Dreyfus Short Term
Income Fund
SEMIANNUAL REPORT
January 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
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by Dreyfus and
the fund's other service providers do not properly process and calculate
date-related information from and after January 1, 2000. Dreyfus has taken steps
designed to avoid year 2000-related problems in its systems and to monitor the
readiness of other service providers. 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.
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Statement of Investments
11 Statement of Financial Futures
12 Statement of Assets and Liabilities
13 Statement of Operations
14 Statement of Changes in Net Assets
15 Financial Highlights
16 Notes to Financial Statements
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
The Fund
Dreyfus Short Term
Income Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus Short Term Income
Fund, covering the six-month period from August 1, 1999 through January 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.
The past six months were challenging for most fixed-income investors. Faster
than expected economic growth in the U.S. and overseas fueled concerns that
long-dormant inflationary pressures might re-emerge, potentially reducing the
future value of bonds' interest and principal payments. These concerns prompted
the Federal Reserve Board to raise key short-term interest rates three times
during the summer and fall of 1999 in an attempt to prevent a reacceleration of
inflation. A fourth rate hike was announced just a few days after the reporting
period ended.
While U.S. Treasury and agency securities declined sharply in this environment,
prices of higher yielding securities -- such as corporate bonds and
mortgage-backed securities -- fell less severely. In an environment of robust
economic growth, investors appeared more comfortable owning bonds that are
influenced primarily by credit risk, and they avoided securities that are most
affected by interest-rate risk.
We appreciate your confidence over the past six months, 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
February 15, 2000
2
DISCUSSION OF FUND PERFORMANCE
Michael Hoeh, Portfolio Manager
Dreyfus Taxable Fixed Income Team
How did Dreyfus Short Term Income Fund perform relative to its benchmark?
For the six-month period ended January 31, 2000, Dreyfus Short Term Income Fund
produced a total return of 3.29%.(1) In comparison, the fund's benchmark, the
Merrill Lynch Corporate and Government (1-5 years) Index, provided a total
return of 2.40% for the same period.(2)
We attribute the fund's good performance to its relatively short AVERAGE
DURATION -- a measure of sensitivity to changing interest rates -- in a rising
interest-rate environment. A relatively short average duration enabled the fund
to protect its share price and capture higher yields more readily as interest
rates rose.
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, we generally
reduce the fund's average duration to capture 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 Fund 3
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
* The mix of security types within the fund, including relative exposure to
government securities, corporate securities, mortgage-backed securities,
and foreign and high yield bonds.
* 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?
Both the fund and the short-term sector of the bond market were adversely
affected by rising interest rates over the past six months.
When the reporting period began, global economic growth was greater than most
investors had previously anticipated. Economies in Japan and Southeast Asia were
recovering, and the growth of the U.S. economy was robust. In the United States,
consumer confidence was at a 30-year high and employment was strong, with hourly
wages rising.
This positive economic news raised concerns among investors that inflationary
pressures might re-emerge. The Federal Reserve Board had already increased
short-term interest rates once in late June, before the reporting period began.
It subsequently raised interest rates twice more in August and November. A
fourth rate hike was implemented just after the reporting period ended, for a
total increase of 1.00 percentage points.
Although higher interest rates caused most bond prices to fall, prices of U.S.
Treasury securities fell more sharply than other types of bonds, while high
quality government agency, corporate and mortgage-backed securities saw more
modest declines. This was due to strong economic conditions that tended to
support the credit quality of corporate issuers. In addition, prices of
mortgage-backed securities were helped by fewer mortgage loans being refinanced
by homeowners.
What is the fund's current strategy?
We have continued to strategically adjust the fund's average duration and mix of
assets to take advantage of prevailing market conditions.
Accordingly, we have maintained an average duration about six months shorter
than our benchmark. This has given us the flexibility
4
we need to protect principal in a rising interest-rate environment, while
enabling us to take advantage of current income opportunities.
