Dreyfus Short Term
Income Fund
ANNUAL REPORT
July 31, 2000
(reg.tm)
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
Contents
THE FUND
--------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
13 Statement of Financial Futures
14 Statement of Assets and Liabilities
15 Statement of Operations
16 Statement of Changes in Net Assets
17 Financial Highlights
18 Notes to Financial Statements
23 Report of Independent Auditors
FOR MORE INFORMATION
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Back Cover
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 12-month period from August 1, 1999 through July 31, 2000. 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 that manages the fund.
Tighter monetary policy adversely affected most, but not all, sectors of the
bond market over the past year. This was primarily a result of efforts by the
Federal Reserve Board (the "Fed") to forestall potential inflationary pressures.
The Fed raised short-term interest rates five times during the reporting period,
following one interest-rate hike implemented before the reporting period began.
Since June 1999, the Fed has raised short-term interest rates a total of 1.75
percentage points.
Higher interest rates led to an erosion of most bond prices, especially among
higher yielding securities such as corporate bonds. U.S. Treasury securities,
however, represented a notable exception. These direct obligations of the
federal government rose primarily because of reduced supply amid robust demand
from domestic and foreign investors.
We appreciate your confidence over the past year and we look forward to your
continued participation in Dreyfus Short Term Income Fund.
Sincerely,
/s/Stephen E. Canter
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
August 15, 2000
DISCUSSION OF FUND PERFORMANCE
Michael Hoeh, Portfolio Manager
Dreyfus Taxable Fixed Income Team
How did Dreyfus Short Term Income Fund perform during the period?
For the 12-month period ended July 31, 2000, the fund produced a total return of
7.50%.(1) The fund provided an income dividend of approximately $0.776 per share
as well as a 30-day SEC yield of 7.29%. In comparison, the Merrill Lynch
Corporate and Government (1-5 years) Index, the portfolio's benchmark, provided
a total return of 5.19% for the same period.(2)
We are particularly pleased with the fund's performance relative to other funds
in its peer group: for the most recent 12-month period, the fund ranked #1 out
of 108 funds in the Lipper Short Investment Grade Debt Funds category.(3)
We attribute the fund's strong performance to our management strategy in a
rising interest-rate environment. First, we maintained a relatively short
average effective duration -- a measure of sensitivity to changing interest
rates -- in order to reduce the potential effects of interest-rate risk. Second,
we focused on mortgage-backed securities and corporate securities issued by
companies with good earnings.
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 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,
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
we generally reduce the fund's average duration to purchase higher yielding
securities as they become available. If interest rates appear to be declining,
we may increase the fund's average duration to lock in prevailing yields.
*The differences in yields -- or spreads -- between fixed-income securities of
varying maturities.
*The mix of security types within the fund, including relative exposure to
government securities, mortgage-backed securities corporate securities,
asset-backed securities and high yield bonds.
*Credit and cash flow 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 reporting period began on August 1, 1999, it became apparent that the
U.S. economy was growing more strongly than many analysts expected, raising
concerns that long-dormant inflationary pressures might reemerge. In response,
the Federal Reserve Board raised short-term interest rates five times during the
reporting period. In this rising interest-rate environment, we maintained an
average duration that was substantially shorter than that of our benchmark and
the average for our peer group. This position enabled us to reduce the adverse
effects of higher interest rates.
In addition, we attempted to maximize returns through our sector allocation
strategy, which emphasized corporate bonds and mortgage-backed securities. This
strategy helped us focus on securities that are primarily influenced by credit
considerations, which we considered favorable in a strong economy.
Mortgage-backed securities potentially can perform better in a rising
interest-rate environment than other types of bonds because the risk that
homeowners will refinance their mortgages is reduced. We particularly focused on
adjustable-rate mortgages, which potentially are more able to maintain their
prices when interest rates rise.
Our corporate bond holdings performed especially well because we invested mainly
in bonds issued by energy and industrial companies which benefited from rising
oil prices and strong earnings, respectively.
Although we had a smaller than average exposure to U.S. Government securities,
our holdings of inflation-indexed Treasury bonds also benefited performance as
inflation expectations rose over the past year. We had little exposure to high
yield and emerging market bonds, which tended to perform poorly.
What is the fund's current strategy?
