Dreyfus
Intermediate
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
14 Statement of Financial Futures
15 Statement of Assets and Liabilities
16 Statement of Operations
17 Statement of Changes in Net Assets
18 Financial Highlights
19 Notes to Financial Statements
25 Report of Independent Auditors
FOR MORE INFORMATION
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Back Cover
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 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 Intermediate 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 Intermediate Term Income Fund perform during the period?
For the 12-month period ended July 31, 2000, the fund produced a total return of
9.05%.(1) The fund provided an income dividend of approximately $0.866 per share
as well as a 30-day SEC yield of 7.17%. In comparison, the Merrill Lynch
Domestic Master Index, the fund's benchmark, provided a total return of 5.93%
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 283 funds in the Lipper Intermediate 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, mortgage- and asset-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, we generally reduce
the fund's average duration to purchase higher
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
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. Using a "barbell" strategy emphasizing the short
and long ends of our maturity range, 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
commercial mortgages and non-agency residential mortgages, which are
particularly sensitive to consumer credit- and real estate-related factors.
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 U.S. Treasury bonds also benefited performance
as inflation expectations rose over the past year. We also 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 4.54 years, compared to 4.9 years for its benchmark, the Merrill
Lynch Domestic Master 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 6.0% Treasury
and agency securities, 37.8% corporate bonds and notes, 44.0% mortgage-backed
securities and 12.2% asset-backed securities. In comparison, the fund's
benchmark had the following composition: 19.8% corporate bonds, 12.8% U.S.
Government agency securities, 32.2% mortgage-backed and asset-backed securities
and 35.2% 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) BLOOMBERG L.P. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE,
CAPITAL GAIN DISTRIBUTIONS. 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.
(3) SOURCE: LIPPER INC.
(4) SOURCE: BLOOMBERG L.P.
(5) SOURCE: BLOOMBERG L.P.
<TABLE>
<CAPTION>
The Fund
FUND PERFORMANCE
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 DREYFUS
LYNCH INTERMEDIATE
DOMESTIC TERM
MASTER INCOME
PERIOD INDEX * 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
7/31/00 12,779 14,929
* Source: Bloomberg L.P.
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 AS OF 7/31/00
Inception From
Date 1 Year Inception
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FUND 2/2/96 9.05% 9.31%
((+)) SOURCE: BLOOMBERG L.P.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN DREYFUS INTERMEDIATE TERM
INCOME FUND ON 2/2/96 (INCEPTION DATE) TO A $10,000 INVESTMENT MADE IN THE
MERRILL LYNCH DOMESTIC MASTER INDEX ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ARE REINVESTED.
THE FUND INVESTS PRIMARILY IN DEBT SECURITIES AND SECURITIES WITH DEBT-LIKE
CHARACTERISTICS OF DOMESTIC AND FOREIGN ISSUERS AND MAINTAINS A DOLLAR-WEIGHTED
AVERAGE MATURITY RANGING BETWEEN FIVE AND TEN YEARS. THE FUND'S PERFORMANCE
SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES. THE
MERRILL LYNCH DOMESTIC MASTER INDEX IS AN UNMANAGED PERFORMANCE BENCHMARK
COMPOSED OF U.S. TREASURY AND AGENCY, AND MORTGAGE AND INVESTMENT-GRADE
CORPORATE SECURITIES WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR. THE
INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER
INFORMATION RELATING TO FUND PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF
APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS
AND ELSEWHERE IN THIS REPORT.