Within the portfolio, we have emphasized investment-grade corporate bonds,
mortgage-backed securities and U.S. Government agency notes. In the mortgage
sector, we've focused on premium bonds that we expected to benefit from lower
mortgage loan refinancing rates. We received particularly attractive returns
from adjustable-rate securities, such as GNMA ARMs and floating-rate corporate
notes. These securities' yields adjust to higher interest rates without eroding
their prices, which benefited the fund as interest rates rose. We also received
good performance from high quality asset-backed securities, including those
secured by automobile loans.
On the other hand, we have tended to avoid U.S. Treasury securities, which
suffered from investors' preference for higher yielding securities. We did,
however, add to our holdings of Treasury Inflation Protection Securities (TIPS),
which provided better performance than traditional fixed-rate U.S. Treasuries.
Furthermore, we reduced our holdings of high yield corporate bonds -- those
rated below investment grade -- from about 20% of the portfolio at the start of
the period to about 7% at the end, enabling us to avoid the brunt of poor
performance in that sector.
February 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) SOURCE: BLOOMBERG L.P. -- THE MERRILL LYNCH CORPORATE AND GOVERNMENT (1-5
YEARS) INDEX IS AN UNMANAGED, TOTAL RETURN PERFORMANCE BENCHMARK INCLUDING
U.S. GOVERNMENT AND FIXED-COUPON DOMESTIC INVESTMENT-GRADE CORPORATE BONDS
WITH MATURITIES GREATER THAN OR EQUAL TO ONE YEAR AND LESS THAN FIVE YEARS.
The Fund 5
STATEMENT OF INVESTMENTS
January 31, 2000 (Unaudited)
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
Principal
BONDS AND NOTES--105.4% Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIRCRAFT & AEROSPACE--1.4%
Aircraft Lease Portfolio Securitisation 96-1,
Pass-Through Trust, Ctfs.,
Cl. D, 12.75%, 2006 3,783,062 3,745,231
America West Airlines Pass-Through Trusts, Ctfs.:
Ser. 1996-1, Cl. D, 8.16%, 2002 696,155 681,156
Ser. 1997-1, Cl. D, 8.12%, 2001 987,499 981,056
5,407,443
ASSET-BACKED CTFS.--8.1%
Bosque Asset,
7.66%, 2002 1,140,383 (a) 1,134,681
Conseco Finance Securitizations,
Ser. 2000-1, Cl. A3, 7.3%, 2031 6,000,000 5,998,125
Fidelity Equipment Lease Trust,
Ser. 1999-2, Cl. A3, 6.96%, 2004 7,000,000 (a) 6,932,187
Nomura Depositor Trust:
Ser. 1998-ST1, Cl. A5, 7.031%, 2003 11,500,000 (a,b) 11,000,469
Ser. 1998-ST1, Cl. B2, 10.031%, 2003 6,750,000 (a,b) 6,143,555
31,209,017
ASSET-BACKED CTFS./AUTOMOBILE RECEIVABLES--5.0%
Flagship Auto Receivables Owner Trust,
Ser. 1999-2, Cl. A3, 6.835%, 2004 6,000,000 5,914,687
Provident Auto Lease ABS Trust,
Ser. 1999-1, Cl. A2, 7.025%, 2005 13,600,000 (a) 13,370,500
19,285,187