We have continued to maintain a relatively short average duration and an
emphasis on securities that are more likely to respond to credit-related forces
than inflation-related ones. As of July 31, the fund's average effective
duration was 1.91 years, compared to 2.3 years for its benchmark, the Merrill
Lynch Corporate and Government (1-5 years) Index.(4)
In addition, we believe that the current economic and market environments should
support consistent corporate earnings, making corporate bonds attractive. At the
same time, a strong economy may continue to allow the federal government to
maintain a budget surplus and reduce issuance of U.S. Treasury debt, which could
create greater demand for investment-grade corporate bonds, in our opinion.
Accordingly, as of July 31, 2000, the portfolio was composed of 2.3% U.S.
Treasury and agency securities, 39.1% corporate bonds and notes, 34.6%
mortgage-backed securities and 24.0% asset-backed securities. In comparison, the
fund's benchmark had the following composition: 23.8% corporate bonds, 22.6%
U.S. Government agency securities, and 53.6% U.S. Treasury securities.(5)
August 15, 2000
(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) LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE,
CAPITAL GAIN DISTRIBUTIONS. 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.
(3) SOURCE: LIPPER INC.
(4) SOURCE: BLOOMBERG L.P.
(5) SOURCE: BLOOMBERG L.P.
The Fund
FUND PERFORMANCE
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
EXHIBIT A:
MERRILL
LYNCH
CORPORATE DREYFUS
AND SHORT
GOVERNMENT TERM
PERIOD (1-5 YEARS) INCOME
INDEX * FUND
8/18/92 10,000 10,000
7/31/93 10,602 10,732
7/31/94 10,791 10,997
7/31/95 11,655 11,773
7/31/96 12,287 12,528
7/31/97 13,273 13,649
7/31/98 14,128 14,730
7/31/99 14,781 15,101
7/31/00 15,549 16,234
* Source: Lipper Inc.
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
--------------------------------------------------------------------------------
<TABLE>
Average Annual Total Returns AS OF 7/31/00
Inception From
Date 1 Year 5 Years Inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FUND 8/18/92 7.50% 6.64% 6.29%
</TABLE>
((+)) SOURCE: LIPPER 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 $10,000 INVESTMENT MADE IN THE MERRILL
LYNCH CORPORATE AND GOVERNMENT (1-5 YEARS) INDEX ON THAT DATE. FOR COMPARATIVE
PURPOSES, THE VALUE OF THE INDEX ON 8/31/92 IS USED AS THE BEGINNING VALUE ON
8/18/92. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED.
THE FUND INVESTS PRIMARILY IN DEBT SECURITIES AND SECURITIES WITH DEBT-LIKE
CHARACTERISTICS OF DOMESTIC AND FOREIGN ISSUERS AND MAINTAINS A DOLLAR-WEIGHTED
AVERAGE MATURITY OF THREE YEARS OR LESS. THE FUND'S PERFORMANCE SHOWN IN THE
LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES. THE MERRILL
LYNCH CORPORATE AND GOVERNMENT (1-5 YEARS) INDEX IS AN UNMANAGED PERFORMANCE
BENCHMARK INCLUDING U.S. GOVERNMENT AND FIXED-COUPON DOMESTIC INVESTMENT-GRADE
CORPORATE BONDS WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR AND LESS THAN
FIVE YEARS. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER
EXPENSES. FURTHER INFORMATION RELATING TO FUND PERFORMANCE, INCLUDING EXPENSE
REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION
OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT.