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS
July 31, 2000
Principal
BONDS AND NOTES--117.3% Amount(a) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
AIRCRAFT & AEROSPACE--.4%
Pegasus Aviation Lease Securitization,
Asset-Backed Ctfs.,
<S> <C> <C>
Ser. 2000-1, Cl. A1, 7.245%, 2015 246,346 (b,c) 246,192
AIRLINES--4.2%
Delta Air Lines,
Notes, 7.9%, 2009 1,194,000 1,128,279
US Airways Pass-Through Trust,
Pass-Through Ctfs.,
Ser. 2000-2G, Cl. G, 8.02%, 2019 1,415,000 1,414,558
2,542,837
ASSET-BACKED CTFS.--5.4%
Conseco Finance Securitizations:
Ser. 2000-1, Cl. A3, 7.3%, 2031 500,000 499,113
Ser. 2000-D, Cl. A3, 7.89%, 2018 500,000 505,158
Fidelity Equipment Lease Trust,
Ser. 1999-2, Cl. A3, 6.96%, 2004 900,000 (b) 893,813
Inner Harbor CBO,
Ser. 1999-1, Cl. B2, 13.667%, 2012 290,000 (b) 284,381
Nomura Depositor Trust,
Ser. 1998-ST1, Cl. B2, 10.876%, 2003 750,000 (b,c) 696,094
The Money Store Home Equity Trust,
Ser. 1998-B, Cl. AF8, 6.11%, 2010 400,000 384,742
3,263,301
ASSET-BACKED CTFS./AUTOMOBILE RECEIVABLES--2.5%
Flagship Auto Receivables Owner Trust,
Ser. 1999-2, Cl. A3, 6.835%, 2004 1,000,000 996,475
WFS Financial Owner Trust,
Ser. 2000-A, Cl. A4, 7.41%, 2007 500,000 507,193
1,503,668
ASSET-BACKED CTFS./HOME EQUITY LOANS--2.5%
Advanta Mortgage Loan Trust,
Ser. 2000-1, Cl. A6, 8.3%, 2029 1,000,000 1,025,156
Residential Asset Securities,
Ser. 1999-KS1, Cl. AI8, 6.32%, 2030 500,000 467,188
1,492,344
AUTO TRUCKS & PARTS--.4%
American Axle & Manufacturing,
Sr. Sub. Notes, 9.75%, 2009 272,000 259,080
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount(a) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION--1.7%
CSC Holdings,
Deb., 8.125%, 2009 550,000 540,856
Viacom,
Gtd. Sr. Notes, 7.7%, 2010 510,000 509,291
1,050,147
CHEMICALS--.8%
ICI Wilmington,
Gtd. Notes, 7.05%, 2007 500,000 465,712
COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--11.3%
COMM,
Ser. 2000-FL2A, Cl. E, 7.616%, 2003 1,100,000 (b,c) 1,099,484
CS First Boston Mortgage Securities:
Ser. 1999-C1, Cl. A2, 7.29%, 2009 2,500,000 2,460,832
Ser. 2000-C1, Cl. A1, 7.325%, 2008 1,000,000 1,000,000
DLJ Mortgage Acceptance,
Ser. 1998-ST1A, Cl. B3, 8.69%, 2000 750,000 (b,c) 744,375
Structured Asset Securities, REMIC,
Ser. 1996-CFL, Cl. H, 7.75%, 2028 1,000,000 (b) 742,952
Trizechahn Office Properties Trust,
Ser. 1999-TOPA, Cl. D, 7.826%, 2007 800,000 (b,c) 800,000
6,847,643
CONSUMER DURABLES--.7%
Sleepmaster, Ser. B,
Sr. Sub. Notes, 11%, 2009 465,000 439,425
ELECTRONICS--.9%
Flextronics International,
Sr. Sub. Notes, 9.875%, 2010 515,000 (b) 526,587
FINANCE--5.4%
Bear Stearns,
Notes, 7.625%, 2009 633,000 612,328
Bombardier Capital,
Notes, 7.5%, 2004 1,000,000 (b) 993,924
DLJ,
Medium-Term Notes, .4%, 2000 1,000,000 (b) 1,053,555
Ford Motor Credit,
Notes, 7.375%, 2009 600,000 585,366
3,245,173
FOOD RETAILING--1.2%
Fred Meyer,
Bonds, 7.375%, 2005 750,000 734,079
Principal
BONDS AND NOTES (CONTINUED) Amount(a) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
FOREIGN/GOVERNMENTAL--5.3%
Federative Republic of Brazil:
Floating Rate Notes, 7.438%, 2009 305,000 (c) 258,869
Sr. Notes, 11.25%, 2007 1,825,000 1,742,875
Republic of Argentina:
