Dreyfus Investment Grade Funds NCSR Certified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number 811-6718

Dreyfus Investment Grade Funds, Inc.

(Exact name of Registrant as specified in charter)

c/o The Dreyfus Corporation

200 Park Avenue

New York, New York 10166

(Address of principal executive offices) (Zip code)

Michael A. Rosenberg, Esq.

200 Park Avenue

New York, New York 10166

(Name and address of agent for service)

Registrant's telephone number, including area code: (212) 922-6000

Date of fiscal year end:		7/31
Date of reporting period:		7/31/07

FORM N-CSR

Item 1. Reports to Stockholders.

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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.

Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value

		Contents

		THE FUND

2		A Letter from the CEO
3		Discussion of Fund Performance
6		Fund Performance
7		Understanding Your Fund’s Expenses
7		Comparing Your Fund’s Expenses
		With Those of Other Funds
8		Statement of Investments
9		Statement of Assets and Liabilities
10		Statement of Operations
11		Statement of Changes in Net Assets
13		Financial Highlights
15		Notes to Financial Statements
24		Report of Independent Registered
		Public Accounting Firm
25		Important Tax Information
26		Information About the Review and Approval
		of the Fund’s Management Agreement
30		Board Members Information
32		Officers of the Fund

		FOR MORE INFORMATION

		Back Cover

The Fund

Dreyfus

Inflation Adjusted

Securities Fund

A LETTER FROM THE CEO

Dear Shareholder:

We are pleased to present this annual report for Dreyfus Inflation Adjusted Securities Fund, covering the 12-month period from August 1, 2006, through July 31, 2007.

After rallying earlier in the reporting period amid slowing economic growth and benign inflation, the U.S. bond market has encountered significantly heightened volatility in recent months.While the markets’ nominal returns remained positive for the reporting period overall, the recent sell-off has hurt current year-to-date returns most notably on longer-term and high-yield securities. Fixed-income investors have become less tolerant of risk, due mainly to rate hikes in overseas markets, turmoil in the U.S. sub-prime mortgage sector, stronger economic data and a flood of newly issued high-yield bonds with questionable credit characteristics.

In our view, it is appropriate for the bond market to become more concerned with the pricing of risk, which may help wring excesses out of some market sectors. Furthermore, we view recent volatility in credit-sensitive sectors as offering potential investment opportunities in fundamentally sound securities at relatively attractive prices. As always, we encourage you to talk with your financial advisor, who can help you understand the challenges and potential opportunities presented by today’s more turbulent market conditions.

For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Manager.

Thank you for your continued confidence and support.

Thomas F. Eggers

Chief Executive Officer

The Dreyfus Corporation

August 15, 2007

DISCUSSION OF FUND PERFORMANCE

For the period of August 1, 2006, through July 31, 2007, as provided by Robert Bayston, Portfolio Manager

Fund and Market Performance Overview

For the 12-month period ended July 31, 2007, Dreyfus Inflation Adjusted Securities Fund’s Institutional shares achieved a total return of 4.47%, and its Investor shares achieved a total return of 4.24% ..¹In comparison, the fund’s benchmark, the Lehman Brothers U.S.Treasury Inflation Protected Securities Index (the “Index”), which is not subject to fees and expenses like a mutual fund, achieved a total return of 4.66% for the same period.²In addition, the average total return of all funds reported in the Lipper Treasury Inflation Protected Securities category was 3.67% over the reporting period.³

Despite several bouts of market volatility, prices of Treasury Inflation Protected Securities (TIPS) ended the reporting period only slightly lower than where they began. The fund’s performance mainly was driven by our yield curve strategy and our full investment in TIPS to the exclusion of other securities.

The Fund’s Investment Approach

The fund seeks returns that exceed the rate of inflation.To pursue this goal, the fund normally invests at least 80% of its assets in inflation-indexed securities, which are fixed-income securities designed to protect investors from a loss of value due to inflation by periodically adjusting their principal and/or coupon according to the rate of inflation.

The fund invests primarily in high-quality, U.S. dollar-denominated, inflation-indexed securities.To a limited extent, the fund may invest in foreign currency-denominated, inflation-protected securities and other fixed-income securities not adjusted for inflation, including U.S. government bonds and notes, corporate bonds, mortgage-related securities and asset-backed securities. The fund seeks to keep its average effective duration between two and 10 years, and the fund may invest in securities of any maturity without restriction.

The Fund 3

DISCUSSION OF FUND PERFORMANCE (continued)

Inflation Remained Moderate Despite Rising Food and Energy Prices

Although slowing economic growth helped support bond prices in most sectors of the U.S. fixed-income market over the first half of the reporting period, inflation-adjusted securities generally lost value relative to nominal Treasuries, as inflation expectations diminished. Most significantly, crude oil and unleaded gasoline prices retreated from previous record highs over the final five months of 2006, helping to alleviate inflation concerns.

However, evidence of stronger economic growth and rising food and energy prices rekindled investors’ inflation fears at times during the reporting period’s second half. Gasoline prices surged in the spring of 2007, when global demand remained robust for a limited supply of oil and gas. By the end of the reporting period, crude oil prices had surpassed the record highs set during the summer of 2006. In addition, U.S. energy prices were pushed higher by unanticipated problems at a number of domestic refineries and low inventory levels prior to the summer “driving season.”

Food prices rose sharply due mainly to intensifying demand for corn-based biofuels and the higher production costs associated with elevated energy prices. Higher grain prices fed through to increased costs of producing beef, pork and other grain-fed meat products. Production shifts toward corn and away from alternative crops also led to reduced supply of other grains. By the end of June 2007, a measure of wholesale food prices had climbed by more than 8% over the previous 12 months.

However, the rate of “core” inflation, which excludes food and energy, peaked in September 2006 when the pace of U.S. economic growth began to moderate. Softer housing markets, slowing retail sales of apparel and poor conditions in the U.S. automotive industry helped keep core inflation in check.As a result, even after accounting for rising food and energy prices, the rate of “headline” inflation was a relatively moderate 2.7% over the course of the full reporting period, slightly higher than the Federal Reserve Board’s (the “Fed”) “comfort zone” of 2% to 2.5% .

An Emphasis on Quality Helped Support Relative Performance

In this changing market environment, we generally maintained the fund’s average duration in a range that was roughly in line with its

benchmark. In addition, we focused primarily on intermediate-term TIPS, and we held a correspondingly underweighted position in longer-term securities.We implemented this “bulleted” yield curve strategy in anticipation of wider yield differences along the market’s maturity range. However, yield differences narrowed slightly over the reporting period, and this strategy detracted slightly from the fund’s relative performance.

We more than made up for any lost ground through our security selection and tactically managing the fund’s duration to changing market conditions.The fund is exclusively invested in U.S.TIPS and therefore has avoided weakness in investments that were affected later in the reporting period by turmoil in the U.S. sub-prime mortgage sector.

The Fund Is Positioned for Steady Interest Rates

As of the reporting period’s end, we have seen little evidence that the Fed is prepared to alter its interest-rate policies, and we have maintained the fund’s generally neutral duration stance.Yet, current turbulence in credit markets suggests to us that yield differences are likely to increase across the market’s maturity range, and we have continued to employ a bulleted yield curve strategy.We also have maintained our emphasis on high-quality securities, which we believe is prudent in today’s relatively volatile market environment.

August 15, 2007

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. Return figures
		provided reflect the absorption of certain fund expenses by The Dreyfus Corporation pursuant to
		an agreement in effect through July 31, 2008, at which time it may be extended, terminated or
		modified. Had these expenses not been absorbed, the fund’s returns would have been lower.
²		SOURCE: LEHMAN BROTHERS INC. — Reflects reinvestment of dividends and, where
		applicable, capital gain distributions.The Lehman Brothers U.S.Treasury Inflation Protected
		Securities Index is a sub-index of the U.S.Treasury component of the Lehman Brothers U.S.
		Government Index. Securities in the Lehman Brothers U.S.Treasury Inflation Protected Securities
		Index are dollar-denominated, non-convertible, publicly issued, fixed-rate, investment-grade
		(Moody’s Baa3 or better) U.S.Treasury inflation notes, with at least one year to final maturity
		and at least $100 million par amount outstanding.
³		Source: Lipper Inc.

The Fund 5

FUND PERFORMANCE

Comparison of change in value of $10,000 investment in Dreyfus Inflation Adjusted Securities Fund Investor shares and Institutional shares and the Lehman Brothers U.S. Treasury Inflation Protected Securities Index

Average Annual Total Returns as of 7/31/07
	Inception		From
	Date	1 Year	Inception

Investor shares	10/31/02	4.24%	4.94%
Institutional shares	10/31/02	4.47%	5.20%

^†Source: Lipper Inc.

Past performance is not predictive of future performance.The fund’s performance shown in the graph and table does not

reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

The above graph compares a $10,000 investment made in Investor and Institutional shares of Dreyfus Inflation Adjusted

Securities Fund on 10/31/02 (inception date) to a $10,000 investment made in the Lehman Brothers U.S.Treasury

Inflation Protected Securities Index (the “Index”) on that date.All dividends and capital gain distributions are reinvested.

The fund’s performance shown in the line graph takes into account all applicable fees and expenses.The Index is a

sub-index of the U.S.Treasury component of the Lehman Brothers U.S. Government Index. Securities in the Index are

dollar-denominated, non-convertible, publicly-issued, fixed-rate, investment-grade (Moody’s Baa3 or better) U.S.

Treasury inflation notes, with at least one year to final maturity and at least $100 million par amount outstanding.

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.

U N D E R S TA N D I N G YO U R F U N D ’ S E X P E N S E S ( U n a u d i t e d )

As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus Inflation Adjusted Securities Fund from February 1, 2007 to July 31, 2007. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended July 31, 2007
	Investor Shares	Institutional Shares

Expenses paid per $1,000 ^†	$ 2.78	$ 1.52
Ending value (after expenses)	$1,037.40	$1,038.40

COMPARING YOUR FUND’S EXPENSES WITH THOSE OF OTHER FUNDS (Unaudited)

Using the SEC’s method to compare expenses

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

Expenses and Value of a $1,000 Investment assuming a hypothetical 5% annualized return for the six months ended July 31, 2007

	Investor Shares	Institutional Shares

Expenses paid per $1,000 ^†	$ 2.76	$ 1.51
Ending value (after expenses)	$1,022.07	$1,023.31

^†Expenses are equal to the fund’s annualized expense ratio of .55% for Investor shares and .30% for Institutional shares, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

The Fund 7

STATEMENT OF INVESTMENTS

July 31, 2007

	Principal
Bonds and Notes—99.8%	Amount ($)	Value ($)

U.S. Treasury Inflation Protected Securities:
0.88%, 4/15/10	276,560 ^a,b	263,690
1.63%, 1/15/15	634,794 ^a,b	598,210
1.88%, 7/15/13	656,560 ^a,b	636,371
2.00%, 1/15/14	426,451 ^a,b	414,538
2.00%, 7/15/14	426,853 ^a,b	414,797
2.00%, 1/15/26	339,396 ^b	316,945
2.38%, 1/15/25	266,921 ^b	264,200
2.63%, 7/15/17	155,488 ^b	158,118
3.00%, 7/15/12	555,038 ^a,b	570,025
3.50%, 1/15/11	635,511 ^a,b	656,689
3.63%, 4/15/28	383,064 ^b	457,881
3.88%, 4/15/29	376,881 ^a,b	469,604
Total Bonds and Notes
(cost $5,113,347)		5,221,068


Investment of Cash Collateral
for Securities Loaned—3.0%	Shares	Value ($)

Registered Investment Company;
Dreyfus Institutional Cash
Advantage Plus Fund
(cost $156,750)	156,750 ^c	156,750


Total Investments (cost $5,270,097)	102.8%	5,377,818

Liabilities, Less Cash and Receivables	(2.8%)	(146,785)

Net Assets	100.0%	5,231,033

^aAll or a portion of these securities are on loan. At July 31, 2007, the total market value of the fund’s securities on

loan is $1,755,859 and the total market value of the collateral held by the fund is $1,778,625, consisting of cash

collateral of $156,750 and U.S. Government and agency securities valued at $1,621,875.

^bPrincipal amount for accrual purposes is periodically adjusted based on changes in the Consumer Price Index.

^cInvestment in affiliated money market mutual fund.

Portfolio Summary (Unaudited) ^†
	Value (%)		Value (%)

U.S. Government & Agencies	99.8	Money Market Investment	3.0
			102.8
^†Based on net assets.
See notes to financial statements.

