 7.25%, 2006 1,000,000 971,969
1,659,619
FOREIGN--2.4%
Petroleos Mexicanos Finance,
Ser. 1999-2, Cl. A1, Notes, 9.69%, 2009 900,000 (a) 899,577
FOREIGN/GOVERNMENTAL--2.7%
Republic of Argentina,
Bonds, 11.25%, 2004 33,100 29,707
Republic of Costa Rica,
Notes, 9.335%, 2009 1,000,000 (a) 997,500
1,027,207
HOTELS & MOTELS--1.3%
Hyatt Equities,
Notes, 6.8%, 2000 500,000 (a) 501,199
INSURANCE--3.1%
Frank Russell,
Gtd. Notes, 5.625%, 2009 750,000 (a) 677,855
Marsh & McLennan Cos.,
Sr. Notes, 7.125%, 2009 500,000 499,714
1,177,569
MANUFACTURING--.9%
Tyco International Group,
Notes, 7%, 2028 370,000 337,425
PAPER & PAPER RELATED--2.4%
International Paper,
Notes, 6.875%, 2029 1,000,000 903,528
PHARMACEUTICAL--1.3%
CVS,
Notes, 5.5%, 2004 500,000 (a) 478,491
RAILROAD--.7%
Terminal Railroad Association,
First Mortgage, 4%, 2019 345,000 256,074
REAL ESTATE--3.7%
Crescent Real Estate Equities,
Notes, 7%, 2002 1,000,000 930,757
Reckson Operating Partnership,
Notes, 7.75%, 2009 500,000 476,208
1,406,965
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- --------------------------------------------------------------------------------
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--14.1%
CountryWide Funding,
Ser. 1994-8, Cl. B2, 6%, 2009 696,951 (a) 569,975
GE Capital Mortgage Services,
REMIC, Ser. 1996-HE4, Cl. B4, 9.317%, 2026 415,006 (a,b) 314,108
Norwest Asset Securities, REMIC:
Ser. 1998-9, Cl. B3, 6.5%, 2028 814,568 687,164
Ser. 1998-13, Cl. B3, 6.25%, 2028 741,692 648,749
Ser. 1999-22, Cl. B4, 6.5%, 2014 400,000 301,313
Residential Funding Mortgage Securities I, REMIC:
Ser. 1997-S10, Cl. B2, 7%, 2012 283,215 (a) 223,301
Ser. 1997-S16, Cl. M3, 6.75%, 2012 714,300 646,013
Ser. 1997-S19, Cl. B3, 6.5%, 2012 431,841 (a) 116,597
Ser. 1998-S1, Cl. M3, 6.5%, 2013 529,936 471,988
Ser. 1998-S7, Cl. B1, 6.5%, 2013 462,965 (a) 375,942
Ser. 1998-S16, Cl. B1, 6.5%, 2013 295,032 (a) 236,671
Structured Asset Securities,
REMIC, Ser. Greenpoint 1996-A,
Cl. B3, 8.359%, 2027 693,289 (b) 728,820
5,320,641
RETAIL--.8%
Tricon Global Restaurants,
Sr. Notes, 7.45%, 2005 295,000 292,002
U.S. GOVERNMENT--15.1%
U.S. Treasury Bonds,
5.25%, 2/15/2029 1,500,000 1,324,515
U.S. Treasury Notes:
5%, 2/28/2001 1,000,000 992,190
5.5%, 5/15/2009 1,440,000 1,396,454
5.75%, 6/30/2001 2,000,000 2,003,800
5,716,959
U.S. GOVERNMENT AGENCY--2.6%
Federal National Mortgage Association,
Notes, 5.625%, 5/14/2004 1,000,000 967,146
U.S. GOVERNMENT AGENCY/MORTGAGE BACKED--8.4%
Federal Home Loan Mortgage,
Multiclass Mortgage Participation Ctfs., REMIC
(Interest only obligation):
Ser. 1499, Cl. E, 7%, 4/15/2023 850,000 (c) 405,306
Ser. 1610, Cl. PW, 6.5%, 4/15/2022 1,867,492 (c) 397,477
Government National Mortgage Association I,
Project Loan, 6.625%, 7/15/2033 397,166 384,258
The Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY/MORTGAGE BACKED (CONTINUED)
Government National Mortgage Association II,
Adjustable Rate Mortgage,
5.5%, 9/20/2029 2,000,000 (d) 1,969,360
3,156,401
YANKEE--7.2%
Korea Development Bank,
Bonds, 6.625%, 2003 1,000,000 946,500
Korea Electric Power,
Sr. Discount Notes, 7.95%, 2096 5,000,000 (e) 882,290
Republic of Colombia,
Notes, 8.66%, 2004 600,000 (a,f) 501,000
Sanwa Finance Aruba,
Gtd. Notes, 8.35%, 2009 400,000 399,968
2,729,758
TOTAL BONDS AND NOTES
(cost $40,225,671) 39,174,088
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK--.5% Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
BROADCASTING;
Spanish Broadcasting System
(cost $75,000) 321 (a) 202,230
- ---------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--3.7%
- --------------------------------------------------------------------------------
BROADCASTING;
Spanish Broadcasting System,
Ser. A, Cum., $142.50
(cost $1,236,021) 1,289 (a) 1,405,010
<PAGE>
Principal
SHORT-TERM INVESTMENTS--1.6% Amount ($) Value ($)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER--1.2%
Dow Chemical,
5.1%, 8/2/1999 455,000 454,936
U.S. TREASURY BILLS--.4%
4.34%, 8/19/1999 15,000 (g) 14,965
4.54%, 9/16/1999 50,000 (g) 49,699
4.53%, 10/14/1999 100,000 (g) 99,065
163,729
TOTAL SHORT-TERM INVESTMENTS
(cost $618,682) 618,665
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $42,155,374) 109.4% 41,399,993
LIABILITIES, LESS CASH AND RECEIVABLES (9.4%) (3,568,687)
NET ASSETS 100.0% 37,831,306
</TABLE>
(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 $12,014,242 OR 31.8% OF NET ASSETS.