STATEMENT OF INVESTMENTS
<TABLE>
July 31, 2000
Principal
BONDS AND NOTES--109.5% Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIRCRAFT & AEROSPACE--2.8%
Aircraft Lease Portfolio Securitisation 96-1,
Pass-Through Trust, Ctfs.,
Cl. D, 12.75%, 2006 3,783,062 3,480,417
America West Airlines Pass-Through Trusts, Ctfs.:
Ser. 1996-1, Cl. D, 8.16%, 2002 658,819 673,440
Ser. 1997-1, Cl. D, 8.12%, 2001 215,844 255,270
Pegasus Aviation Lease Securitization,
Asset-Backed Ctfs.,
Ser. 2000-1, Cl. A1, 7.245%, 2015 7,636,738 (a,b) 7,631,965
12,041,092
ASSET-BACKED CTFS.--11.5%
Bosque Asset,
7.66%, 2002 981,043 (a) 951,918
Conseco Finance Securitizations:
Ser. 2000-1, Cl. A3, 7.3%, 2031 6,000,000 5,989,350
Ser. 2000-D, Cl. A3, 7.89%, 2018 8,000,000 8,082,520
Fidelity Equipment Lease Trust,
Ser. 1999-2, Cl. A3, 6.96%, 2004 7,000,000 (a) 6,951,875
NYCTL 1998-2 Trust,
Tax Lien Collateralized Bonds,
Ser. 2000-A, Cl. C, 8.11%, 2008 9,350,000 9,348,539
Nomura Depositor Trust:
Ser. 1998-ST1, Cl. A5, 7.876%, 2003 11,500,000 (a,b) 11,178,359
Ser. 1998-ST1, Cl. B2, 10.876%, 2003 7,250,000 (a,b) 6,728,906
49,231,467
ASSET-BACKED CTFS./AUTOMOBILE RECEIVABLES--3.2%
Flagship Auto Receivables Owner Trust,
Ser. 1999-2, Cl. A3, 6.835%, 2004 6,000,000 5,978,850
WFS Financial Owner Trust,
Ser. 2000-A, Cl. A4, 7.41%, 2007 7,500,000 7,607,888
13,586,738
ASSET-BACKED CTFS./HOME EQUITY LOANS--9.2%
Advanta Mortgage Loan Trust,
Ser. 2000-1, Cl. A6, 8.3%, 2029 8,200,000 8,406,281
EQCC Home Equity Loan Trust,
Ser. 1998-1, Cl. A4F, 6.459%, 2021 10,000,000 9,827,850
Residential Asset Securities:
Ser. 1997-KS4, Cl. AI5, 6.98%, 2027 8,257,000 7,836,409
Ser. 1999-KS1, Cl. AI8, 6.32%, 2030 5,525,000 5,155,295
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED CTFS./HOME EQUITY LOANS (CONTINUED)
Saxson Asset Securities Trust,
Ser. 2000-1, Cl. AF6, 8.005%, 2030 8,000,000 7,968,600
39,194,435
AUTOMOTIVE--2.2%
American Axle & Manufacturing,
Sr. Sub. Notes, 9.75%, 2009 2,953,000 2,812,733
TRW,
Notes, 6.5%, 2002 6,800,000 6,672,527
9,485,260
CHEMICALS--.6%
ICI Wilmington,
Gtd. Notes, 7.05%, 2007 2,605,000 2,426,362
COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--13.3%
BKB Commercial Mortgage Trust,
Ser. 1997-C1, Cl. E, 7.83%, 2001 4,000,000 (a,b) 3,952,490
COMM,
Ser. 2000-FL2A, Cl. E, 7.616%, 2003 10,000,000 (a,b) 9,995,313
CS First Boston Mortgage Securities,
Ser. 2000-C1, Cl. A1, 7.325%, 2008 11,800,000 11,800,000
DLJ Mortgage Acceptance:
Ser. 1994-MF11, Cl. B1, 8.1%, 2004 7,000,000 7,012,110
Ser. 1998-STIA, Cl. B3, 8.687%, 2000 5,250,000 (a,b) 5,210,625
GGP Ala Moana,
Ser. 1999-C1, Cl. D, 7.73%, 2004 3,250,000 (a,b) 3,252,031
GS Mortgage Securities II,
Ser. 1999-FL2A, Cl. G, 8.574%, 2013 3,000,000 (a,b) 2,891,580
Resolution Trust,
Ser. 1994-C2, Cl. D, 8%, 2025 1,958,156 1,950,255
Trizechahn Office Properties Trust,
Ser. 1999-TOPA, Cl. D, 7.826%, 2007 10,750,000 (a,b) 10,750,000
56,814,404
ELECTRIC POWER--.9%
NRG Northeast Generating, Ser. A,
Sr. Secured Bonds, 8.065%, 2004 4,000,000 (a) 4,022,372
FINANCE--8.4%
Bear Stearns,
Notes, 7.625%, 2009 5,319,000 5,145,297
Bombardier Capital, Ser. A,
Floating Rate Notes, 7.34%, 2000 8,500,000 (a,b) 8,501,173
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
FINANCE (CONTINUED)
Capital One Bank,
Sr. Notes, 6.15%, 2001 5,000,000 4,955,730
Countrywide Home Loans, Ser. F,
Medium-Term Notes, 6.38%, 2002 6,585,000 6,437,101
Heller Financial, Ser. 1,
Notes, 6.298%, 2003 8,600,000 (b) 8,600,705
Norwest Financial,
Notes, 7.6%, 2005 2,400,000 2,408,244
36,048,250
FOOD & BEVERAGES--.3%
Envirodyne Industries,
Sr. Notes, 10.25%, 2001 2,000,000 1,360,000
FOOD RETAILING--1.6%
Fred Meyer,
Bonds, 7.375%, 2005 7,000,000 6,851,404
FOREIGN/GOVERNMENTAL--3.1%
Federative Republic of Brazil,
Sr. Notes, 11.25%, 2007 5,000,000 4,775,000
Republic of Argentina:
Deb., 11.25%, 2004 827,500 813,019
Ser. B, Notes, 0%, 2001 8,000,000 7,580,000