Deb., 11.25%, 2004 33,100 32,521
Ser. B, Notes, 0%, 2001 1,000,000 947,500
Republic of Poland,
Bonds, 3.5%, 2024 325,000 (c) 201,906
3,183,671
INDUSTRIAL--1.3%
Corning,
Notes, 6.25%, 2010 EUR 860,000 (b) 794,276
INSURANCE--3.5%
Everest Reinsurance Holdings,
Sr. Notes, 8.75%, 2010 675,000 691,142
Hartford Financial Services Group,
Sr. Notes, 7.9%, 2010 750,000 751,868
MONY Group,
Sr. Notes, 8.35%, 2010 695,000 692,418
2,135,428
MEDIA/ENTERTAINMENT--.8%
Clear Channel Communications,
Conv. Sub. Deb., 2.625%, 2003 375,000 489,844
OIL & GAS--2.4%
Ocean Energy, Ser. B,
Sr. Sub. Notes, 8.875%, 2007 400,000 401,000
Petroleos Mexicanos, Ser. P,
Sr. Notes, 9.5%, 2006 450,000 (d) 462,375
Yosemite Securities Trust I,
Deb., 8.25%, 2004 600,000 (b) 603,061
1,466,436
PHARMACEUTICAL--.8%
CVS,
Notes, 5.5%, 2004 500,000 472,784
REAL ESTATE--4.9%
Crescent Real Estate Equities,
Notes, 7%, 2002 1,900,000 1,759,427
Spieker Properties,
Deb., 7.35%, 2017 800,000 707,556
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount(a) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (CONTINUED)
Tanger Properties,
Notes, 8.75%, 2001 500,000 494,135
2,961,118
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--10.1%
Chase Mortgage Finance Trust, REMIC,
Ser. 1999-S13, Cl. B3, 6.5%, 2014 507,492 (b) 413,800
Countrywide Funding,
Ser. 1994-8, Cl. B2, 6%, 2009 623,213 (b) 535,790
Norwest Asset Securities, REMIC:
Ser. 1998-13, Cl. B3, 6.25%, 2028 732,900 666,776
Ser. 1999-22, Cl. B4, 6.5%, 2014 384,895 (b) 309,319
Ser. 1999-27, Cl. B4, 6.75%, 2014 293,007 (b) 237,388
Ocwen Residential MBS,
Ser. 1998-R1, Cl. B1, 7%, 2040 578,021 (b) 522,296
PNC Mortgage Acceptance,
Ser. 2000-C1, Cl. A2, 7.61%, 2010 750,000 754,102
Residential Funding Mortgage Securities I, REMIC:
Ser. 1997-S10, Cl. B2, 7%, 2012 268,308 (b) 207,982
Ser. 1997-S16, Cl. M3, 6.75%, 2012 678,636 639,665
Ser. 1998-S1, Cl. M3, 6.5%, 2013 503,849 469,825
Ser. 1998-S7, Cl. B1, 6.5%, 2013 460,707 (b) 386,271
Ser. 1998-S16, Cl. B1, 6.5%, 2013 281,587 (b) 235,000
Structured Asset Securities,
REMIC, Ser. Greenpoint 1996-A,
Cl. B3, 8.348%, 2027 680,641 (c) 709,568
6,087,782
RESTAURANTS--1.5%
Tricon Global Restaurants,
Sr. Notes, 7.45%, 2005 945,000 888,136
RETAIL--.6%
Saks,
Gtd. Sr. Notes, 8.25%, 2008 500,000 402,785
RETAIL TRADE/BUILDING MATERIAL--.7%
Lowe's Cos.,
Notes, 8.25%, 2010 448,000 460,030
SOFTWARE--1.1%
Computer Associates International, Ser. B,
Sr. Notes, 6.375%, 2005 741,000 677,575
TELECOMMUNICATIONS--3.5%
Cable & Wireless Optus Finance Property,
Gtd. Notes, 8%, 2010 1,250,000 (b) 1,238,275
Principal
BONDS AND NOTES (CONTINUED) Amount(a) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
Deutsche Telekom International Finance,
Notes, 8%, 2010 625,000 629,598
TeleCorp PCS,
Sr. Sub. Notes, 10.625%, 2010 240,000 (b) 243,600
2,111,473
TELECOMMUNICATION/CARRIERS--.8%
Qwest Communications International, Ser. B,
Sr. Discount Notes, 0/8.29%, 2008 570,000 (e) 461,825
TRANSPORTATION--.4%
Terminal Railroad Association,
First Mortgage, 4%, 2019 345,000 255,893
U. S. GOVERNMENT--6.7%
U. S. Treasury Bonds:
5.25%, 2/15/2029 355,000 320,608
6.125%, 8/15/2029 1,017,000 1,046,869
8.125%, 8/15/2021 1,045,000 1,291,881