ASSET-BACKED CTFS./HOME EQUITY LOANS--6.8%
EQCC Home Equity Loan Trust,
Ser. 1998-1, Cl. A4F, 6.459%, 2021 10,000,000 9,776,950
GE Capital Mortgage Services,
REMIC, Ser. 1997-HE3, Cl. A6, 6.72%, 2027 5,000,000 4,855,575
Residential Asset Securities:
Ser. 1997-KS4, Cl. AI5, 6.98%, 2027 8,257,000 7,649,326
Ser. 1999-KS1, Cl. AI8, 6.32%, 2030 4,275,000 3,949,662
26,231,513
AUTOMOTIVE--3.0%
Lear,
Sr. Notes, 7.96%, 2005 5,000,000 (a) 4,754,920
TRW,
Notes, 6.5%, 2002 6,800,000 6,629,667
11,384,587
6
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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CHEMICALS--.7%
ICI Wilmington
(Gtd. by Imperial Chemical Industries),
Notes, 7.05%, 2007 3,000,000 2,832,381
COMMERCIAL MORTGAGE
PASS-THROUGH CTFS.--15.9%
BKB Commercial Mortgage Trust,
Ser. 1997-C1, Cl. E, 8.522%, 2001 4,000,000 (a,b) 3,917,048
BTC Mortgage Investors Trust,
Ser. 1997-S1, Cl. C, 6.645%, 2009 835,158 (a) 833,070
Chase Commercial Mortgage Securities,
Ser. 1998-SN1A, Cl. D, 6.64%, 2001 4,250,000 (a,b) 4,227,624
DLJ Mortgage Acceptance:
Ser. 1994-MF11, Cl. B1, 8.1%, 2004 7,000,000 6,860,840
Ser. 1997-CF2, Cl. B3, 6.99%, 2009 3,900,000 (a) 3,094,475
Ser. 1998-STIA, Cl. B3, 7.875%, 2000 5,250,000 (a,b) 5,179,453
GGP Ala Moana,
Ser. 1999-C1, Cl. D, 6.891%, 2004 6,000,000 (a,b) 6,000,000
GS Mortgage Securities II,
Ser. 1999-FL2A, Cl. G, 7.855%, 2013 3,000,000 (a,b) 2,755,920
Mall Asset Realty Trust,
Ser. 1999-1A, Cl. F, 6.309%, 2001 9,500,000 (a,b) 9,140,781
Merrill Lynch Mortgage Investors,
Ser. 1997-SD1, Cl. E, 6.875%, 2010 4,500,000 (a,b) 4,094,325
Resolution Trust,
Ser. 1994-C2, Cl. D, 8%, 2025 4,446,550 4,437,501
TrizecHahn Office Properties Trust,
Ser. 1999-TOPA, Cl. D, 6.981%, 2007 10,750,000 (a,b) 10,659,297
61,200,334
ENERGY--3.9%
Dual Drilling,
Sr. Sub. Notes, 9.875%, 2004 14,750,000 15,050,457
ENTERTAINMENT--1.3%
Time Warner,
Notes, 7.95%, 2000 5,000,000 5,000,000
FINANCE--9.4%
Bombardier Capital, Ser. A,
Floating Rate Notes, 6.527%, 2000 8,500,000 (a,b) 8,499,736
Capital One Bank:
Sr. Notes, 7.35%, 2000 7,500,000 7,517,063
Sr. Notes, 6.15%, 2001 5,000,000 4,914,455
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCE (CONTINUED)
Countrywide Home Loan, Ser. F,
Medium-Term Notes, 6.38%, 2002 6,585,000 6,408,766
Heller Financial, Ser. I,
Notes, 6.298%, 2003 8,600,000 (b) 8,601,324
35,941,344
FOOD & BEVERAGES--.3%
Envirodyne Industries,
Sr. Notes, 10.25%, 2001 2,000,000 1,230,000
FOOD RETAILING--4.0%
Fred Meyer,
Bonds, 7.375%, 2005 7,000,000 6,822,480
Safeway,
Notes, 7%, 2002 8,500,000 8,383,558
15,206,038
FOREIGN/GOVERNMENTAL--2.1%
Republic of Argentina:
Deb., 11.25%, 2004 827,500 794,400
Ser. B, Notes, 0%, 2001 8,000,000 7,200,000
7,994,400
OIL & GAS--4.1%
Williams Cos.