STATEMENT OF ASSETS AND LIABILITIES

July 31, 2007

	Cost	Value

Assets ($):
Investments in securities—See Statement
of Investments (including securities on loan,
valued at $1,755,859)—Note 1(b):
Unaffiliated issuers	5,113,347	5,221,068
Affiliated issuers	156,750	156,750
Cash		41,135
Cash denominated in foreign currencies	2	3
Receivable for investment securities sold		167,834
Dividends and interest receivable		13,346
Prepaid expenses		6,514
Due from The Dreyfus Corporation and affiliates—Note 3(b)		1,110
		5,607,760

Liabilities ($):
Payable for investment securities purchased		183,151
Liability for securities on loan—Note 1(b)		156,750
Payable for shares of Common Stock redeemed		103
Accrued expenses		36,723
		376,727

Net Assets ($)		5,231,033

Composition of Net Assets ($):
Paid-in capital		5,664,482
Accumulated distributions in excess of investment income—net		(264,887)
Accumulated net realized gain (loss) on investments		(276,283)
Accumulated net unrealized appreciation
(depreciation) on investments		107,721

Net Assets ($)		5,231,033



Net Asset Value Per Share
	Investor Shares	Institutional Shares

Net Assets ($)	2,538,327	2,692,706
Shares Outstanding	217,578	230,844

Net Asset Value Per Share ($)	11.67	11.66

See notes to financial statements.

The Fund 9

STATEMENT OF OPERATIONS

Year Ended July 31, 2007

Investment Income ($):
Income:
Interest		123,433
Dividends;		2,646
Income from securities lending		287
Total Income		126,366
Expenses:
Management fee—Note 3(a)		16,058
Auditing fees		31,380
Registration fees		27,938
Prospectus and shareholders’ reports		9,033
Shareholder servicing costs—Note 3(b)		7,604
Legal fees		4,626
Custodian fees—Note 3(b)		2,599
Directors’ fees and expenses—Note 3(c)		701
Loan commitment fees—Note 2		18
Miscellaneous		5,072
Total Expenses		105,029
Less—expense reimbursement from
The Dreyfus Corporation due to undertaking—Note 3(a)		(82,524)
Less—reduction in custody fees due to
earnings credits—Note 1(b)		(1,061)
Net Expenses		21,444
Investment Income—Net		104,922

Realized and Unrealized Gain (Loss) on Investments—Note 4 ($):
Net realized gain (loss) on investments		24,250
Net realized gain (loss) on financial futures		(3,632)
Net realized gain (loss) on options transactions		270
Net Realized Gain (loss)		20,888
Net unrealized appreciation (depreciation) on investments
(including $2,531 net unrealized appreciation on financial futures)		119,459
Net Realized and Unrealized Gain (Loss) on Investments		140,347
Net Increase in Net Assets Resulting from Operations		245,269

See notes to financial statements.

STATEMENT OF CHANGES IN NET ASSETS

		Year Ended July 31,

	2007	2006

Operations ($):
Investment income—net	104,922	150,994
Net realized gain (loss) on investments	20,888	(49,174)
Net unrealized appreciation
(depreciation) on investments	119,459	9,514
Net Increase (Decrease) in Net Assets
Resulting from Operations	245,269	111,334

Dividends to Shareholders from ($):
Investment income—net:
Investor Shares	(110,748)	(184,050)
Institutional Shares	(124,621)	(213,355)
Net realized gain on investments:
Investor Shares	—	(34,693)
Institutional Shares	—	(39,384)
Total Dividends	(235,369)	(471,482)

Capital Stock Transactions ($):
Net proceeds from shares sold:
Investor Shares	108,727	364,915
Institutional Shares	34,575	60,530
Dividends reinvested:
Investor Shares	109,794	217,763
Institutional Shares	105,738	227,303
Cost of shares redeemed:
Investor Shares	(954,237)	(151,409)
Institutional Shares	(915,537)	(40,328)
Increase (Decrease) in Net Assets
from Capital Stock Transactions	(1,510,940)	678,774
Total Increase (Decrease) in Net Assets	(1,501,040)	318,626

Net Assets ($):
Beginning of Period	6,732,073	6,413,447
End of Period	5,231,033	6,732,073
Distributions in excess of investment income—net	(264,887)	(232,810)

The Fund 11

STATEMENT OF CHANGES IN NET ASSETS (continued)

		Year Ended July 31,

	2007	2006

Capital Share Transactions:
Investor Shares
Shares sold	9,334	30,623
Shares issued for dividends reinvested	9,398	18,200
Shares redeemed	(80,937)	(12,780)
Net Increase (Decrease) in Shares Outstanding	(62,205)	36,043

Institutional Shares
Shares sold	2,975	5,079
Shares issued for dividends reinvested	9,048	18,988
Shares redeemed	(77,605)	(3,359)
Net Increase (Decrease) in Shares Outstanding	(65,582)	20,708

See notes to financial statements.

FINANCIAL HIGHLIGHTS

The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.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,

Investor Shares	2007	2006	2005	2004	2003 ^a

Per Share Data ($):
Net asset value, beginning of period	11.69	12.34	12.25	12.69	12.50
Investment Operations:
Investment income—net ^b	.21	.26	.25	.26	.23
Net realized and unrealized
gain (loss) on investments	.27	(.06)	.40	.71	.35
Total from Investment Operations	.48	.20	.65	.97	.58
Distributions:
Dividends from investment income—net	(.50)	(.71)	(.56)	(.55)	(.39)
Dividends from net realized
gain on investments	—	(.14)	—	(.86)	—
Total Distributions	(.50)	(.85)	(.56)	(1.41)	(.39)
Net asset value, end of period	11.67	11.69	12.34	12.25	12.69

Total Return (%)	4.24	1.51	5.39	7.79	4.63^c

Ratios/Supplemental Data (%):
Ratio of total expenses
to average net assets	2.10	1.88	1.74	1.80	3.30^d
Ratio of net expenses
to average net assets	.53	.55	.55	.55	.55^d
Ratio of net investment income
to average net assets	1.83	2.18	2.00	2.05	2.33^d
Portfolio Turnover Rate	18.17	60.82	118.91	951.51	1,306.72^c

Net Assets, end of period ($ x 1,000)	2,538	3,269	3,009	2,857	2,650

^a		From October 31, 2002 (commencement of operations) to July 31, 2003.
^b		Based on average shares outstanding at each month end.
^c		Not annualized.
^d		Annualized.
See notes to financial statements.

The Fund 13

FINANCIAL HIGHLIGHTS (continued)

		Year Ended July 31,

Institutional Shares	2007	2006	2005	2004	2003 ^a

Per Share Data ($):
Net asset value, beginning of period	11.68	12.35	12.25	12.69	12.50
Investment Operations:
Investment income—net ^b	.24	.29	.28	.27	.25
Net realized and unrealized
gain (loss) on investments	.26	(.07)	.41	.73	.35
Total from Investment Operations	.50	.22	.69	1.00	.60
Distributions:
Dividends from investment income—net	(.52)	(.75)	(.59)	(.58)	(.41)
Dividends from net realized
gain on investments	—	(.14)	—	(.86)	—
Total Distributions	(.52)	(.89)	(.59)	(1.44)	(.41)
Net asset value, end of period	11.66	11.68	12.35	12.25	12.69

Total Return (%)	4.47	1.82	5.60	8.06	4.82^c

Ratios/Supplemental Data (%):
Ratio of total expenses
to average net assets	1.83	1.63	1.49	1.54	3.06^d
Ratio of net expenses
to average net assets	.28	.30	.30	.30	.30^d
Ratio of net investment income
to average net assets	2.08	2.43	2.26	2.17	2.58^d
Portfolio Turnover Rate	18.17	60.82	118.91	951.51	1,306.72^c

Net Assets, end of period ($ x 1,000)	2,693	3,463	3,405	3,296	2,621

^a		From October 31, 2002 (commencement of operations) to July 31, 2003.
^b		Based on average shares outstanding at each month end.
^c		Not annualized.
^d		Annualized.
See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

NOTE 1—Significant Accounting Policies:

Dreyfus Inflation Adjusted Securities Fund (the “fund”) is a separate diversified series of Dreyfus Investment Grade 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 four series, including the fund.The fund’s investment objective is to seek returns that exceed the rate of inflation.The Dreyfus Corporation (the “Manager” or “Dreyfus”) serves as the fund’s investment adviser. During the reporting period, the Manager was a wholly-owned subsidiary of Mellon Financial Corporation (“Mellon Financial”). During the reporting period, Dreyfus Service Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, served as the distributor of the fund’s shares which are sold to the public without a sales charge. Effective June 30, 2007, the Distributor became known as MBSC Securities Corporation.

On July 1, 2007, the Mellon Financial and The Bank of New York Company, Inc. merged, forming The Bank of New York Mellon Corporation. As part of this transaction, Dreyfus became a wholly-owned subsidiary of The Bank of New York Mellon Corporation.

The fund is authorized to issue 500 million shares of $.001 par value Common Stock in each of the following classes of shares: Investor and Institutional. Investor shares are subject to a shareholder services plan. Other differences between the classes include the services offered to and the expenses borne by each class, the minimum initial investment and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.

As of July 31, 2007, MBC Investments Corp., an indirect subsidiary of Mellon Financial, held 190,413 Investor shares and 193,451 Institutional shares.

The Fund 15

NOTES TO FINANCIAL STATEMENTS (continued)

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 U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.

The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.

(a) Portfolio valuation: Investments in securities excluding short-term investments (other than U.S. Treasury Bills), financial futures and options are valued each business day by an independent pricing service (the “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 valued 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. Restricted securities, as well as securities or other assets for which recent market quotations are not readily available, that are not valued by a pricing service approved by the Board of Directors, or are determined by the fund not to reflect accurately fair value, are valued at fair value as determined in good faith under the direction of the Board of Directors.The factors that may be considered when fair valuing a security include fundamental analytical

data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Short-term investments, excluding U.S.Treasury Bills, are carried at amortized cost, which approximates value. Registered open-end investment companies that are not traded on an exchange are valued at their net asset value. Financial futures and options, which are traded on an exchange, 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. Options traded over-the-counter are priced at the mean between the bid and asked price.

On September 20, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management does not believe that the application of this standard will have a material impact on the financial statements of the fund.

(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, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.

The fund has an arrangement with the custodian bank whereby the fund receives earnings credits from the custodian when positive cash balances are maintained, which are used to offset custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.

The Fund 17

NOTES TO FINANCIAL STATEMENTS (continued)

Pursuant to a securities lending agreement with Mellon Bank, N.A., an affiliate of the Manager, the fund may lend securities to qualified institutions. It is the fund’s policy, that at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. It is the portfolio’s policy that collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Cash collateral is invested in certain money market mutual funds managed by the Manager.The fund is entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Although each security loaned is fully collateralized, the fund bears the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner.

(c) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.

(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, 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. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles.

(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.

The FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance

for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year.Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Management does not believe that the application of this standard will have a material impact on the financial statements of the fund.

At July 31, 2007, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $27,459, accumulated capital losses $271,230 and unrealized depreciation $184,829. In addition, the fund had $4,849 of capital losses realized after October 31, 2006, which were deferred for tax purposes to the first day of the following fiscal year.

The accumulated capital loss carryover is available to be applied against future net securities profits, if any, realized subsequent to July 31,2007. If not applied,$8,577 of the carryover expires in fiscal 2014 and $262,653 expires in fiscal 2015.

The tax character of distributions paid to shareholders during the fiscal periods ended July 31, 2007 and July 31, 2006, were as follows: ordinary income $235,369 and $423,164 and long term capital gains $0 and 48,318, respectively.

During the period ended July 31, 2007, as a result of permanent book to tax differences primarily due to the tax treatment for treasury inflation protected securities, the fund increased accumulated undistributed investment income-net by $98,370 and decreased accumulated net realized gain (loss) on investments by same amount. Net assets were not affected by this reclassification

The Fund 19

NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 2—Bank Line of Credit:

The fund participates with other Dreyfus-managed funds in a $350 million redemption credit facility (the “Facility”) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowings. During the period ended July 31, 2007, the fund did not borrow under the Facility.