13,168,019
INSURANCE--1.9%
Everest Reinsurance Holdings,
Sr. Notes, 8.5%, 2005 8,000,000 8,132,016
MEDIA/ENTERTAINMENT--1.0%
Clear Channel Communications,
Notes, 7.875%, 2005 4,444,000 4,490,684
OIL & GAS--3.8%
Williams Cos.,
Notes, 6.2%, 2002 11,090,000 10,894,860
Yosemite Securities Trust I,
Deb., 8.25%, 2004 5,200,000 (a) 5,226,530
16,121,390
OIL SERVICES--.9%
Petroleum Geo-Services,
Sr. Notes, 6.25%, 2003 4,000,000 3,793,416
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICAL--1.8%
CVS,
Notes, 5.5%, 2004 8,000,000 7,564,552
REAL ESTATE--4.7%
Crescent Real Estate Equities,
Notes, 7%, 2002 13,000,000 12,038,182
Tanger Properties,
Notes, 8.75%, 2001 8,150,000 8,054,401
20,092,583
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--4.7%
Countrywide Funding,
Ser. 2000-2, Cl. AF5, 8.12%, 2031 7,800,000 7,865,871
GE Capital Mortgage Services,
Ser. 1996-12, Cl. M, 7.25%, 2011 1,270,002 1,248,917
Residential Funding Mortgage Securities I, REMIC,
Ser. 2000-HI3, Cl. AI2, 7.97%, 2010 11,000,000 10,990,925
20,105,713
RESTAURANTS--2.0%
Tricon Global Restaurants,
Sr. Notes, 7.45%, 2005 9,000,000 8,458,434
RETAIL--1.7%
Penney (JC), Ser A,
Notes, 6.5%, 2002 5,000,000 4,783,325
Saks,
Notes, 7.25%, 2004 3,150,000 2,676,914
7,460,239
SOFTWARE--1.2%
Computer Associates International, Ser. B,
Sr. Notes, 6.375%, 2005 5,597,000 5,117,936
TELECOMMUNICATIONS--.5%
U. S. West Capital Funding,
Gtd. Notes, 6.125%, 2002 2,400,000 2,354,674
U. S. GOVERNMENT--2.4%
U. S. Treasury Inflation Protection Securities:
3.625%, 7/15/2002 5,000,000 (c) 5,328,731
3.875%, 4/15/2029 4,925,000 (c) 5,158,361
10,487,092
U. S. GOVERNMENT AGENCIES/MORTGAGE-BACKED--20.5%
Federal Home Loan Mortgage Corp.:
7.5% 28,000,000 (d) 27,632,360
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AGENCIES/MORTGAGE-BACKED (CONTINUED)
Federal Home Loan Mortgage Corp. (continued):
Multiclass Mortgage Participation Ctfs., REMIC
(Interest Only Obligation):
Ser. 1987, Cl. PI, 7%, 9/15/2012 2,125,380 (e) 447,945
Ser. 2048, Cl. PJ, 7%, 4/15/2028 3,500,000 (e) 1,478,435
Ser. 2129, Cl. IA, 6.5%, 6/15/2024 3,730,769 (e) 1,102,909
Federal National Mortgage Association:
7.5% 9,820,000 (d) 9,691,063
REMIC Trust, Gtd. Pass-Through Ctfs.:
Ser. 1997-56, Cl. PM, 7%, 6/18/2026
(Interest Only Obligation) 2,874,924 (e) 686,388
Ser. 1998-49, Cl. MA, 6.5%, 10/17/2005 3,458,747 3,407,365
Government National Mortgage Association I,
8%, 9/15/2008 2,860,499 2,889,104
Government National Mortgage Association II,
Adjustable Rate Mortgage:
5.5%, 4/20/2030 3,976,119 3,859,300
6%, 4/20/2030-7/20/2030 10,601,130 10,399,254
6.5%, 7/20/2030 9,999,000 9,902,110
7.5% 11,266,000 (d) 11,125,175
8% 4,950,000 (d) 4,968,563
87,589,971
YANKEE--5.3%
Korea Development Bank:
Notes, 6.5%, 2002 10,400,000 10,131,077
Notes, 6.625%, 2003 13,000,000 12,590,227
22,721,304
TOTAL BONDS AND NOTES
(cost $473,709,349) 468,719,807
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--.0% Shares Value ($)
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER;
Signature Brands USA (warrants)
(cost $0) 1,250 (f) 27,400
------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--1.3%
------------------------------------------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT;
Paxson Communications,
Cum., $1,325
(cost $5,825,550) 587 5,693,900
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
SHORT-TERM INVESTMENTS--.3% Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--.2%
UBS Finance,
6.64%, 8/1/2000 815,000 815,000
U. S. TREASURY BILLS--.1%
6%, 9/7/2000 540,000 (g) 536,679
TOTAL SHORT-TERM INVESTMENTS
(cost $1,351,667) 1,351,679
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $480,886,566) 111.1% 475,792,786
LIABILITIES, LESS CASH AND RECEIVABLES (11.1%) (47,699,933)
NET ASSETS 100.0% 428,092,853
(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, 2000,
THESE SECURITIES AMOUNTED TO $83,222,765 OR 19.4% OF NET ASSETS.