Notes, 6.2%, 2002 11,090,000 10,750,990
Yosemite Securities Trust I,
Deb., 8.25%, 2004 5,200,000 (a) 5,116,415
15,867,405
OIL SERVICES--1.0%
Petroleum Geo-Services,
Sr. Notes, 6.25%, 2003 4,000,000 3,767,448
PHARMACEUTICAL--2.0%
CVS,
Notes, 5.5%, 2004 8,000,000 7,491,536
REAL ESTATE--2.8%
Crescent Real Estate Equities,
Notes, 7%, 2002 12,000,000 10,887,564
RESIDENTIAL MORTGAGE
PASS-THROUGH CTFS.--.3%
GE Capital Mortgage Services,
Ser. 1996-12, Cl. M, 7.25%, 2011 1,312,896 1,272,308
RESTAURANTS--2.2%
Tricon Global Restaurants,
Sr. Notes, 7.45%, 2005 9,000,000 8,586,243
8
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL--2.0%
Penney (JC), Ser. A,
Notes, 6.5%, 2002 5,000,000 4,777,535
Saks,
Notes, 7.25%, 2004 3,150,000 2,989,123
7,766,658
TELECOMMUNICATIONS--.6%
U.S. West Capital Funding,
Gtd. Notes, 6.125%, 2002 2,400,000 2,322,396
U.S. GOVERNMENT--8.7%
U.S. Treasury Inflation Protection Securities,
3.625%, 1/15/2008 10,000,000 (c) 9,937,318
U.S. Treasury Notes:
5.625%, 9/30/2001 13,900,000 13,686,496
5.875%, 11/15/2004 7,000,000 6,768,790
6%, 8/15/2009 3,000,000 2,859,690
33,252,294
U.S. GOVERNMENT AGENCY/MORTGAGE-BACKED--14.0%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation Ctfs., REMIC
(Interest Only Obligation):
Ser. 1987, Cl. PI, 7%, 9/15/2012 2,336,369 (d) 489,493
Ser. 2129, Cl. IA, 6.5%, 6/15/2024 3,730,769 (d) 1,191,514
Federal National Mortgage Association,
REMIC Trust, Gtd. Pass-Through Ctfs.:
Ser. 1998-49, Cl. MA, 6.5%, 10/17/2005 3,977,739 3,893,212
(Interest Only Obligation):
Ser. 1997-56, Cl. PM, 7%, 6/18/2026 3,000,000 (d) 704,310
Ser. 1997-60, Cl. PJ, 7%, 9/18/2027 3,000,000 (d) 1,263,747
Government National Mortgage Association I:
7.5%, 2/15/2029 3,200,000 (e) 3,120,992
8%, 9/15/2008-2/15/2029 13,196,350 (f) 13,166,379
8.5%, 2/15/2029 5,000,000 (e) 5,107,800
Government National Mortgage Association II,
Adjustable Rate Mortgage:
5.5%, 2/20/2030 20,750,000 (e) 20,133,933
6%, 2/20/2030 4,823,000 (e) 4,744,626
53,816,006
YANKEE--5.8%
Korea Development Bank:
Bonds, 6.625%, 2003 13,000,000 12,320,633
Notes, 6.5%, 2002 10,400,000 10,018,393
22,339,026
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
Principal
BONDS AND NOTES (CONTINUED) Amount ($) Value ($)
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TOTAL BONDS AND NOTES
(cost $415,972,691) 405,341,585
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COMMON STOCKS--.0% Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER;
Signature Brands USA (warrants)
(cost $0) 1,250 (g) --
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PREFERRED STOCKS--1.6%
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MEDIA/ENTERTAINMENT;
Paxson Communications,
Cum., $1,325
(cost $5,902,400) 601 6,190,300
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
SHORT-TERM INVESTMENTS--4.9% Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--4.8%
IBM Credit,
5.84%, 2/1/2000 3,700,000 3,700,000
Xerox Credit,
5.82%, 2/1/2000 14,645,000 14,645,000
18,345,000
U.S. TREASURY BILLS--.1%
5.29%, 4/20/2000 600,000 (h) 592,692
TOTAL SHORT-TERM INVESTMENTS
(cost $18,938,030) 18,937,692
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TOTAL INVESTMENTS (cost $440,813,121) 111.9% 430,469,577
LIABILITIES, LESS CASH AND RECEIVABLES (11.9%) (45,893,888)
NET ASSETS 100.0% 384,575,689
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 JANUARY 31,
2000, THESE SECURITIES AMOUNTED TO $106,854,456 OR 27.8% OF NET ASSETS.
b VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO PERIODIC CHANGE.
c PRINCIPAL AMOUNT FOR ACCRUAL PURPOSES IS PERIODICALLY ADJUSTED BASED ON
CHANGES TO THE CONSUMER PRICE INDEX.
d NOTIONAL FACE AMOUNT SHOWN.
e PURCHASED ON A FORWARD COMMITMENT BASIS.
f PARTIALLY PURCHASED ON A FORWARD COMMITMENT BASIS.
g NON-INCOME PRODUCING.
h HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN
FINANCIAL FUTURES POSITIONS.