NOTE 3—Management Fee and Other Transactions With Affiliates:

(a) Pursuant to a management agreement (“Agreement”) with the Manager, the management fee is computed at the annual rate of .30% of the value of the fund’s average daily net assets and is payable monthly. The Manager has undertaken from August 1, 2006 through July 31, 2008 that if the aggregated expenses of the fund, exclusive of taxes, brokerage fees, shareholder services plan fees and extraordinary expenses, exceed an annual rate of .30% of the value of the fund’s average daily net assets, the fund may deduct from the payment to be made to the Manager under the Agreement, or the Manager will bear, such excess expense. The expense reimbursement, pursuant to the undertaking, amounted to $82,524 during the period ended July 31, 2007.

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, 2007, Investor Shares were charged $6,448 pursuant to the Shareholder Services Plan.

The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended July 31, 2007, the fund was charged $643 pursuant to the transfer agency agreement.

The fund compensates Mellon Bank, N.A., an affiliate of the Manager, under a custody agreement for providing custodial services for the fund. During the period ended July 31, 2007, the fund was charged $2,599 pursuant to the custody agreement.

During the period ended July 31, 2007, the fund was charged $4,499 for services performed by the Chief Compliance Officer.

The components of “Due from The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $1,305, shareholder services plan fees $528, custodian fees $1,166, chief compliance officer fees $1,607 and transfer agency per account fees $59, which are offset against an expense reimbursement currently in effect in the amount of $5,775.

(c) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.

(d) Pursuant to an exemptive order from the SEC, the fund may invest its available cash balances in affiliated money market mutual funds. Management fees of the underlying money market mutual funds have been waived by the Manager.

The Fund 21

NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales (including paydowns) of investment securities, excluding short-term securities, financial futures and options during the period ended July 31, 2007, amounted to $977,856 and $2,520,737, respectively.

The fund may invest in financial futures contracts in order to gain exposure to or protect against changes in the market. The fund is exposed to market risk as a result of changes in the value of the underlying financial instruments. Investments in financial futures require the fund to “mark to market” on a daily basis, which reflects the change in the market value of the contracts at the close of each day’s trading. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses.When the contracts are closed, the fund recognizes a realized gain or loss.These investments require initial margin deposits with a broker, which consist of cash or cash equivalents. 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.

The fund may purchase and write (sell) call/put options in order to gain exposure to or protect against changes in the market.

As a writer of call options, the fund receives a premium at the outset and then bears the market risk of unfavorable changes in the price of the financial instruments underlying the options. Generally, the fund would incur a gain, to the extent of the premium, if the price of the underlying financial instrument decreases between the date the option is written and the date on which the option is terminated. Generally, the fund would realize a loss, if the price of the financial instrument increases between those dates.

As a writer of put options, the fund receives a premium at the outset and then bears the market risk of unfavorable changes in the price of the financial instruments underlying the options. Generally, the fund would incur a gain, to the extent of the premium, if the price of the underlying financial instrument increases between the date the option

is written and the date on which the option is terminated. Generally, the fund would realize a loss, if the price of the financial instrument decreases between those dates.

In addition, the following table summarizes the fund’s call/put options written during the period ended July 31, 2007:

	Face Amount		Options Terminated

	Covered by	Premiums		Net Realized
Options Written:	Contracts ($)	Received ($)	Costs ($)	Gain ($)

Contracts outstanding
July 31, 2006	—	—
Contracts written	500,000	530
Contracts Terminated:
Closed	500,000	530	172	358
Contracts outstanding
July 31, 2007	—	—

At July 31, 2007, the cost of investments for federal income tax purposes was $5,562,647; accordingly, accumulated net unrealized depreciation on investments was $184,829, consisting of $114,602 gross unrealized appreciation and $299,431 gross unrealized depreciation.

The Fund 23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors Dreyfus Inflation Adjusted Securities Fund

We have audited the accompanying statement of assets and liabilities, including the statements of investments and financial futures, of Dreyfus Inflation Adjusted Securities (one of the funds comprising Dreyfus Investment Grade Bond Funds), as of July 31, 2007, 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 periods 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 the standards of the Public Company Accounting Oversight Board (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.We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2007 by correspondence with the custodian and others. 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 Inflation Adjusted Securities Fund at July 31, 2007, 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 periods, in conformity with U.S. generally accepted accounting principles.

New York, New York September 14, 2007

IMPORTANT TAX INFORMATION (Unaudited)

For federal tax purposes the fund hereby designates 100% of ordinary income dividends paid during the fiscal year ended July 31, 2007 as qualifying “interest related dividends.” Also for state individual income tax purposes, the fund hereby designates 98.32% of the ordinary income dividends paid during its fiscal year ended July 31, 2007 as attributable to interest income from direct obligations of the United States. Such dividends are currently exempt from taxation for individual income tax purposes in most states, including New York, California and the District of Columbia.

The Fund 25

INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S MANAGEMENT AGREEMENT (Unaudited)

At a meeting of the fund’s Board of Directors held on July 19 and 20, 2007, the Board considered the re-approval for an annual period (through July 29,2008) of the Management Agreement with Dreyfus for the fund, pursuant to which Dreyfus provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of Dreyfus.

Analysis of Nature, Extent and Quality of Services Provided to the Fund. The Board members received a presentation from representatives of Dreyfus regarding services provided to the fund and other funds in the Dreyfus fund complex, and discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. Dreyfus’ representatives reviewed the fund’s distribution of accounts and the relationships Dreyfus has with various intermediaries and the different needs of each. Dreyfus’ representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and Dreyfus’ corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund. Dreyfus also provided the number of shareholder accounts in the fund, as well as the fund’s asset size.

The Board members also considered Dreyfus’ research and portfolio management capabilities and that Dreyfus also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board members also considered Dreyfus’ extensive administrative, accounting and compliance infrastructure.

Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the performance of the fund’s Investor Shares and comparisons to a group of retail no-load and front-end load Treasury inflation-protected securities funds (the

“Performance Group”) and to a larger universe of funds, consisting of all retail no-load and front-end load Treasury inflation-protected securities funds, excluding outliers (the “Performance Universe”), selected and provided by Lipper, Inc., an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below).The Board members discussed the results of the comparisons for various periods ended May 31, 2007. The Board members noted that the fund’s total return performance was above the Performance Group median for the one-and three-year periods, below the Performance Group median for the two-year and four-year periods, and above the Performance Universe median for each period except the four-year period; with respect to those periods where fund performance was below the median, the Board members noted the close proximity of the fund’s performance to the median. The Board members noted that the fund’s yield performance was above the Performance Group and Performance Universe medians for each period. Dreyfus also provided a comparison of the fund’s total returns to the returns of the fund’s benchmark index for each of the calendar years for the past four years.

The Board members also discussed the fund’s management fee and expense ratio and reviewed the range of management fees and expense ratios as compared to a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board members noted that the fund’s contractual management fee was lower than the Expense Group median, and that the actual management fee and total expense ratio were lower than the Expense Group and Expense Universe medians, which included the undertaking by Dreyfus to limit the fund’s expense ratio. The Board noted that the fund’s actual management fee and expense ratio were lower due to the undertaking by Dreyfus to waive fees and reimburse expenses.

The Fund 27

I N FO R M AT I O N A B O U T T H E R E V I E W A N D A P P R OVA L O F T H E F U N D ’S M A N A G E M E N T A G R E E M E N T ( U n a u d i t e d ) ( c o n t i n u e d )

Representatives of Dreyfus stated that there were no other mutual funds managed by Dreyfus or its affiliates with similar investment objectives, policies and strategies, and no other accounts managed by Dreyfus or its affiliates, with similar investment objectives, policies and strategies as the fund.

Analysis of Profitability and Economies of Scale. Dreyfus’ representatives reviewed the dollar amount of expenses allocated and profit received by Dreyfus and the method used to determine such expenses and profit.The Board considered information, previously provided and discussed, prepared by an independent consulting firm regarding Dreyfus’ approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also considered that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund investors.The Board members also considered potential benefits to Dreyfus from acting as investment adviser and noted that there were no soft dollar arrangements with respect to trading the fund’s investments.

It was noted that the Board members should consider Dreyfus’ profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by Dreyfus, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that Dreyfus may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within ranges determined by appropriate court cases to be reasonable given the ser-

vices rendered and generally superior service levels provided. The Board also noted the fee waiver and expense reimbursement arrangement and its effect on Dreyfus’ profitability.

At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the Management Agreement, with respect to the fund. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.

The Board concluded that the nature, extent and quality of the ser- vices provided by Dreyfus are adequate and appropriate.
The Board generally was satisfied with the fund’s performance.
The Board concluded that the fee paid by the fund to Dreyfus was reasonable in light of the services provided, comparative performance, expense and management fee information, including Dreyfus’ under- taking to limit the fund’s expense ratio (which reduced the fund’s actual management fee and expense ratio), costs of the services pro- vided and profits to be realized and benefits derived or to be derived by Dreyfus from its relationship with the fund.
The Board determined that the economies of scale which may accrue to Dreyfus and its affiliates in connection with the management of the fund had been adequately considered by Dreyfus in connection with the management fee rate charged to the fund and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.

The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the Management Agreement,with respect to the fund, was in the best interests of the fund and its shareholders.

The Fund 29

BOARD MEMBERS INFORMATION (Unaudited)

Joseph S. DiMartino (63)
Chairman of the Board (1995)

Principal Occupation During Past 5 Years:
• Corporate Director and Trustee

Other Board Memberships and Affiliations:

The Muscular Dystrophy Association, Director
Century Business Services, Inc., a provider of outsourcing functions for small and medium size companies, Director
The Newark Group, a provider of a national market of paper recovery facilities, paperboard mills and paperboard converting plants, Director
Sunair Services Corporation, a provider of certain outdoor-related services to homes and businesses, Director
Ivory Investment Management, L.P., a registered investment adviser to three private funds, Senior Adviser

No. of Portfolios for which Board Member Serves: 164

———————

Clifford L. Alexander, Jr. (73)
Board Member (2003)

Principal Occupation During Past 5 Years:

President of Alexander & Associates, Inc., a management consulting firm ( January 1981-present)
Chairman of the Board of Moody’s Corporation (October 2000-October 2003)

Other Board Memberships and Affiliations:

• Mutual of America Life Insurance Company, Director

No. of Portfolios for which Board Member Serves: 53

———————

David W. Burke (71)
Board Member (1994)

Principal Occupation During Past 5 Years:
• Corporate Director and Trustee

Other Board Memberships and Affiliations:
• John F. Kennedy Library Foundation, Director

No. of Portfolios for which Board Member Serves: 88

Whitney I. Gerard (72)
Board Member (1993)

Principal Occupation During Past 5 Years:
• Partner of Chadbourne & Parke LLP

No. of Portfolios for which Board Member Serves: 26

———————

George L. Perry (72)
Board Member (1992)

Principal Occupation During Past 5 Years:

• Economist and Senior Fellow at Brookings Institution

No. of Portfolios for which Board Member Serves: 26

———————

Once elected all Board Members serve for an indefinite term, but achieve Emeritus status upon reaching age 80.The address of the Board Members and Officers is in c/o The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Additional information about the Board Members is available in the fund’s Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611.

Lucy Wilson Benson, Emeritus Board Member
Arthur A. Hartman, Emeritus Board Member

The Fund 31

OFFICERS OF THE FUND (Unaudited)

J. DAVID OFFICER, President since December 2006.

Chief Operating Officer,Vice Chairman and a Director of the Manager, and an officer of 82 investment companies (comprised of 164 portfolios) managed by the Manager. He is 58 years old and has been an employee of the Manager since April 1998.

PHILLIP N. MAISANO, Executive Vice President since July 2007.

Chief Investment Officer,Vice Chair and a director of the Manager, and an officer of 82 investment companies (compromised of 164 portfolios) managed by the Manager. Mr. Maisano also is an officer and/or board member of certain other investment management subsidiaries of The Bank of New York Mellon Corperation, each of which is an affiliate of the Manager. He is 60 years old and has been employee of the Manager since November 2006. Prior to joining the Manager, Mr. Maisano served as Chairman and Chief Executive Officer of EACM Advisors, an affiliate of the Manager, since August 2004, and served as Chief Executive Officer of Evaluation Associates, a leading institutional investment consulting firm, from 1988 until 2004.

MICHAEL A. ROSENBERG, Vice President and Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 47 years old and has been an employee of the Manager since October 1991.

JAMES BITETTO, Vice President and Assistant Secretary since August 2005.

Associate General Counsel and Assistant Secretary of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 41 years old and has been an employee of the Manager since December 1996.