(b) VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO PERIODIC CHANGE
(c) PRINCIPAL AMOUNT FOR ACCRUAL PURPOSES IS PERIODICALLY ADJUSTED BASED ON
CHANGES TO THE CONSUMER PRICE INDEX.
(d) PURCHASED ON A FORWARD COMMITMENT BASIS.
(e) NOTIONAL FACE AMOUNT SHOWN.
(f) NON-INCOME PRODUCING.
(g) HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN
FINANCIAL FUTURES POSITIONS.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
STATEMENTS OF FINANCIAL FUTURES
<TABLE>
July 31, 2000
Unrealized
Market Value Appreciation
Covered by (Depreciation)
Contracts Contracts ($) Expiration at 7/31/2000 ($)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL FUTURES LONG
U. S. Government Agency
10 year Notes 80 7,397,500 September 2000 284,312
FINANCIAL FUTURES SHORT
U. S. Treasury 2 year Notes 42 8,345,531 September 2000 (87,281)
U. S. Treasury 5 year Notes 69 6,845,016 September 2000 219
U. S. Treasury 10 year Notes 487 48,159,734 September 2000 (996,578)
(799,328)
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 480,886,566 475,792,786
Cash 1,072,056
Receivable for investment securities sold 18,988,420
Interest receivable 4,713,397
Receivable for shares of Common Stock subscribed 789,563
Paydowns receivable 117,115
Prepaid expenses and other assets 3,162
501,476,499
--------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 272,305
Payable for investment securities purchased 71,152,252
Payable for shares of Common Stock redeemed 1,826,690
Payable for futures variation margin--Note 4(a) 20,953
Interest Payable--Note 2 3,101
Accrued expenses 108,345
73,383,646
--------------------------------------------------------------------------------
NET ASSETS ($) 428,092,853
--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 450,831,971
Accumulated undistributed investment income--net 206,497
Accumulated net realized gain (loss) on investments and financial
futures (17,052,507)
Accumulated net unrealized appreciation (depreciation) on investments
[including ($799,328) net unrealized (depreciation)
on financial futures]--Note 4(b) (5,893,108)
--------------------------------------------------------------------------------
NET ASSETS ($) 428,092,853
--------------------------------------------------------------------------------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized) 36,600,403
NET ASSET VALUE, offering and redemption price per share ($) 11.70
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended July 31, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME ($):
Interest 28,278,140
Cash dividends 1,056,322
TOTAL INCOME 29,334,462
EXPENSES:
Management fee--Note 3(a) 1,955,277
Shareholder servicing costs--Note 3(b) 1,136,335
Professional fees 48,087
Registration fees 47,974
Custodian fees--Note 3(b) 47,311
Directors' fees and expenses--Note 3(c) 32,361
Prospectus and shareholders' reports 19,134
Interest expense--Note 2 10,680
Miscellaneous 10,956
TOTAL EXPENSES 3,308,115
INVESTMENT INCOME--NET 26,026,347
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (1,273,559)
Net realized gain (loss) on financial futures 407,653
NET REALIZED GAIN (LOSS) (865,906)
Net unrealized appreciation (depreciation) on investments
[including ($917,976) net unrealized (depreciation) on financial
futures] 3,195,011
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 2,329,105
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 28,355,452
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended July 31,
-----------------------------------
2000 1999
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 26,026,347 23,244,395
Net realized gain (loss) on investments (865,906) (6,591,188)
Net unrealized appreciation (depreciation)
on investments 3,195,011 (8,251,040)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 28,355,452 8,402,167
--------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (26,027,986) (23,537,455)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 265,314,104 196,523,280
Dividends reinvested 20,894,706 18,793,560
Cost of shares redeemed (218,887,862) (200,463,317)
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 67,320,948 14,853,523
TOTAL INCREASE (DECREASE) IN NET ASSETS 69,648,414 (281,765)
--------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 358,444,439 358,726,204
END OF PERIOD 428,092,853 358,444,439
Undistributed investment income--net 206,497 208,136
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 22,765,105 16,682,542
Shares issued for dividends reinvested 1,792,463 1,602,380
Shares redeemed (18,783,511) (17,062,762)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 5,774,057 1,222,160
SEE NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
<TABLE>
Year Ended July 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($):
Net asset value, beginning of period 11.63 12.12 12.03 11.86 11.89
Investment Operations:
Investment income--net .71 .76 .84 .86 .78
Net realized and unrealized
gain (loss) on investments .07 (.47) .08 .17 (.04)