10
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
STATEMENT OF FINANCIAL FUTURES
<TABLE>
January 31, 2000 (Unaudited)
Unrealized
Market Value Appreciation
Covered by (Depreciation)
Contracts Contracts ($) Expiration at 1/31/00 ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL FUTURES LONG
U.S. Treasury 10 year Notes 39 3,696,469 March 2000 (115,781)
FINANCIAL FUTURES SHORT
U.S. Treasury 2 year Notes 42 8,284,500 March 2000 101,719
U.S. Treasury 5 year Notes 260 25,183,437 March 2000 257,016
U.S. Treasury 30 year Bonds 107 9,867,406 March 2000 (279,727)
(36,773)
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 11
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2000 (Unaudited)
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 440,813,121 430,469,577
Cash 1,603,600
Interest and dividends receivable 5,010,440
Receivable for investment securities sold 2,059,604
Receivable for shares of Common Stock subscribed 454,670
Receivable for futures variation margin--Note 4(a) 117,736
Paydowns receivable 68,714
Prepaid expenses and other assets 17,599
439,801,940
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 181,320
Due to Distributor 64,328
Payable for investment securities purchased 51,828,414
Payable for shares of Common Stock redeemed 3,096,130
Accrued expenses 56,059
55,226,251
- --------------------------------------------------------------------------------
NET ASSETS ($) 384,575,689
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 409,937,097
Accumulated undistributed investment income--net 140,117
Accumulated net realized gain (loss) on investments and
financial futures
(15,121,208)
Accumulated net unrealized appreciation (depreciation) on investments
[including ($36,773) net unrealized (depreciation)
on financial futures]--Note 4(b) (10,380,317)
- --------------------------------------------------------------------------------
NET ASSETS ($) 384,575,689
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized) 33,087,223
NET ASSET VALUE, offering and redemption price per share ($) 11.62
SEE NOTES TO FINANCIAL STATEMENTS.
12
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
Interest 13,191,749
Cash dividends 690,944
TOTAL INCOME 13,882,693
EXPENSES:
Management fee--Note 3(a) 932,289
Shareholder servicing costs--Note 3(b) 532,215
Custodian fees--Note 3(b) 28,057
Registration fees 24,412
Professional fees 22,992
Prospectus and shareholders' reports 15,414
Directors' fees and expenses--Note 3(c) 15,127
Interest expense--Note 2 7,579
Miscellaneous 5,712
TOTAL EXPENSES 1,583,797
INVESTMENT INCOME--NET 12,298,896
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (225,371)
Net realized gain (loss) on financial futures 1,290,764
NET REALIZED GAIN (LOSS) 1,065,393
Net unrealized appreciation (depreciation) on investments
[including ($155,421) net unrealized (depreciation)
on financial futures] (1,292,198)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (226,805)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 12,072,091
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
January 31, 2000 Year Ended
(Unaudited) July 31, 1999
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 12,298,896 23,244,395
Net realized gain (loss) on investments 1,065,393 (6,591,188)
Net unrealized appreciation (depreciation)
on investments (1,292,198) (8,251,040)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 12,072,091 8,402,167
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (12,366,915) (23,537,455)
- --------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 111,189,534 196,523,280
Dividends reinvested 9,935,398 18,793,560
Cost of shares redeemed (94,698,858) (200,463,317)
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 26,426,074 14,853,523
TOTAL INCREASE (DECREASE) IN NET ASSETS 26,131,250 (281,765)
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 358,444,439 358,726,204
END OF PERIOD 384,575,689 358,444,439
Undistributed investment income--net 140,117 208,136
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 9,523,614 16,682,542
Shares issued for dividends reinvested 850,981 1,602,380
Shares redeemed (8,113,718) (17,062,762)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 2,260,877 1,222,160
SEE NOTES TO FINANCIAL STATEMENTS.