JONI LACKS CHARATAN, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. She is 51 years old and has been an employee of the Manager since October 1988.

JOSEPH M. CHIOFFI, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 45 years old and has been an employee of the Manager since June 2000.

JANETTE E. FARRAGHER, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. She is 44 years old and has been an employee of the Manager since February 1984.

JOHN B. HAMMALIAN, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 44 years old and has been an employee of the Manager since February 1991.

ROBERT R. MULLERY, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 55 years old and has been an employee of the Manager since May 1986.

JEFF PRUSNOFSKY, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 42 years old and has been an employee of the Manager since October 1990.

JAMES WINDELS, Treasurer since November 2001.

Director – Mutual Fund Accounting of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 48 years old and has been an employee of the Manager since April 1985.

ROBERT ROBOL, Assistant Treasurer since August 2005.

Senior Accounting Manager – Money Market and Municipal Bond Funds of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since October 1988.

ROBERT SALVIOLO, Assistant Treasurer since May 2007.

Senior Accounting Manager – Equity Funds of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 40 years old and has been an employee of the Manager since June 1989.

ROBERT SVAGNA, Assistant Treasurer since August 2005.

Senior Accounting Manager Equity Funds of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 40 years old and has been an employee of the Manager since November 1990.

GAVIN C. REILLY, Assistant Treasurer since December 2005.

Tax Manager of the Investment Accounting and Support Department of the Manager, and an officer of 83 investment companies (comprised of 181 portfolios) managed by the Manager. He is 38 years old and has been an employee of the Manager since April 1991.

JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.

Chief Compliance Officer of the Manager and The Dreyfus Family of Funds (83 investment companies, comprised of 181 portfolios). From November 2001 through March 2004, Mr. Connolly was first Vice-President, Mutual Fund Servicing for Mellon Global Securities Services. In that capacity, Mr. Connolly was responsible for managing Mellon’s Custody, Fund Accounting and Fund Administration services to third-party mutual fund clients. He is 50 years old and has served in various capacities with the Manager since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.

WILLIAM GERMENIS, Anti-Money Laundering Compliance Officer since October 2002.

Vice President and Anti-Money Laundering Compliance Officer of the Distributor, and the Anti-Money Laundering Compliance Officer of 79 investment companies (comprised of 177 portfolios) managed by the Manager. He is 36 years old and has been an employee of the Distributor since October 1998.

The Fund 33

For More Information

Ticker Symbols: Institutional: DIASX Investor: DIAVX

Telephone 1-800-645-6561

Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-

E-mail Send your request to info@dreyfus.com

Internet Information can be viewed online or downloaded at: http://www.dreyfus.com

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-202-551-8090.

A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the fund voted these proxies for the 12-month period ended June 30, 2007, is available at http://www.dreyfus.com and on the SEC’s website at http://www.sec.gov. The description of the policies and procedures is also available without charge, upon request, by calling 1-800-645-6561.

Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value

		Contents


		THE FUND

2		A Letter from the CEO
3		Discussion of Fund Performance
6		Fund Performance
7		Understanding Your Fund’s Expenses
7		Comparing Your Fund’s Expenses
		With Those of Other Funds
8		Statement of Investments
28		Statement of Financial Futures
28		Statement of Options Written
29		Statement of Assets and Liabilities
30		Statement of Operations
31		Statement of Changes in Net Assets
33		Financial Highlights
35		Notes to Financial Statements
49		Report of Independent Registered
		Public Accounting Firm
50		Important Tax Information
51		Information About the Review and Approval
		of the Fund’s Management Agreement
56		Board Members Information
58		Officers of the Fund

		FOR MORE INFORMATION

		Back Cover

Dreyfus Intermediate

Term Income Fund

The

Fund

A LETTER FROM THE CEO

Dear Shareholder:

We are pleased to present this annual report for Dreyfus Intermediate Term Income Fund, covering the 12-month period from August 1, 2006, through July 31, 2007.

For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s Portfolio Manager.

Thank you for your continued confidence and support.

Thomas F. Eggers
Chief Executive Officer
The Dreyfus Corporation
August 15, 2007

DISCUSSION OF FUND PERFORMANCE

For the period of August 1, 2006, through July 31, 2007, as provided by Kent Wosepka, Portfolio Manager

Fund and Market Performance Overview

The U.S. bond market generally rallied in an environment of slowing economic growth over much of the reporting period, but encountered heightened volatility in June and July 2007, when credit concerns in the sub-prime mortgage sector spread to other relatively credit-sensitive areas of the fixed-income market. The fund produced higher returns than its benchmark, primarily on the strength of our yield curve strategy and favorable security selections among high yield and investment-grade corporate bonds.

For the 12-month period ended July 31, 2007, Dreyfus Intermediate Term Income Fund’s Institutional shares achieved a total return of 6.02%, and the fund’s Investor shares achieved a total return of 5.74% ..¹In comparison, the fund’s benchmark, the Lehman Brothers U.S. Aggregate Index (the “Index”), achieved a total return of 5.58% for the same period.²

The Fund’s Investment Approach

The fund seeks to maximize total return, consisting of capital appreciation and current income. To pursue this goal, the fund normally invests at least 80% of its assets in fixed-income securities of U.S. and foreign issuers rated at least investment grade or the unrated equivalent as determined by Dreyfus. These securities include U.S. government bonds and notes, corporate bonds, municipal bonds, convertible securities, preferred stocks, inflation-indexed securities, asset-backed securities, mortgage-related securities and foreign bonds. Typically, the fund can expect to have an average effective maturity ranging from 5 to 10 years, and an average effective duration ranging between three and eight years. For additional yield, the fund may invest up to 20% of its assets in fixed-income securities rated below investment grade.

The Fund 3

DISCUSSION OF FUND PERFORMANCE (continued)

Bouts of Market Volatility Offset Earlier Gains

Moderating economic growth and generally benign inflation helped support bond prices over much of the reporting period. Bonds rallied over the final five months of 2006 as the U.S. economic expansion moderated and energy prices retreated, helping to alleviate inflation concerns. Despite bouts of volatility in February and March 2007 stemming from turmoil in the sub-prime mortgage market, investor sentiment remained favorable early in the year as the Federal Reserve Board (the “Fed”) left short-term interest rates unchanged in its attempt to keep the U.S. economy growing without stimulating a reacceleration of inflation.

However, the market suffered sharp declines between June and July. Credit concerns spread from the sub-prime mortgage sector and a surge of newly issued high yield bonds with questionable credit characteristics caused investor sentiment to deteriorate, erasing most of the market’s previous gains.

Corporate Bonds Helped Support the Fund’s Returns

Although prices of high yield corporate bonds were hurt by these recent developments, their relatively high coupon rates enabled them to outperform Treasuries for the reporting period overall. In addition, the fund avoided the full impact of price declines in the high yield sector by focusing primarily on credits with shorter-term maturities, which tend to be less sensitive to changes in perceived credit quality.We found such opportunities from issuers that we believed exhibited improving credit characteristics, including the financing arms of major automobile manufacturers.

The fund also benefited from its investment in investment-grade corporate bonds, where we attempted to avoid issuers that we regarded as susceptible to leveraged buyouts. Instead, we emphasized BBB-rated, shorter-maturity bonds from regulated industries, such as utilities and real estate investment trusts.

The fund’s holdings of bonds issued in emerging market countries also produced attractive returns, including both securities denominated in U.S. dollars and local currencies. Bonds from Brazil proved to be particularly rewarding due to their high yields and currency appreciation relative to the U.S. dollar. However, bonds from developed markets

such as Japan and Sweden did not perform as strongly as we expected due to rising interest rates in those markets, and we eliminated them from the fund’s portfolio.

Our yield-curve strategy, which emphasized intermediate-term bonds and de-emphasized bonds at the longer end of the maturity range, also helped support relative performance when yield differences steepened along the market’s maturity range.

Finally, mortgage-backed securities produced mixed results. An underweighted position in mortgages constrained returns in the low volatility environment early in the reporting period, but helped during more volatile market conditions in June and July.

The Fund Is Positioned for Stable Interest Rates

Recent economic and market data suggest to us that the Fed is likely to cut policy rates by the end of the year.We have maintained a slightly longer-than-average duration in an attempt to capture incrementally higher yields. In addition, we have trimmed our positions in investment-grade credits while intensifying our focus on bonds with strong covenants that discourage leveraged buyouts.We also have reduced the fund’s exposure to bonds in certain emerging markets, taking profits in securities that have gained substantial value. We recently have found more attractive values among mortgage-backed securities, increasing the fund’s holdings in the sector to a position that is only slightly underweight the benchmark.

August 15, 2007

¹Total 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. Return figure provided for the fund’s Investor shares reflects the absorption of certain fund expenses by The Dreyfus Corporation pursuant to an undertaking in effect that may be extended, terminated or modified at any time. Had these expenses not been absorbed, the fund’s returns would have been lower.

²SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital gain distributions.The Lehman Brothers U.S.Aggregate Index is a widely accepted, unmanaged total return index of corporate, U.S. government and U.S. government agency debt instruments, mortgage-backed securities and asset-backed securities with an average maturity of 1-10 years.

The Fund 5

FUND PERFORMANCE

Average Annual Total Returns		as of 7/31/07
	Inception				From
	Date	1 Year	5 Years	10 Years	Inception

Investor shares		5.74%	5.23%	6.35%
Institutional shares	5/31/01	6.02%	5.52%	—	4.95%

^†Source: Lipper Inc.

Past performance is not predictive of future performance.The fund’s performance shown in the graph and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The above graph compares a $10,000 investment made in Investor shares of Dreyfus Intermediate Term Income Fund on 7/31/97 to a $10,000 investment made in the Lehman Brothers U.S.Aggregate Index (the “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 an average effective maturity ranging between five and ten years and an average effective duration ranging between three and eight years.The fund’s performance shown in the line graph takes into account all applicable fees and expenses.The Index is a widely accepted, unmanaged total return index of corporate, U.S. government and U.S. government agency debt instruments, mortgage-backed securities and asset-backed securities with an average maturity of 1-10 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.

U N D E R S TA N D I N G YO U R F U N D ’ S E X P E N S E S ( U n a u d i t e d )

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus Intermediate Term Income Fund from February 1, 2007 to July 31, 2007. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended July 31, 2007
	Investor Shares	Institutional Shares

Expenses paid per $1,000 ^†	$ 4.00	$ 2.75
Ending value (after expenses)	$1,018.50	$1,019.00

COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)

Using the SEC’s method to compare expenses

Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended July 31, 2007

	Investor Shares	Institutional Shares

Expenses paid per $1,000 ^†	$ 4.01	$ 2.76
Ending value (after expenses)	$1,020.83	$1,022.07

^†Expenses are equal to the fund’s annualized expense ratio of .80% for Investor shares and .55% for Institutional

shares, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half

year period).