U. S. Treasury Inflation Protection Securities:
3.625%, 7/15/2002 1,000,000 (f) 1,065,746
3.875%, 4/15/2029 310,000 (f) 324,689
4,049,793
U. S. GOVERNMENT AGENCIES--.3%
Federal National Mortgage Association,
Bonds, 7.25%, 5/15/2030 170,000 175,128
U. S. GOVERNMENT AGENCIES/MORTGAGE-BACKED--32.5%
Federal Home Loan Mortgage Corp.:
7.5% 2,500,000 (g) 2,467,175
Multiclass Mortgage Participation Ctfs., REMIC
(Interest Only Obligation):
Ser. 1499, Cl. E, 7%, 4/15/2023 1,714,285 (h) 916,782
Ser. 1610, Cl. PW, 6.5%, 4/15/2022 1,867,492 (h) 427,207
Ser. 2067, Cl. PI, 6.5%, 1/15/2024 2,492,807 (h) 740,563
Federal National Mortgage Association,
7.5% 2,550,000 (g) 2,516,519
Government National Mortgage Association I,
Project Loans:
6.5%, 9/15/2033 2,960,718 2,738,808
6.625%, 7/15/2033 394,132 371,900
Government National Mortgage Association II,
Adjustable Rate Mortgage:
6%, 7/20/2030 999,900 979,582
6.5%, 7/20/2030 499,950 495,105
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount(a) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AGENCIES/MORTGAGE-BACKED (CONTINUED)
Government National Mortgage Association II,
Adjustable Rate Mortgage (continued):
7.5% 314,000 (g) 310,075
8% 7,700,000 (g) 7,728,875
19,692,591
UTILITIES-TELEPHONE--.5%
AT&T Canada,
Notes, 7.65%, 2006 300,000 299,236
YANKEE--2.2%
Korea Development Bank,
Notes, 6.625%, 2003 1,000,000 968,479
Pemex Finance,
Notes, Ser. 2000-1, Cl. A2, 7.8%, 2013 350,000 (b) 355,623
1,324,102
TOTAL BONDS AND NOTES
(cost $70,944,288) 71,006,094
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--.3% Shares Value ($)
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING;
Spanish Broadcasting System, Cl. A
(cost $75,000) 16,050 (b,i) 182,569
------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--.5%
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS;
Global Crossing,
Cum. Conv., $17.50
(cost $371,232) 1,856 320,160
Principal
SHORT-TERM INVESTMENTS--4.3% Amount(a) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--4.0%
Dow Chemical,
6.65%, 8/1/2000 1,000,000 1,000,000
Household Finance,
6.63%, 8/1/2000 1,415,000 1,415,000
2,415,000
U. S. TREASURY BILLS--.3%
5.96%, 8/10/2000 5,000 (j) 4,993
5.96%, 9/7/2000 152,000 (j) 151,065
5.968%, 10/19/2000 20,000 (j) 19,738
175,796
TOTAL SHORT-TERM INVESTMENTS
(cost $2,590,799) 2,590,796
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(cost $73,981,319) 122.4% 74,099,619
LIABILITIES, LESS CASH AND RECEIVABLES (22.4%) (13,558,719)
NET ASSETS 100.0% 60,540,900
(a) PRINCIPAL AMOUNT WILL BE IN U.S. DOLLARS UNLESS OTHERWISE NOTED. EUR--EUROS
(b) 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 $13,247,124 OR 21.9% OF NET ASSETS.
(c) VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO PERIODIC CHANGE.
(d) REFLECTS DATE SECURITY CAN BE REDEEMED AT HOLDER'S OPTION; THE STATED
MATURITY IS 9/15/2027.
(e) ZERO COUPON UNTIL A SPECIFIED DATE AT WHICH TIME THE STATED COUPON RATE
BECOMES EFFECTIVE UNTIL MATURITY.
(f) PRINCIPAL AMOUNT FOR ACCRUAL PURPOSES IS PERIODICALLY ADJUSTED BASED ON
CHANGES TO THE CONSUMER PRICE INDEX.
(g) PURCHASED ON A FORWARD COMMITMENT BASIS.
(h) NOTIONAL FACE AMOUNT SHOWN.
(i) NON-INCOME PRODUCING.