(B) VARIABLE RATE SECURITY-INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(C) NOTIONAL FACE AMOUNT SHOWN.
(D) PURCHASED ON A FORWARD COMMITMENT BASIS.
(E) ZERO COUPON UNTIL A SPECIFIED DATE AT WHICH TIME THE STATED COUPON RATE
BECOMES EFFECTIVE UNTIL MATURITY.
(F) REFLECTS DATE THE SECURITY CAN BE REDEEMED AT HOLDER'S OPTION; THE STATED
MATURITY IS 10/7/2016.
(G) HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN
FINANCIAL FUTURES POSITIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
<PAGE>
STATEMENT OF FINANCIAL FUTURES
July 31, 1999
<TABLE>
<CAPTION>
Unrealized
Market Value Appreciation
Covered (Depreciation)
Contracts by Contracts ($) Expiration at 7/31/99 ($)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL FUTURES LONG
<S> <C> <C> <C> <C>
U.S. Treasury 5 year Notes 65 7,044,375 September '99 (74,141)
FINANCIAL FUTURES SHORT
U.S. Treasury 10 year Notes 101 11,141,563 September '99 143,055
U.S. Treasury 30 year Bonds 26 2,989,187 September '99 34,383
103,297
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
<CAPTION>
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
<S> <C> <C>
Investments in securities--See Statement of Investments 42,155,374 41,399,993
Cash 236,270
Receivable for investment securities sold 460,102
Interest receivable 458,835
Paydowns receivable 26,190
Receivable for shares of Common Stock subscribed 19,729
Receivable for futures variation margin--Note 4(a) 17,741
Prepaid expenses and other assets 13,054
42,631,914
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 4,645
Due to Distributor 7,744
Payable for investment securities purchased 4,664,257
Payable for shares of Common Stock redeemed 89,683
Accrued expenses 34,279
4,800,608
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ($) 37,831,306
- ---------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 38,209,156
Accumulated undistributed investment income--net 20,299
Accumulated net realized gain (loss) on investments and financial futures
253,935
Accumulated net unrealized appreciation (depreciation)
on investments (including $103,297 net unrealized
appreciation on financial futures)--Note 4(b) (652,084)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ($) 37,831,306
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized) 3,042,926
NET ASSET VALUE, offering and redemption price per share ($) 12.43
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
<PAGE>
STATEMENT OF OPERATIONS
Year Ended July 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Interest 1,932,856
Cash dividends 221,187
TOTAL INCOME 2,154,043
EXPENSES:
Management fee--Note 3(a) 157,462
Shareholder servicing costs--Note 3(b) 103,015
Registration fees 28,447
Interest expense--Note 2 24,138
Auditing fees 16,928
Prospectus and shareholders' reports 10,572
Custodian fees--Note 3(b) 6,710
Directors' fees and expenses--Note 3(c) 3,270
Legal fees 1,694
Miscellaneous 4,713
TOTAL EXPENSES 356,949
Less--reduction in management fee due to
undertaking--Note 3(a) (146,720)
NET EXPENSES 210,229
INVESTMENT INCOME--NET 1,943,814
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments 128,974
Net realized gain (loss) on financial futures 209,691
NET REALIZED GAIN (LOSS) 338,665
Net unrealized appreciation (depreciation) on investments
(including $100,820 net unrealized appreciation on financial futures) (1,142,922)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (804,257)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 1,139,557
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------
1999 1998
- --------------------------------------------------------------------------------
OPERATIONS ($):
<S> <C> <C>
Investment income--net 1,943,814 1,592,260
Net realized gain (loss) on investments 338,665 1,444,678
Net unrealized appreciation (depreciation)
on investments (1,142,922) (634,086)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 1,139,557 2,402,852
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (1,950,844) (1,564,931)
Net realized gain on investments (1,161,459) (559,454)
TOTAL DIVIDENDS (3,112,303) (2,124,385)
- --------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 27,727,923 11,729,347
Dividends reinvested 1,974,470 1,408,285
Cost of shares redeemed (12,874,875) (12,383,164)
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 16,827,518 754,468
TOTAL INCREASE (DECREASE) IN NET ASSETS 14,854,772 1,032,935
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 22,976,534 21,943,599
END OF PERIOD 37,831,306 22,976,534
Undistributed investment income--net 20,299 27,329
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 2,185,703 878,894
Shares issued for dividends reinvested 157,408 106,245
Shares redeemed (1,017,204) (927,231)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,325,907 57,908