The Fund 7

STATEMENT OF INVESTMENTS
July 31, 2007

	Coupon	Maturity	Principal
Bonds and Notes—132.2%	Rate (%)	Date	Amount ($)	Value ($)

Aerospace & Defense—.1%
L-3 Communications,
Gtd. Bonds	3.00	8/1/35	440,000	493,900
Agricultural—.3%
Philip Morris,
Debs.	7.75	1/15/27	1,495,000 ^a	1,771,956
Asset-Backed Ctfs./
Auto Receivables—2.1%
Americredit Prime Automobile
Receivables, Ser. 2007-1, Cl. E	6.96	3/8/16	1,140,000 ^b	1,128,725
Capital Auto Receivables Asset
Trust, Ser. 2005-1, Cl. D	6.50	5/15/12	900,000 ^b	892,125
Capital Auto Receivables Asset
Trust, Ser. 2007-1, Cl. D	6.57	9/16/13	500,000 ^b	450,000
Capital Auto Receivables Asset
Trust, Ser. 2006-1, Cl. D	7.16	1/15/13	1,050,000 ^b	1,068,042
Ford Credit Auto Owner Trust,
Ser. 2004-A, Cl. C	4.19	7/15/09	1,000,000	996,286
Ford Credit Auto Owner Trust,
Ser. 2005-B, Cl. B	4.64	4/15/10	1,405,000	1,396,545
Ford Credit Auto Owner Trust,
Ser 2005-C, Cl. C	4.72	2/15/11	720,000	716,286
Ford Credit Auto Owner Trust,
Ser. 2007-A, Cl. D	7.05	12/15/13	1,575,000 ^b	1,576,969
Ford Credit Auto Owner Trust,
Ser. 2006-B, Cl. D	7.12	2/15/13	700,000 ^b	718,968
Hyundai Auto Receivables Trust,
Ser. 2006-A, Cl. A2	5.13	2/16/09	65,696	65,680
Hyundai Auto Receivables Trust,
Ser. 2006-B, Cl. C	5.25	5/15/13	495,000	494,893
WFS Financial Owner Trust,
Ser. 2004-4, Cl. B	3.13	5/17/12	96,897	95,394
WFS Financial Owner Trust,
Ser. 2004-3, Cl. B	3.51	2/17/12	92,885	91,737
WFS Financial Owner Trust,
Ser. 2005-2, Cl. B	4.57	11/19/12	2,065,000	2,049,120
				11,740,770

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Asset-Backed Ctfs./Credit Cards—3.2%
American Express Credit Account
Master Trust, Ser. 2007-6, Cl. C	5.60	1/15/13	2,210,000 ^b,c	2,210,000
Citibank Credit Card Issuance
Trust, Ser. 2006-C4, Cl. C4	5.54	1/9/12	10,235,000 ^c	10,234,862
MBNA Credit Card Master Note
Trust, Ser. 2002-C1, Cl. C1	6.80	7/15/14	5,268,000	5,542,451
				17,987,313
Asset-Backed Ctfs./
Home Equity Loans—2.9%
Bayview Financial Acquisition
Trust, Ser. 2005-B, Cl. 1A6	5.21	4/28/39	1,795,000 ^c	1,736,601
Centex Home Equity,
Ser. 2006-A, Cl. AV1	5.37	6/25/36	232,360 ^c	232,353
Citicorp Residential Mortgage
Securities, Ser. 2006-2, Cl. A1A	5.87	9/25/36	466,420 ^c	465,353
Citicorp Residential Mortgage
Securities, Ser. 2006-1, Cl. A1	5.96	7/25/36	1,015,062 ^c	1,013,166
Citigroup Mortgage Loan Trust,
Ser. 2005-WF1, Cl. A5	5.01	2/25/35	1,700,000	1,657,959
Conseco Finance Home Loan Trust,
Ser. 2000-E, Cl. A5	9.02	8/15/31	107,888 ^c	108,257
Countrywide Asset-Backed
Certificates, Ser. 2006-1, Cl. AF1	5.45	7/25/36	391,440 ^c	391,444
Credit Suisse Mortgage Capital
Certificates, Ser. 2007-1, Cl. 1A6A	5.86	2/25/37	1,520,000	1,516,726
Home Equity Mortgage Trust,
Ser. 2006-5, Cl. A1	5.50	1/25/37	885,944 ^c	868,968
Home Equity Mortgage Trust,
Ser. 2006-4, Cl. A1	5.67	11/25/36	796,781 ^c	788,904
Morgan Stanley ABS Capital I,
Ser. 2006-HE3, Cl. A2A	5.36	4/25/36	748,727 ^c	748,436
Morgan Stanley Mortgage Loan
Trust, Ser. 2006-15XS, Cl. A6B	5.83	11/25/36	740,000 ^c	735,439
Popular ABS Mortgage Pass-Through
Trust, Ser. 2005-6, Cl. M1	5.91	1/25/36	1,525,000 ^c	1,464,445

The Fund 9

STATEMENT OF INVESTMENTS (continued)

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Asset-Backed Ctfs./
Home Equity Loans (continued)
Residential Asset Mortgage
Products, Ser. 2005-RS2, Cl. M2	5.80	2/25/35	1,585,000 ^c	1,579,605
Residential Asset Mortgage
Products, Ser. 2005-RS2, Cl. M3	5.87	2/25/35	490,000 ^c	486,548
Residential Asset Securities,
Ser. 2003-KS7, Cl. MI3	5.75	9/25/33	752,256	642,901
Residential Asset Securities,
Ser. 2005-AHL2, Cl. M3	5.79	10/25/35	450,000 ^c	428,592
Residential Funding Mortgage
Securities II, Ser. 2006-HSA2,
Cl. AI1	5.43	3/25/36	249,358 ^c	249,286
Soundview Home Equity Loan Trust,
Ser. 2005-B, Cl. M2	5.73	5/25/35	1,120,000 ^c	1,115,510
				16,230,493
Asset-Backed Ctfs./
Manufactured Housing—.6%
Green Tree Financial,
Ser. 1994-7, Cl. M1	9.25	3/15/20	1,327,617	1,372,011
Origen Manufactured Housing,
Ser. 2005-B, Cl. A2	5.25	12/15/18	1,375,000	1,368,894
Origen Manufactured Housing,
Ser. 2005-B, Cl. M2	6.48	1/15/37	745,000	734,586
				3,475,491
Automobile Manufacturers—1.3%
Daimler Chrysler N.A. Holding,
Gtd. Notes	5.71	3/13/09	2,580,000 ^c	2,580,977
DaimlerChrysler N.A. Holding,
Notes	4.88	6/15/10	800,000	784,213
DaimlerChrysler N.A. Holding,
Gtd. Notes	5.79	3/13/09	1,375,000 ^c	1,378,387
DaimlerChrysler N.A. Holding,
Gtd. Notes, Ser. E	5.89	10/31/08	2,725,000 ^c	2,738,783
				7,482,360
Automotive, Trucks & Parts—.1%
Goodyear Tire & Rubber,
Sr. Notes	9.13	12/1/09	295,000 ^b,c	295,000

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Banks—6.5%
Capital One Financial,
Sr. Unsub. Notes	5.64	9/10/09	5,275,000 ^c	5,280,354
Chevy Chase Bank,
Sub. Notes	6.88	12/1/13	1,220,000	1,220,000
Chuo Mitsui Trust & Banking,
Sub. Notes	5.51	12/29/49	2,185,000 ^b,c	2,048,878
Colonial Bank,
Sub. Notes	6.38	12/1/15	1,105,000	1,125,311
Colonial Bank,
Sub. Notes	8.00	3/15/09	385,000	399,554
Glitnir Banki,
Unscd. Bonds	7.45	9/14/49	1,470,000 ^b,c	1,519,194
ICICI Bank,
Bonds	5.90	1/12/10	710,000 ^b,c	713,348
Industrial Bank of Korea,
Sub. Notes	4.00	5/19/14	2,630,000 ^b,c	2,558,574
Islandsbanki,
Notes	5.52	10/15/08	975,000 ^b,c	974,429
Landsbanki Islands,
Sr. Notes	6.06	8/25/09	2,450,000 ^b,c	2,476,051
Marshall and Ilsley Bank,
Sub. Notes, Ser. BN	5.63	12/4/12	2,430,000 ^c	2,433,251
Northern Rock,
Sub. Notes	6.59	6/28/49	700,000 ^b,c	684,803
Popular North America,
Notes	5.71	12/12/07	1,315,000 ^c	1,316,763
Sovereign Bancorp,
Sr. Unscd. Notes	5.59	3/23/10	2,105,000 ^c	2,105,354
Sovereign Bancorp,
Sr. Notes	5.64	3/1/09	2,145,000 ^c	2,151,128
SunTrust Preferred Capital I,
Bank Gtd. Notes	5.85	12/31/49	345,000 ^c	339,473
USB Capital IX,
Gtd. Notes	6.19	4/15/49	4,890,000 ^a,c	4,836,533
Western Financial Bank,
Sub. Debs.	9.63	5/15/12	1,695,000	1,815,815

The Fund 11

STATEMENT OF INVESTMENTS (continued)

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Banks (continued)
Zions Bancorporation,
Sr. Unscd. Notes	5.48	4/15/08	2,350,000 ^c	2,351,934
				36,350,747
Building & Construction—.9%
American Standard,
Gtd. Notes	7.38	2/1/08	1,530,000	1,540,428
Centex,
Notes	4.75	1/15/08	725,000	720,257
D.R. Horton,
Gtd. Notes	5.88	7/1/13	1,365,000	1,252,573
Masco,
Sr. Unscd. Notes	5.66	3/12/10	1,390,000 ^c	1,377,351
				4,890,609
Chemicals—.4%
Equistar Chemicals/Funding,
Gtd. Notes	10.13	9/1/08	309,000	321,360
Lubrizol,
Debs.	6.50	10/1/34	690,000 ^a	655,849
RPM International,
Sr. Notes	4.45	10/15/09	1,140,000	1,120,259
				2,097,468
Commercial & Professional Services—.3%
ERAC USA Finance,
Notes	5.61	4/30/09	700,000 ^b,c	702,255
ERAC USA Finance,
Notes	7.95	12/15/09	760,000 ^b	798,958
				1,501,213
Commercial Mortgage
Pass-Through Ctfs.—5.0%
Bayview Commercial Asset Trust,
Ser. 2006-SP2, Cl. A	5.60	1/25/37	1,762,605 ^b,c	1,762,605
Bayview Commercial Asset Trust,
Ser. 2004-1, Cl. A	5.68	4/25/34	684,967 ^b,c	685,395
Bayview Commercial Asset Trust,
Ser. 2005-3A, Cl. A2	5.72	11/25/35	1,606,170 ^b,c	1,610,688
Bayview Commercial Asset Trust,
Ser. 2003-2, Cl. A	5.90	12/25/33	533,782 ^b,c	533,962

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)		Value ($)

Commercial Mortgage
Pass-Through Ctfs. (continued)
Bayview Commercial Asset Trust,
Ser. 2005-4A, Cl. M5	5.97	1/25/36	437,969	^b,c	438,243
Bayview Commercial Asset Trust,
Ser. 2004-1, Cl. M2	6.52	4/25/34	206,577	^b,c	209,611
Bayview Commercial Asset Trust,
Ser. 2006-2A, Cl. B3	8.02	7/25/36	237,983	^b,c	218,005
Bayview Commercial Asset Trust,
Ser. 2005-3A, Cl. B3	8.32	11/25/35	398,553	^b,c	404,793
Bear Stearns Commercial Mortgage
Securities, Ser. 2004-PWR5, Cl. A2	4.25	7/11/42	1,125,000		1,096,994
Bear Stearns Commercial Mortgage
Securities, Ser. 2005-T18, Cl. A2	4.56	2/13/42	1,365,000		1,338,628
Credit Suisse/Morgan Stanley
Commercial Mortgage Certificates,
Ser. 2006-HC1A, Cl. A1	5.51	5/15/23	2,285,000	^b,c	2,284,952
Crown Castle Towers,
Ser. 2005-1A, Cl. D	5.61	6/15/35	1,290,000	^b	1,258,827
Crown Castle Towers,
Ser. 2006-1A, Cl. D	5.77	11/15/36	745,000	^b	712,116
Global Signal Trust,
Ser. 2006-1, Cl. D	6.05	2/15/36	1,650,000	^b	1,603,891
Global Signal Trust,
Ser. 2006-1, Cl. E	6.50	2/15/36	400,000	^b	390,094
GMAC Commercial Mortgage
Securities, Ser. 2003-C3, Cl. A2	4.22	4/10/40	1,075,000		1,052,498
Goldman Sachs Mortgage Securities
Corporation II, Ser. 2007-EOP, Cl. F	5.80	3/6/20	1,250,000	^b,c	1,242,188
Goldman Sachs Mortgage Securities
Corporation II, Ser. 2007-EOP, Cl. G	5.84	3/6/20	1,415,000	^b,c	1,406,156
Goldman Sachs Mortgage Securities
Corporation II, Ser. 2007-EOP, Cl. K	6.37	3/6/20	915,000	^b,c	905,850
Goldman Sachs Mortgage
Securities Corporation II,
Ser. 2007-EOP, Cl. L	6.62	3/6/20	3,060,000	^b,c	3,029,400
Morgan Stanley Capital I,
Ser. 1998-HF1, Cl. E	7.24	3/15/30	300,000	^c	301,571

The Fund 13

STATEMENT OF INVESTMENTS (continued)