(j) HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN
FINANCIAL FUTURES POSITIONS.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
The Fund
STATEMENT OF FINANCIAL FUTURES
July 31, 2000
Unrealized
Market Value Appreciation
Covered by (Depreciation)
Contracts Contracts ($) Expiration at 7/31/2000 ($)
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL FUTURES LONG
U. S. Government Agency
<S> <C> <C> <C> <C>
10 year Notes 55 5,085,781 September 2000 112,375
U. S. Treasury 30 year Bonds 18 1,775,250 September 2000 22,219
FINANCIAL FUTURES SHORT
U. S. Treasury 5 year Notes 54 5,356,969 September 2000 (70,055)
U. S. Treasury 10 year Notes 114 11,273,531 September 2000 (48,031)
16,508
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of Investments 73,981,319 74,099,619
Cash 87,678
Receivable for investment securities sold 3,476,406
Interest receivable 774,134
Receivable for shares of Common Stock subscribed 221,381
Paydowns receivable 8,259
Prepaid expenses and other assets 7,571
78,675,048
--------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 24,176
Payable for investment securities purchased 17,902,404
Payable for shares of Common Stock redeemed 152,775
Payable for futures variation margin--Note 4(a) 10,063
Accrued expenses 44,730
18,134,148
--------------------------------------------------------------------------------
NET ASSETS ($) 60,540,900
--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 60,502,406
Accumulated net realized gain (loss) on investments and financial
futures (95,873)
Accumulated net unrealized appreciation (depreciation) on investments
and foreign currency transactions (including $16,508 net unrealized
appreciation on financial futures) 134,367
--------------------------------------------------------------------------------
NET ASSETS ($) 60,540,900
--------------------------------------------------------------------------------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized) 4,844,491
NET ASSET VALUE, offering and redemption price per share ($) 12.50
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF OPERATIONS
Year Ended July 31, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME ($):
Interest 3,409,843
Cash dividends 153,945
TOTAL INCOME 3,563,788
EXPENSES:
Management fee--Note 3(a) 257,165
Shareholder servicing costs--Note 3(b) 164,269
Prospectus and shareholders' reports 27,959
Registration fees 25,571
Auditing fees 20,833
Custodian fees--Note 3(b) 17,098
Directors' fees and expenses--Note 3(c) 4,328
Legal fees 3,892
Interest expense--Note 2 2,127
Miscellaneous 6,027
TOTAL EXPENSES 529,269
Less--reduction in management fee due to
undertaking--Note 3(a) (223,220)
NET EXPENSES 306,049
INVESTMENT INCOME--NET 3,257,739
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments:
Long transactions 64,843
Short sale transactions (1,555)
Net realized gain (loss) on financial futures 66,873
NET REALIZED GAIN (LOSS) 130,161
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions [including ($86,789) net
unrealized (depreciation) on financial futures] 786,451
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 916,612
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 4,174,351
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended July 31,
--------------------------------
2000 1999
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 3,257,739 1,943,814
Net realized gain (loss) on investments 130,161 338,665
Net unrealized appreciation (depreciation)
on investments 786,451 (1,142,922)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 4,174,351 1,139,557
--------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (3,278,038) (1,950,844)
Net realized gain on investments (479,969) (1,161,459)
TOTAL DIVIDENDS (3,758,007) (3,112,303)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 39,777,466 27,727,923
Dividends reinvested 2,420,396 1,974,470
Cost of shares redeemed (19,904,612) (12,874,875)
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 22,293,250 16,827,518
TOTAL INCREASE (DECREASE) IN NET ASSETS 22,709,594 14,854,772
--------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 37,831,306 22,976,534
END OF PERIOD 60,540,900 37,831,306
Undistributed investment income--net -- 20,299
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 3,220,637 2,185,703
Shares issued for dividends reinvested 196,432 157,408
Shares redeemed (1,615,504) (1,017,204)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,801,565 1,325,907
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
The Fund
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
Year Ended July 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996(a)
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 12.43 13.38 13.23 12.22 12.50
Investment Operations:
Investment income--net .86 .87 .91 .95 .46
Net realized and unrealized
gain (loss) on investments .22 (.36) .47 1.01 (.28)
Total from Investment Operations 1.08 .51 1.38 1.96 .18
Distributions:
Dividends from investment income--net (.87) (.88) (.89) (.95) (.46)
Dividends from net realized
gain on investments (.14) (.58) (.34) -- --
Total Distributions (1.01) (1.46) (1.23) (.95) (.46)
Net asset value, end of period 12.50 12.43 13.38 13.23 12.22
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 9.05 4.18 10.93 16.70 3.05(b)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to
average net assets .65 .65 .80 .52 --
Ratio of interest expense to
average net assets .00(c) .08 .34 .06 --
Ratio of net investment income
to average net assets 6.95 6.79 6.81 7.45 7.70(b)
Decrease reflected in above expense
ratios due to undertakings by
The Dreyfus Corporation .48 .51 .49 .98 2.50(b)
Portfolio Turnover Rate 566.57 166.80 170.52 321.59 139.38(d)
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 60,541 37,831 22,977 21,944 9,756
(a) FROM FEBRUARY 2, 1996 (COMMENCEMENT OF OPERATIONS) TO JULY 31, 1996.