Total from Investment Operations .78 .29 .92 1.03 .74
Distributions:
Dividends from investment income--net (.71) (.78) (.83) (.86) (.77)
Net asset value, end of period 11.70 11.63 12.12 12.03 11.86
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 7.50 2.52 7.92 8.95 6.42
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses
to average net assets .84 .87 .87 .80 .80
Ratio of interest expense to
average net assets .00(a) .00(a) .02 .02 --
Ratio of net investment income
to average net assets 6.64 6.54 7.01 7.28 6.52
Decrease reflected in above expense
ratios due to undertakings by
The Dreyfus Corporation -- -- .00(a) .11 .14
Portfolio Turnover Rate 272.46 204.98 185.77 292.99 291.35
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period
($ x 1,000) 428,093 358,444 358,726 279,142 189,693
(a) AMOUNT REPRESENTS LESS THAN .01%.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The 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, 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"), which is a direct subsidiary of Mellon Financial
Corporation. Effective March 22, 2000, Dreyfus Service Corporation ("DSC"), a
wholly-owned subsidiary of the Manager, became the distributor of the fund's
shares which are sold to the public without a sales charge. Prior to March 22,
2000, Premier Mutual Fund Services, Inc. was the distributor.
The Company accounts separately for the assets, liabilities and operations of
each series. Expenses directly attributable to each series are charged to that
series' operations; expenses which are applicable to all series 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.
(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 $8,685 during the period ended July 31, 2000 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, if any, 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 pro-
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
visions 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 $17,414,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to July 31, 2000. This amount is
calculated based on Federal income tax regulations which may differ from
financial reporting in accordance with generally accepted accounting principles.
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, $1,818,000 expires in
fiscal 2007 and $5,888,000 expires in fiscal 2008.
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 the leveraging
arrangement during the period ended July 31, 2000 was approximately $183,600,
with a related weighted average annualized interest rate of 5.82%.
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 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, 2000, the fund was charged $782,111
pursuant to the Shareholder Services Plan, of which $347,700 was paid to DSC.
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, 2000, the fund was charged $228,412 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, 2000, the fund was
charged $47,311 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.
Each Board member also serves as a Board member of other funds within the
Dreyfus complex (collectively, the "Fund Group"). Effective August 4, 2000, each
Board member who is not an "affiliated person," as defined in the Act receives
an annual fee of $45,000 and an attendance fee of $5,000 for each in person
meeting and $500 for telephone meetings. These fees are allocated among the
funds in the Fund Group. The Chairman of the Board receives an additional 25% of
such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus
Board members, if any, receive 50% of the fund's annual retainer fee and per
meeting fee paid at the time the Board member achieves emeritus status.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2000, amounted to $1,208,235,118 and
$1,133,359,833, 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, 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, 2000, are set
forth in the Statement of Financial Futures.
(b) At July 31, 2000, accumulated net unrealized depreciation on investments and
financial futures was $5,893,109, consisting of $1,764,574 gross unrealized
appreciation and $7,657,683 gross unrealized depreciation.
At July 31, 2000, 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).
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, 2000, 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 auditing standards generally accepted
in the United States. 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, 2000 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, 2000, 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 accounting principles generally accepted in the United
States.
Ernst & Young LLP
Signature logo
New York, New York
September 7, 2000
The Fund
NOTES
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
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
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) 2000 Dreyfus Service Corporation 083AR007