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Commercial Mortgage
Pass-Through Ctfs. (continued)
Nationslink Funding Corporation,
Ser. 1998-2, Cl. A2	6.48	8/20/30	994,019	997,029
SBA CMBS Trust,
Ser. 2006-1A, Cl. D	5.85	11/15/36	695,000 ^b	674,977
Washington Mutual Asset
Securities, Ser. 2003-C1A, Cl. A	3.83	1/25/35	3,658,153 ^b	3,547,327
				27,705,800
Diversified Financial Services—8.8%
Ameriprise Financial,
Jr. Sub. Notes	7.52	6/1/66	1,215,000 ^c	1,231,913
Amvescap,
Gtd. Notes	5.63	4/17/12	2,780,000	2,754,707
Capmark Financial Group,
Gtd. Notes	5.88	5/10/12	3,245,000 ^b	3,037,388
CIT Group,
Sr. Notes	5.51	8/15/08	2,035,000 ^c	2,033,555
Countrywide Home Loans,
Notes	4.13	9/15/09	1,445,000	1,392,299
FCE Bank,
Notes EUR	5.16	9/30/09	1,655,000 ^c,d	2,188,588
Ford Motor Credit,
Notes	5.63	10/1/08	2,985,000	2,920,270
Ford Motor Credit,
Unscd. Notes	6.19	9/28/07	2,470,000 ^c	2,456,259
Fuji JGB Investment,
Sub. Bonds	9.87	12/29/49	1,175,000 ^b,c	1,219,375
Glencore Funding,
Gtd. Notes	6.00	4/15/14	1,280,000 ^b	1,266,807
GMAC,
Unsub. Notes	6.61	5/15/09	1,465,000 ^c	1,409,588
Goldman Sachs Capital II,
Gtd. Bonds	5.79	12/29/49	965,000 ^c	913,074
HSBC Finance,
Sr. Notes	5.71	9/14/12	3,060,000 ^a,c	3,013,133
Janus Capital Group,
Notes	6.25	6/15/12	1,955,000	1,980,624

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Diversified Financial Services (continued)
Jefferies Group,
Sr. Unscd. Notes	7.75	3/15/12	805,000	862,628
John Deere Capital,
Notes	5.40	9/1/09	770,000 ^c	770,832
Kaupthing Bank,
Sr. Notes	6.06	1/15/10	2,295,000 ^b,c	2,319,924
Lehman Brothers Capital Trust VII,
Notes	5.86	11/29/49	675,000 ^a,c	641,304
Leucadia National,
Sr. Unscd. Notes	7.00	8/15/13	1,100,000	1,039,500
MBNA Capital,
Gtd. Cap. Secs., Ser. A	8.28	12/1/26	905,000	942,558
Merrill Lynch,
Notes, Ser. C	5.58	2/5/10	755,000 ^c	753,658
Residential Capital,
Gtd. Notes	6.66	11/21/08	1,700,000 ^c	1,634,831
Residential Capital,
Gtd. Notes	6.88	6/30/15	675,000	598,516
Residential Capital,
Gtd. Notes	7.69	4/17/09	2,390,000 ^a,b,c	2,309,816
SB Treasury,
Jr. Sub. Bonds	9.40	12/29/49	2,390,000 ^b,c	2,469,597
SLM,
Unscd. Notes, Ser. A	4.50	7/26/10	1,425,000 ^a	1,333,482
SLM,
Unscd. Notes, Ser. A	5.50	7/27/09	2,740,000 ^a,c	2,652,928
Tokai Preferred Capital,
Bonds	9.98	12/29/49	2,240,000 ^b,c	2,325,738
Windsor Financing,
Gtd. Notes	5.88	7/15/17	580,515 ^b	580,539
				49,053,431
Diversified Metals & Mining—.2%
Falconbridge,
Bonds	5.38	6/1/15	265,000	255,567
Noranda,
Notes	6.00	10/15/15	835,000	837,644
				1,093,211

The Fund 15

STATEMENT OF INVESTMENTS (continued)

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Electric Utilities—3.8%
AES,
Sr. Notes	9.38	9/15/10	395,000	406,850
American Electric Power,
Sr. Unsub. Notes	4.71	8/16/07	1,020,000 ^c	1,019,712
Cinergy,
Debs.	6.53	12/16/08	1,015,000	1,028,685
Dominion Resources,
Sr. Unscd. Notes, Ser. B	5.54	11/14/08	1,335,000 ^c	1,336,976
Dominion Resources,
Sr. Notes, Ser. D	5.66	9/28/07	2,765,000 ^c	2,765,470
FirstEnergy,
Unsub. Notes, Ser. B	6.45	11/15/11	2,580,000	2,664,495
National Grid,
Sr. Unscd. Notes	6.30	8/1/16	1,010,000	1,037,953
Niagara Mohawk Power,
Sr. Unscd. Notes, Ser. G	7.75	10/1/08	845,000	867,081
NiSource Finance,
Gtd. Notes	5.93	11/23/09	1,675,000 ^c	1,676,301
Ohio Power,
Unscd. Notes	5.54	4/5/10	1,400,000 ^c	1,402,173
TXU Electric Delivery,
Bonds	5.74	9/16/08	4,440,000 ^b,c	4,443,215
TXU,
Sr. Notes, Ser. O	4.80	11/15/09	2,335,000	2,294,971
				20,943,882
Environmental Control—.6%
Allied Waste North America,
Scd. Notes, Ser. B	5.75	2/15/11	475,000	448,875
Allied Waste North America,
Scd. Notes	6.38	4/15/11	445,000	426,644
Oakmont Asset Trust,
Notes	4.51	12/22/08	1,265,000 ^b	1,250,303
Waste Management,
Sr. Unsub. Notes	6.50	11/15/08	950,000	961,226
				3,087,048
Food & Beverages—.8%
H.J. Heinz,
Notes	6.43	12/1/20	1,625,000 ^b	1,644,515
Safeway,
Sr. Unscd. Notes	4.13	11/1/08	930,000	917,037

		Coupon	Maturity	Principal
Bonds and Notes (continued)		Rate (%)	Date	Amount ($)	Value ($)

Food & Beverages (continued)
Stater Brothers Holdings,
Sr. Notes		7.75	4/15/15	190,000 ^a,b	177,650
Stater Brothers Holdings,
Sr. Notes		8.13	6/15/12	1,100,000	1,067,000
Tyson Foods,
Sr. Unscd. Notes		6.85	4/1/16	800,000 ^c	815,674
					4,621,876
Foreign/Governmental—4.1%
Arab Republic of Egypt
Unsub. Notes	EGP	8.75	7/18/12	9,740,000 ^b,d	1,736,884
Banco Nacional de
Desenvolvimento
Economico e Social,
Unsub. Notes		5.84	6/16/08	2,080,000 ^c	2,071,680
Federal Republic of Brazil,
Unscd. Bonds	BRL	12.50	1/5/16	7,340,000 ^a,d	4,598,225
Mexican Bonos,
Bonds, Ser. M	MXN	9.00	12/22/11	25,645,000 ^d	2,457,807
Mexican Bonos,
Bonds, Ser. M 30	MXN	10.00	11/20/36	11,615,000 ^d	1,339,797
Republic of Argentina,
Bonds		5.48	8/3/12	9,355,000 ^c	6,457,480
Russian Federation,
Unsub. Bonds		8.25	3/31/10	3,890,107 ^b	4,021,204
					22,683,077
Health Care—1.5%
Baxter International,
Sr. Unscd. Notes		5.20	2/16/08	1,528,000	1,525,677
HCA,
Sr. Unscd. Notes		7.88	2/1/11	1,140,000	1,097,273
HCA,
Sr. Unscd. Notes		8.75	9/1/10	1,395,000	1,360,125
Medco Health Solutions,
Sr. Unscd. Notes		7.25	8/15/13	3,276,000	3,479,286
Tenet Healthcare,
Sr. Notes		6.38	12/1/11	1,205,000	1,030,275
					8,492,636
Lodging & Entertainment—.5%
Cinemark,
Sr. Discount Notes		9.75	3/15/14	200,000 ^e	181,000

The Fund 17

STATEMENT OF INVESTMENTS (continued)

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Lodging & Entertainment (continued)
MGM Mirage,
Gtd. Notes	8.50	9/15/10	1,575,000	1,598,625
Mohegan Tribal Gaming Authority,
Sr. Unscd. Notes	6.13	2/15/13	1,000,000	937,500
Speedway Motorsports,
Sr. Sub. Notes	6.75	6/1/13	155,000	148,800
				2,865,925
Machinery—.3%
Case New Holland,
Gtd. Notes	7.13	3/1/14	650,000	638,625
Terex,
Gtd. Notes	7.38	1/15/14	1,110,000	1,093,350
				1,731,975
Manufacturing—.1%
Tyco International Group,
Gtd. Notes	6.88	1/15/29	530,000	575,083
Media—1.5%
Clear Channel Communications,
Sr. Unscd. Notes	4.50	1/15/10	1,700,000	1,530,856
Comcast,
Gtd. Notes	5.66	7/14/09	4,385,000 ^c	4,378,720
Time Warner,
Gtd. Notes	5.59	11/13/09	2,725,000 ^c	2,727,894
				8,637,470
Oil & Gas—2.5%
Anadarko Petroleum,
Sr. Unscd. Notes	5.76	9/15/09	5,250,000 ^c	5,258,184
BJ Services,
Sr. Unscd. Notes	5.53	6/1/08	4,850,000 ^c	4,855,417
Enterprise Products Operating,
Gtd. Notes, Ser. B	4.00	10/15/07	4,000,000	3,986,612
				14,100,213
Packaging & Containers—.1%
Crown Americas/Capital,
Gtd. Notes	7.63	11/15/13	815,000	806,850

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Paper & Forest Products—.4%
Sappi Papier Holding,
Gtd. Notes	6.75	6/15/12	1,095,000 ^b	1,040,611
Temple-Inland,
Gtd. Notes	6.63	1/15/18	1,100,000	1,066,053
				2,106,664
Property & Casualty
Insurance—2.0%
Allmerica Financial,
Debs.	7.63	10/15/25	760,000	790,202
Chubb,
Sr. Unscd. Notes	5.47	8/16/08	2,375,000	2,374,213
Hartford Financial Services Group,
Sr. Unscd. Notes	5.55	8/16/08	875,000	876,485
Hartford Financial Services Group,
Sr. Notes	5.66	11/16/08	1,950,000	1,956,260
Leucadia National,
Sr. Notes	7.13	3/15/17	3,465,000 ^b	3,170,475
Nippon Life Insurance,
Notes	4.88	8/9/10	1,350,000 ^b	1,324,003
Phoenix Cos.,
Sr. Unscd. Notes	6.68	2/16/08	735,000	736,647
				11,228,285
Real Estate Investment Trusts—3.5%
Archstone-Smith Operating Trust,
Notes	3.00	6/15/08	1,000,000	976,577
Archstone-Smith Operating Trust,
Sr. Unscd. Notes	5.25	5/1/15	180,000 ^a	172,903
Archstone-Smith Operating Trust,
Sr. Unscd. Notes	5.63	8/15/14	340,000	336,321
Boston Properties,
Sr. Notes	5.63	4/15/15	810,000	803,541
Commercial Net Lease Realty,
Sr. Unscd. Notes	6.15	12/15/15	1,100,000	1,100,077
Duke Realty,
Notes	3.50	11/1/07	925,000	919,857

The Fund 19

STATEMENT OF INVESTMENTS (continued)

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Real Estate Investment
Trusts (continued)
Duke Realty,
Sr. Unscd. Notes	5.63	8/15/11	350,000	350,393
ERP Operating,
Notes	4.75	6/15/09	560,000	552,465
ERP Operating,
Notes	5.13	3/15/16	825,000	773,427
Federal Realty Investment Trust,
Sr. Unscd. Notes	5.40	12/1/13	650,000	636,039
Federal Realty Investment Trust,
Notes	6.00	7/15/12	570,000	579,646
Healthcare Realty Trust,
Sr. Unscd. Notes	5.13	4/1/14	2,820,000	2,670,300
HRPT Properties Trust,
Sr. Unscd. Notes	5.96	3/16/11	1,350,000 ^c	1,350,570
Istar Financial,
Sr. Unscd. Notes	5.71	3/9/10	2,935,000 ^c	2,940,741
Mack-Cali Realty,
Unscd. Notes	5.05	4/15/10	1,600,000	1,575,450
Mack-Cali Realty,
Notes	5.25	1/15/12	580,000	567,874
Regency Centers,
Gtd. Notes	5.25	8/1/15	1,450,000 ^a	1,392,825
Simon Property Group,
Notes	4.60	6/15/10	1,098,000	1,072,052
Simon Property Group,
Notes	4.88	8/15/10	850,000	836,176
				19,607,234
Residential Mortgage
Pass-Through Ctfs.—5.4%
American General Mortgage Loan
Trust, Ser. 2006-1, Cl. A1	5.75	12/25/35	665,745 ^b	664,287
Banc of America Mortgage
Securities, Ser. 2001-4, Cl. 2B3	6.75	4/20/31	155,673	155,205
Bayview Commercial Asset Trust,
Ser. 2006-1A, Cl. M6	5.96	4/25/36	387,970 ^b,c	381,241
Bayview Commercial Asset Trust,
Ser. 2006-1A, Cl. B3	8.27	4/25/36	400,902 ^b,c	400,902