(b) ANNUALIZED.
(c) AMOUNT REPRESENTS LESS THAN .01%.
(d) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
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"), which is a wholly-owned 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
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. Securities for which there are no such valuations are valued
at fair value as determined in good faith under the direction of the Board of
Directors. Short-term investments, excluding U.S. Treasury Bills, are carried at
amortized cost, which approximates value. Financial futures are valued at the
last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market on
each business day. Investments denominated in foreign currencies are translated
to U.S. dollars at the prevailing rates of exchange. Forward currency exchange
contracts are valued at the forward rate.
(b) FOREIGN CURRENCY TRANSACTIONS: The portfolio does not isolate that portion
of the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in the market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, currency gains or losses
realized on securities transactions and the difference between the amount of
dividends, interest and foreign withholding taxes recorded on the portfolios'
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities, resulting from
from changes in exchange rates. Such gains and losses are included with net
realized and unrealized gain or loss on investments.
(c) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis.
Dividend income is recognized on the ex-dividend date and interest income,
including, where applicable, amortization of discount on investments, is
recognized on the accrual basis. Under the terms of the custody agreement, the
fund receives net earnings credits based on available cash balances left on
deposit.
(d) DIVIDENDS TO SHAREHOLDERS: It is the policy of the fund to declare dividends
daily from investment income-net. Such dividends are paid monthly. Dividends
from net realized capital gain are normally declared and paid annually, but the
fund may make distributions on a more frequent basis to comply with the
distribution requirements of the Internal Revenue Code 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.
(e) FEDERAL INCOME TAXES: It is the policy of the fund to continue to qualify as
a regulated investment company, if such qualification is in the best interests
of its shareholders, by complying with the applicable provisions of the Code,
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes.
NOTE 2--Bank Lines of Credit:
The fund may borrow up to $10 million for leveraging purposes under a short-term
unsecured line of credit and participates with other Dreyfus-managed funds in a
$100 million unsecured line of credit primarily to be utilized for temporary or
emergency purposes, including the financing of redemptions. Interest is charged
to the fund at rates which are related to the Federal Funds rate in effect at
the time of borrowings.
The average daily amount of borrowings outstanding under the leveraging
arrangement during the period ended July 31, 2000 was approximately $36,900,
with a related weighted average annualized interest rate of 5.77%.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2000, to reduce the management fee paid by the fund, to the extent that the
fund's aggregate expenses exclusive of taxes, brokerage fees, interest on
borrowings 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 $223,220 during the period ended July 31, 2000.
(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, 2000, the fund was charged $116,893 pursuant to the Shareholder
Services Plan, of which $54,827 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 $34,495 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 $17,098 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 designed in the Act receives
an annual fee of $45,000 and an attendance fee of $6,000 for each in person
meeting and $500 for telephone meetings. These fees are allocated among the
funds in the Fund Group. The Chairman of the Board receives an additional 25% of
such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus
Board members, if any, receive 50% of the fund's annual retainer fee and per
meeting fee paid at the time the Board member achieves emeritus status.
NOTE 4--Securities Transactions:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities and securities sold short, excluding short-term securities
and financial futures, during the period ended July 31, 2000:
Purchases ($) Sales ($)
--------------------------------------------------------------------------------
Long transactions 319,975,683 292,249,185
Short sale transactions 1,357,867 1,356,312
TOTAL 321,333,550 293,605,497
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 mar-
The Fund
gin 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 appreciation on investments and
financial futures was $134,808, consisting of $907,081 gross unrealized
appreciation and $772,273 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 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, 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 financial highlights. Our procedures included
verification by examination of securities held by the custodian 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 Intermediate 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
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
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 082AR007