14
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
<TABLE>
Six Months Ended
January 31, 2000 Year Ended July 31,
-----------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA ($):
Net asset value,
beginning of period 11.63 12.12 12.03 11.86 11.89 11.94
Investment Operations:
Investment income--net .39 .76 .84 .86 .78 .85
Net realized and unrealized
gain (loss) on investments (.01) (.47) .08 .17 (.04) (.05)
Total from Investment
Operations .38 .29 .92 1.03 .74 .80
Distributions:
Dividends from investment
income--net (.39) (.78) (.83) (.86) (.77) (.85)
Net asset value, end
of period 11.62 11.63 12.12 12.03 11.86 11.89
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 6.53(a) 2.52 7.92 8.95 6.42 7.05
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses
to average net assets .85(a) .87 .87 .80 .80 .61
Ratio of interest expense to
average net assets .00(a,b) .00(b) .02 .02 -- --
Ratio of net investment income
to average net assets 6.58(a) 6.54 7.01 7.28 6.52 7.26
Decrease reflected in above
expense ratios due to
undertakings by
The Dreyfus Corporation -- -- .00(b) .11 .14 .34
Portfolio Turnover Rate 149.02(c) 204.98 185.77 292.99 291.35 511.62
Net Assets, end of period
($ x 1,000) 384,576 358,444 358,726 279,142 189,693 210,524
(a) ANNUALIZED.
(b) AMOUNT REPRESENTS LESS THAN .01%.
(c) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 15
</TABLE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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. 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 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
16
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 $509 during the period ended January 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 are normally declared and paid annually, but the
fund may make distributions on a more frequent basis to comply with the
distribution requirements of the Internal Revenue Code of 1986, as amended (the
"Code"). To the extent that net realized capital gain can be offset by capital
loss carryovers, it is the policy of the fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as
a regulated investment company, if such qualification is in the best interests
of its shareholders, by complying with the applicable provisions of the Code,
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
The fund has an unused capital loss carryover of approximately $11,526,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to July 31, 1999. 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 and $1,818,000 expires
in fiscal 2007.
NOTE 2--Bank Lines of Credit:
The fund may borrow up to $10 million for leveraging purposes under a short-term
unsecured line of credit and participates with other Dreyfus-managed funds in a
$100 million unsecured line of credit primarily to be utilized for temporary or
emergency purposes, including the financing of redemptions. Interest is charged
to the fund at rates which are related to the Federal Funds rate in effect at
the time of borrowings.
The average daily amount of borrowings outstanding under both arrangements
during the period ended January 31, 2000 was approximately $276,600, with a
related weighted average annualized interest rate of 5.43%.
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
18
other industry professional) in respect of these services. The Distributor
determines the amounts to be paid to Service Agents. During the period ended
January 31, 2000, the fund was charged $372,915 pursuant to the Shareholder
Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the
Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the fund. During the period
ended January 31, 2000, the fund was charged $111,003 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 January 31, 2000, the fund was
charged $28,057 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 of investment securities
(including paydowns) , excluding short-term securities and financial futures,
during the period ended January 31, 2000, amounted to $599,541,302 and
$578,673,854, 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
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
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 January
31, 2000, are set forth in the Statement of Financial Futures.
(b) At January 31, 2000, accumulated net unrealized depreciation on investments
and financial futures was $10,380,317, consisting of $926,696 gross unrealized
appreciation and $11,307,013 gross unrealized depreciation.
At January 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).
NOTE 5--Subsequent Event:
At a meeting of the fund's Board of Directors held on January 20, 2000, the
Board approved the termination of the fund's Distribution Agreement with Premier
Mutual Fund Services, Inc., and approved a new Distribution Agreement with
Dreyfus Service Corporation, a wholly-owned subsidiary of the Manager. The new
Distribution Agreement with Dreyfus Service Corporation is slated for
effectiveness on March 16, 2000.
20
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 083SA001