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Residential Mortgage
Pass-Through Ctfs. (continued)
ChaseFlex Trust,
Ser. 2006-2, Cl. A1A	5.59	9/25/36	453,630	453,211
ChaseFlex Trust,
Ser. 2006-2, Cl. A5	5.99	9/25/36	1,200,000	1,205,361
Citigroup Mortgage Loan Trust,
Ser. 2005-WF2, Cl. AF2	4.92	8/25/35	159,264 ^c	158,494
Countrywide Home Loan Mortgage
Pass-Through Trust,
Ser. 2003-8, Cl. B3	5.00	5/25/18	233,977 ^b	210,141
Countrywide Home Loan Mortgage
Pass-Through Trust,
Ser. 2005-31, Cl. 2A1	5.51	1/25/36	959,175 ^c	955,285
First Horizon Alternative Mortgage
Securities, Ser. 2004-FA1, Cl. 1A1	6.25	10/25/34	5,703,995	5,743,903
Impac CMB Trust,
Ser. 2005-8, Cl. 2M2	6.07	2/25/36	1,313,578 ^c	1,290,401
Impac CMB Trust,
Ser. 2005-8, Cl. 2M3	6.82	2/25/36	1,056,374 ^c	968,853
Impac Secured Assets CMN Owner
Trust, Ser. 2006-1, Cl. 2A1	5.67	5/25/36	709,845 ^c	711,360
IndyMac Index Mortgage Loan Trust,
Ser. 2006-AR9, Cl. B1	6.06	6/25/36	399,574 ^c	397,205
IndyMac Index Mortgage Loan Trust,
Ser. 2006-AR25, Cl. 4A2	6.15	9/25/36	1,143,264 ^c	1,154,677
J.P. Morgan Alternative Loan
Trust, Ser. 2006-S4, Cl. A6	5.71	12/25/36	890,000 ^c	887,567
J.P. Morgan Mortgage Trust,
Ser. 2005-A1, Cl. 5A1	4.48	2/25/35	754,653 ^c	737,213
New Century Alternative Mortgage
Loan Trust, Ser. 2006-ALT2,
Cl. AF6A	5.89	10/25/36	695,000 ^c	691,017
Nomura Asset Acceptance,
Ser. 2005-AP2, Cl. A5	4.98	5/25/35	1,725,000 ^c	1,678,087
Nomura Asset Acceptance,
Ser. 2005-WF1, Cl. 2A5	5.16	3/25/35	1,195,000 ^c	1,165,017
Terwin Mortgage Trust,
Ser. 2006-9HGA, Cl. A1	5.40	10/25/37	743,409 ^c	743,276

The Fund 21

STATEMENT OF INVESTMENTS (continued)

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Residential Mortgage
Pass-Through Ctfs. (continued)
Washington Mutual,
Ser. 2005-AR4, Cl. A4B	4.67	4/25/35	3,325,000 ^c	3,276,186
Wells Fargo Mortgage Backed
Securities Trust,
Ser. 2005-AR1, Cl. 1A1	4.54	2/25/35	4,369,862 ^c	4,306,574
Wells Fargo Mortgage Backed
Securities Trust, Ser. 2003-1,
Cl. 2A9	5.75	2/25/33	1,800,000	1,795,629
				30,131,092
Retail—.5%
CVS Caremark,
Sr. Unscd. Notes	5.66	6/1/10	1,055,000 ^c	1,056,297
Home Depot,
Sr. Unscd. Notes	5.49	12/16/09	815,000 ^c	812,891
May Department Stores,
Gtd. Notes	5.95	11/1/08	760,000	758,950
Saks,
Gtd. Notes	8.25	11/15/08	429	443
				2,628,581
State/Territory Gen Oblg—1.9%
Michigan Tobacco Settlement
Finance Authority, Tobacco
Settlement Asset-Backed Bonds	7.31	6/1/34	4,525,000	4,610,206
Michigan Tobacco Settlement
Finance Authority, Tobacco
Settlement Asset-Backed Bonds	7.54	6/1/34	1,050,000 ^c	1,024,832
New York Counties Tobacco Trust
IV, Tobacco Settlement
Pass-Through Bonds	6.00	6/1/27	1,750,000	1,704,413
Tobacco Settlement Authority of
Iowa, Tobacco Settlement
Asset-Backed Bonds	6.50	6/1/23	3,255,000	3,207,900
				10,547,351
Telecommunications—4.0%
America Movil,
Gtd. Notes	5.46	6/27/08	455,000 ^b,c	455,091

	Coupon	Maturity	Principal
Bonds and Notes (continued)	Rate (%)	Date	Amount ($)	Value ($)

Telecommunications (continued)
AT & T,
Sr. Notes	5.45	5/15/08	2,700,000 ^c	2,702,481
AT & T,
Notes	5.46	2/5/10	2,390,000 ^c	2,394,622
France Telecom,
Unsub. Notes	7.75	3/1/11	1,280,000 ^c	1,375,436
Intelsat,
Sr. Unscd. Notes	5.25	11/1/08	1,540,000	1,509,200
Nextel Communications,
Gtd. Notes, Ser. F	5.95	3/15/14	1,035,000	961,241
Qwest,
Bank Note, Ser. B	6.95	6/30/10	464,000 ^c	461,680
Qwest,
Bank Note, Ser. B	6.95	6/30/10	1,858,000 ^c	1,849,639
Qwest,
Sr. Notes	7.88	9/1/11	710,000	724,200
Sprint Capital,
Gtd. Notes	8.75	3/15/32	2,340,000	2,578,294
Telefonica Emisiones,
Gtd. Notes	5.66	6/19/09	2,330,000 ^c	2,326,792
Telefonica Emisiones,
Gtd. Notes	5.98	6/20/11	2,425,000	2,438,699
Time Warner Cable,
Sr. Unscd. Notes	5.85	5/1/17	1,380,000 ^b	1,333,281
Windstream,
Gtd. Notes	8.13	8/1/13	1,435,000	1,458,319
				22,568,975
Textiles & Apparel—.2%
Mohawk Industries,
Sr. Unscd. Notes	5.75	1/15/11	990,000	1,000,708
Transportation—.2%
Ryder System,
Notes	3.50	3/15/09	1,435,000	1,391,067
U.S. Government Agencies—.4%
Federal National Mortgage
Association, Notes	5.75	8/3/09	2,495,000	2,494,950

The Fund 23

STATEMENT OF INVESTMENTS (continued)

	Principal
Bonds and Notes (continued)	Amount ($)	Value ($)

U.S. Government Agencies/
Mortgage-Backed—34.6%
Federal Home Loan Mortgage Corp.:
5.50%	54,915,000 ^f	53,290,653
6.50%, 10/1/31—3/1/32	91,070	92,853
Multiclass Mortgage Participation Ctfs.,
Ser. 2586, Cl. WE, 4.00%, 12/15/32	4,746,133	4,358,745
Federal National Mortgage Association:
5.00%	22,325,000 ^f	21,644,757
6.00%	81,235,000 ^f	80,850,214
5.00%, 5/1/18	1,086,089	1,058,622
5.50%, 8/1/34—9/1/34	8,720,450	8,454,196
6.50%, 11/1/10	418	424
Pass-Through Ctfs., Ser. 2004-58,
Cl. LJ, 5.00%, 7/25/34	3,263,905	3,241,416
Government National Mortgage Association I:
Ser. 2007-46, Cl. A, 3.14%, 11/16/29	1,250,000	1,250,000
Ser. 2004-25, Cl. AC, 3.38%, 1/16/23	330,371	320,767
Ser. 2005-34, Cl. A, 3.96%, 9/16/21	1,272,847	1,250,874
Ser. 2005-79, Cl. A, 4.00%, 10/16/33	1,322,102	1,293,150
Ser. 2005-50, Cl. A, 4.02%, 10/16/26	1,204,545	1,181,452
Ser. 2005-29, Cl. A, 4.02%, 7/16/27	1,797,264	1,750,858
Ser. 2005-42, Cl. A, 4.05%, 7/16/20	1,626,104	1,596,957
Ser. 2005-67, Cl. A, 4.22%, 6/16/21	1,248,322	1,229,491
Ser. 2005-59, Cl. A, 4.39%, 5/16/23	1,295,908	1,276,611
Ser. 2005-32, Cl. B, 4.39%, 8/16/30	3,418,483	3,364,266
Ser. 2004-39, Cl. LC, 5.50%, 12/20/29	4,800,000	4,809,065
Government National Mortgage Association II:
5.50%, 7/20/30	69,345 ^c	70,058
6.50%, 2/20/31—7/20/31	280,758	287,075
7.00%, 11/20/29	785	818
		192,673,322
U.S. Government Securities—30.6%
U.S. Treasury Bonds
4.75%, 2/15/37	6,634,000 ^g	6,459,864
U.S. Treasury Notes:
3.88%, 9/15/10	15,635,000	15,330,852
4.25%, 1/15/11	80,450,000 ^a	79,683,231

	Principal
Bonds and Notes (continued)	Amount ($)	Value ($)

U.S. Government Securities (continued)
U.S. Treasury Notes (continued):
4.50%, 4/30/12	165,000	164,291
4.50%, 5/15/17	69,860,000 ^g	68,391,892
		170,030,130
Total Bonds and Notes
(cost $738,618,014)		737,124,156


Preferred Stocks—.5%	Shares	Value ($)

Banks—.1%
Sovereign Capital Trust IV,
Conv., Cum. $2.1875	15,500	679,675
Diversified Financial Services—.4%
AES Trust VII,
Conv., Cum. $3.00	44,450	2,216,944
Total Preferred Stocks
(cost $2,973,894)		2,896,619

	Face Amount
	Covered by
Options—.5%	Contracts ($)	Value ($)

Call Options—.5%
3-Month Floor USD Libor-BBA
Interest Rate, October 2009 @ 4	49,400,000	49,831
3-Month USD Libor-BBA,
Swaption	10,510,000	520,644
3-Month USD Libor-BBA,
Swaption	44,095,000	2,215,862
Dow Jones CDX.IG8
September 2007 @.400	107,160,000	7,608
Dow Jones CDX.IG8
December 2007 @ .45	54,820,000	5,482
U.S. Treasury 5 Year Note
August 2007 @ 105.5	26,200,000	126,906
		2,926,333

The Fund 25

STATEMENT OF INVESTMENTS (continued)

	Face Amount
	Covered by
Options (continued)	Contracts ($)	Value ($)

Put Options—.0%
U.S. Treasury 10 Year Note
September 2007 @ 104.5	20,600,000	28,970
U.S. Treasury 5 Year Note
August 2007 @ 105	21,000,000	62,344
		91,314
Total Options
(cost $3,212,645)		3,017,647

	Principal
Short-Term Investments—5.1%	Amount ($)	Value ($)

Commerical Paper—2.0%
Cox Communications,
5.57%, 1/15/08	5,645,000	5,645,000
Cox Enterprises,
5.60%, 8/15/07	5,450,000 ^b,c	5,450,000
		11,095,000
U.S. Government Agencies—2.7%
Federal National Mortgage
Association, 5.14%, 10/10/07	15,195,000	15,043,169
U.S. Treasury Bills—.4%
4.77%, 9/6/07	2,075,000 ^h	2,064,749
Total Short-Term Investments
(cost $28,203,274)		28,202,918


Other Investment—1.4%	Shares	Value ($)

Registered Investment Company;
Dreyfus Institutional Preferred
Plus Money Market Fund
(cost $7,997,000)	7,997,000 ⁱ	7,997,000

Investment of Cash Collateral
for Securities Loaned—18.1%	Shares	Value ($)

Registered Investment Company;
Dreyfus Institutional Cash
Advantage Plus Fund
(cost $101,271,566)	101,271,566 ⁱ	101,271,566

Total Investments (cost $882,276,393)	157.8%	880,509,906
Liabilities, Less Cash and Receivables	(57.8%)	(322,366,164)
Net Assets	100.0%	558,143,742

^aAll or a portion of these securities are on loan.At July 31, 2007, the total market value of the fund’s securities on

loan is $98,714,756 and the total market value of the collateral held by the fund is $101,271,566.