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------
1999 1998 1997 1996(a)
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C>
Net asset value, beginning of period 13.38 13.23 12.22 12.50
Investment Operations:
Investment income--net .87 .91 .95 .46
Net realized and unrealized
gain (loss) on investments (.36) .47 1.01 (.28)
Total from Investment Operations .51 1.38 1.96 .18
Distributions:
Dividends from investment income--net (.88) (.89) (.95) (.46)
Dividends from net realized gain on investments (.58) (.34) -- --
Total Distributions (1.46) (1.23) (.95) (.46)
Net asset value, end of period 12.43 13.38 13.23 12.22
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 4.18 10.93 16.70 3.05(b)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to
average net assets .65 .80 .52 --
Ratio of interest expense to average net assets .08 .34 .06 --
Ratio of net investment income
to average net assets 6.79 6.81 7.45 7.70(b)
Decrease reflected in above expense ratios
due to undertakings by the Manager .51 .49 .98 2.50(b)
Portfolio Turnover Rate 166.80 170.52 321.59 139.38(c)
Net Assets, end of period ($ x 1,000) 37,831 22,977 21,944 9,756
(A) FROM FEBRUARY 2, 1996 (COMMENCEMENT OF OPERATIONS) TO JULY 31, 1996.
(B) ANNUALIZED.
(C) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
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, 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 Fun
<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 receives net
earnings credits based on available cash balances left on deposit.
(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, if any, it is the policy of the fund not to distribute such
gain.
(D) FEDERAL INCOME TAXES: It is the policy of the fund to continue to qualify as
a regulated investment company, if such qualification is in the best interests
of its shareholders, by complying with the applicable provisions of the 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
<PAGE>
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 $404,900, with a related
weighted average annualized interest rate of 5.96%.
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 .55 of 1% of the value of the fund's average
daily net assets and is payable monthly. The Manager had undertaken through July
31, 1999, 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 .65 of 1% of the value of
the fund' s average daily net assets. The reduction in management fee, pursuant
to the undertaking amounted to $146,720 during the period ended July 31, 1999.
(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, 1999, the fund was charged $71,573 pursuant to the Shareholder Services
Plan.
The Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $21,796 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 $6,710 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 $250
per meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
(A) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities and financial futures,
during the period ended July 31, 1999, amounted to $59,436,208 and $44,586,910,
respectively.
The fund may invest in financial futures contracts in order to gain exposure to
or protect against changes in the market. The fund is exposed to market risk as
a result of changes in the value of the underlying financial instruments.
Investments in financial futures require the fund to "mark to market" on a daily
basis, which reflects the change in the market value of the contracts at the
close of each day's trading. Typically, variation margin payments are received
or made to reflect daily unrealized gains or losses. When the contracts are
closed, the fund recognizes a realized gain or loss. These 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.
<PAGE>
(B) At July 31, 1999, accumulated net unrealized depreciation on investments and
financial futures was $652,084, consisting of $965,482 gross unrealized
appreciation and $1,617,566 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 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, 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 financial highlights. Our procedures included verification by
examination of securities held by the custodian 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 Intermediate 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>
IMPORTANT TAX INFORMATION (Unaudited)
For Federal tax purposes the fund hereby designates $.3115 per share as a
long-term capital gain distribution of the $.5800 per share paid on December 7,
1998.
The Fund
<PAGE>
NOTES
<PAGE>
The Fund
<PAGE>
For More Information
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
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 082AR997
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
7/31/99 12,064 13,690
* Source: Merrill Lynch, Pierce, Fenner and Smith Inc.