^bSecurities 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, 2007, these securities

amounted to $86,968,386 or 15.6% of net assets.

^cVariable rate security—interest rate subject to periodic change.

^dPrincipal amount stated in U.S. Dollars unless otherwise noted.

BRL—Brazilian Real

EGP—Egyptian Pound

EUR—Euro

MXN—Mexican Peso

^eZero coupon until a specified date at which time the stated coupon rate becomes effective until maturity.

^fPurchased on a forward commitment basis.

^gPurchased on a delayed delivery basis.

^hAll or partially held by a broker as collateral for open financial futures positions.

ⁱInvestment in affiliated money market mutual fund.

Portfolio Summary (Unaudited) ^†

	Value (%)		Value (%)

U.S. Government & Agencies	65.6	Foreign/Governmental	4.1
Corporate Bonds	41.4	State/Government General Obligations	1.9
Short-Term/Money		Options	.5
Market Investments	24.6	Preferred Stocks	.5
Asset/Mortgage-Backed	19.2		157.8

^†Based on net assets.

See notes to financial statements.

The Fund 27

STATEMENT OF FINANCIAL FUTURES
July 31, 2007

				Unrealized
		Market Value		Appreciation
		Covered by		(Depreciation)
	Contracts	Contracts ($)	Expiration	at 7/31/2007 ($)

Financial Futures Long:
U.S. Treasury 5 Year Notes	324	34,171,875	September 2007	400,649
U.S. Treasury 10 Year Notes	156	16,757,813	September 2007	185,250
Financial Futures Short;
U.S. Treasury 2 Year Notes	98	(20,083,875)	September 2007	(81,156)
				504,743

See notes to financial statements.

STATEMENT OF OPTIONS WRITTEN
July 31, 2007

	Face Amount
	Covered by
	Contracts ($)	Value ($)

Call Options:
Dow Jones CDX.IG8	214,320,000	(536)
September 2007 @ .35
Dow Jones CDX.IG8	109,640,000	(43,527)
December 2007 @ .395
U.S. Treasury 5 Year Notes	52,400,000	(98,250)
August 2007 @ 106.5
Put Options;
U.S. Treasury 10 Year Notes	20,600,000	(3,220)
August 2007 @ 101
(Premiums received $526,514)		(145,533)

See notes to financial statements.

STATEMENT OF ASSETS AND LIABILITIES
July 31, 2007

	Cost	Value

Assets ($):
Investment in securities—See Statement of Investments (including
securities on loan, valued at $98,714,756)—Note 1(c):
Unaffiliated issuers	773,007,827	771,241,340
Affiliated issuers	109,268,566	109,268,566
Cash denominated in foreign currencies	390,289	386,891
Receivable for investment securities sold		66,703,073
Dividends and interest receivable		5,703,185
Receivable from broker for swap transactions—Note 4		3,380,978
Swaps Premium paid		2,161,630
Unrealized appreciation on swap contracts—Note 4		1,588,790
Receivable for shares of Common stock subscribed		483,732
Receivable for futures variation margin		66,062
Prepaid expenses		25,209
		961,009,456

Liabilities ($):
Due to The Dreyfus Corporation and affiliates—Note 3 (b)		354,205
Cash overdraft due to Custodian		87,745
Payable for investment securities purchased		296,602,540
Liability for securities on loan—Note 1(c)		101,271,566
Unrealized depreciation on swap contracts—Note 4		2,866,251
Payable for shares of Common stock redeemed		762,543
Payable to broker from swap transactions—Note 4		454,194
Outstanding options written, at value (premiums received
$526,514)—See Statement of Options Written—Note 4		145,533
Unrealized depreciation on forward currency exchange contracts—Note 4		34,298
Accrued expenses		286,839
		402,865,714

Net Assets ($)		558,143,742

Composition of Net Assets ($):
Paid-in capital		580,717,952
Accumulated undistributed investment income—net		3,559,619
Accumulated net realized gain (loss) on investments		(23,966,621)
Accumulated net unrealized appreciation (depreciation) on investments,
options, swap transactions and foreign currency transactions
(including $ 504,743 net unrealized appreciation on financial futures)		(2,167,208)

Net Assets ($)		558,143,742




Net Asset Value Per Share
	Investor Shares	Institutional Shares

Net Assets ($)	522,661,434	35,482,308
Shares Outstanding	42,136,021	2,860,927

Net Asset Value Per Share ($)	12.40	12.40

See notes to financial statements.

The Fund 29

STATEMENT OF OPERATIONS
Year Ended July 31, 2007

Investment Income ($):
Interest		29,158,921
Dividends:
Unaffiliated issuers		127,000
Affiliated issuers		260,222
Income from securities lending		29,262
Total Income		29,575,405
Expenses:
Management fee—Note 3(a)		2,356,977
Shareholder servicing costs—Note 3(b)		1,934,699
Custodian fees—Note 3(b)		156,607
Professional fees		61,250
Prospectus and shareholders’ reports		41,216
Registration fees		33,159
Directors’ fees and expenses—Note 3(c)		9,074
Miscellaneous		69,783
Total Expenses		4,662,765
Less—reduction in management fee
due to undertaking—Note 3(a)		(559,737)
Net Expenses		4,103,028
Investment Income—Net		25,472,377

Realized and Unrealized Gain (Loss) on Investments—Note 4 ($):
Net realized gain (loss) on investments and foreign currency transactions		2,668,561
Net realized gain (loss) on options transactions		(31,279)
Net realized gain (loss) on financial futures		(3,641,377)
Net realized gain (loss) on swap transactions		738,271
Net realized gain (loss) on forward currency exchange contracts		(428,904)
Net realized gain (loss)		(694,728)
Net unrealized appreciation (depreciation) on investments, options
transactions, swap transactions and foreign currency transactions
(including $805,383 net unrealized appreciation on financial futures)		3,626,068
Net Realized and Unrealized Gain (Loss) on Investments		2,931,340
Net Increase in Net Assets Resulting from Operations		28,403,717

See notes to financial statements.

STATEMENT OF CHANGES IN NET ASSETS

		Year Ended July 31,

	2007	2006

Operations ($):
Investment income—net	25,472,377	21,936,937
Net realized gain (loss) on investments	(694,728)	(9,334,542)
Net unrealized appreciation
(depreciation) on investments	3,626,068	(2,363,159)
Net Increase (Decrease) in Net Assets
Resulting from Operations	28,403,717	10,239,236

Dividends to Shareholders from ($):
Investment income—net:
Investor Shares	(25,028,938)	(22,849,510)
Institutional Shares	(1,871,248)	(1,381,927)
Net realized gain on investments:
Investor Shares	—	(2,832,114)
Institutional Shares	—	(162,146)
Total Dividends	(26,900,186)	(27,225,697)

Capital Stock Transactions ($):
Net proceeds from shares sold:
Investor Shares	154,466,147	78,528,146
Institutional Shares	6,267,151	11,044,482
Dividends reinvested:
Investor Shares	23,136,692	23,080,078
Institutional Shares	19,209	166,374
Cost of shares redeemed:
Investor Shares	(115,167,212)	(157,878,749)
Institutional Shares	(2,411,080)	(6,257,458)
Increase (Decrease) in Net Assets from
Capital Stock Transactions	66,310,907	(51,317,127)
Total Increase (Decrease) in Net Assets	67,814,438	(68,303,588)

Net Assets ($):
Beginning of Period	490,329,304	558,632,892
End of Period	558,143,742	490,329,304
Undistributed investment income—net	3,559,619	2,637,000

The Fund 31

STATEMENT OF CHANGES IN NET ASSETS (continued)

		Year Ended July 31,

	2007	2006

Capital Share Transactions:
Investor Shares
Shares sold	12,317,326	6,278,917
Shares issued for dividends reinvested	1,844,775	1,847,048
Shares redeemed	(9,194,033)	(12,627,666)
Net Increase (Decrease) in Shares Outstanding	4,968,068	(4,501,701)

Institutional Shares
Shares sold	501,731	894,160
Shares issued for dividends reinvested	1,534	13,285
Shares redeemed	(192,195)	(507,206)
Net Increase (Decrease) in Shares Outstanding	311,070	400,239

See notes to financial statements.

FINANCIAL HIGHLIGHTS

		Year Ended July 31,

Investor Shares	2007	2006	2005	2004 ^a	2003

Per Share Data ($):
Net asset value, beginning of period	12.35	12.75	12.53	12.86	12.42
Investment Operations:
Investment income—net ^b	.61	.53	.46	.46	.56
Net realized and unrealized
gain (loss) on investments	.08	(.28)	.31	(.01)^c	.51
Total from Investment Operations	.69	.25	.77	.45	1.07
Distributions:
Dividends from investment income—net	(.64)	(.58)	(.55)	(.54)	(.63)
Dividends from net realized
gain on investments	—	(.07)	—	(.24)	—
Total Distributions	(.64)	(.65)	(.55)	(.78)	(.63)
Net asset value, end of period	12.40	12.35	12.75	12.53	12.86

Total Return (%)	5.74	2.05	6.24	3.59	8.64

Ratios/Supplemental Data (%):
Ratio of total expenses
to average net assets	.92	.91	.89	.90	.90
Ratio of net expenses
to average net assets	.80	.80	.80	.80	.82
Ratio of net investment income
to average net assets	4.85	4.21	3.63	3.56	4.34
Portfolio Turnover Rate	492.35^d	439.09^d	644.23^d	801.49^d	838.50

Net Assets, end of period ($ x 1,000)	522,661	458,856	531,232	677,228	831,818

^aAs of August 1, 2003, the fund has adopted the method of accounting for interim payments on swap contracts in

accordance with Financial Accounting Standards Board Statement No. 133.These interim payments are reflected

within net realized and unrealized gain (loss) on swap contracts, however, prior to August 1, 2003, these interim

payments were reflected within interest income/expense in the Statement of Operations.The effect of this change for

the fiscal year ended July 31, 2004, was to increase net investment income per share by $.01, decrease net realized

and unrealized gain (loss) on investments per share by $.01 and increase the ratio of net investment income to

average net assets from 3.51% to 3.56%. Per share data and ratios/supplemental data for periods prior to August 1,

2003 have not been restated to reflect this change in presentation.

^bBased on average shares outstanding at each month end.

^cIn addition to the net realized and unrealized gain on investments as shown in the Statement of Operations, this

amount includes a decrease in net asset value per share resulting from the timing of issuances and redemptions of

shares in relation to fluctuating market values for the fund’s investments.

^dThe portfolio turnover rates excluding mortgage dollar roll transactions for the periods ended July 31, 2007, July 31,

2006, July 31, 2005 and July 31, 2004 were 357.70%, 270.18%, 521.83% and 718.14%, respectively.

See notes to financial statements.

The Fund 33

FINANCIAL HIGHLIGHTS (continued)

		Year Ended July 31,

Institutional Shares	2007	2006	2005	2004 ^a	2003

Per Share Data ($):
Net asset value, beginning of period	12.34	12.75	12.52	12.85	12.41
Investment Operations:
Investment income—net ^b	.64	.56	.51	.49	.63
Net realized and unrealized
gain (loss) on investments	.09	(.28)	.30	.00^c	.48
Total from Investment Operations	.73	.28	.81	.49	1.11
Distributions:
Dividends from investment income—net	(.67)	(.62)	(.58)	(.58)	(.67)
Dividends from net realized
gain on investments	—	(.07)	—	(.24)	—
Total Distributions	(.67)	(.69)	(.58)	(.82)	(.67)
Net asset value, end of period	12.40	12.34	12.75	12.52	12.85

Total Return (%)	6.02	2.35	6.40	3.88	9.07

Ratios/Supplemental Data (%):
Ratio of total expenses
to average net assets	.53	.51	.55	.53	.53
Ratio of net expenses
to average net assets	.53	.51	.53	.52	.50
Ratio of net investment income
to average net assets	5.10	4.48	3.86	3.85	4.88
Portfolio Turnover Rate	492.35^d	439.09^d	644.23^d	801.49^d	838.50

Net Assets, end of period ($ x 1,000)	35,482	31,473	27,401	2,850	4,470

^a		As of August 1, 2003, the fund has adopted the method of accounting for interim payments on swap contracts in
		accordance with Financial Accounting Standards Board Statement No. 133.These interim payments are reflected
		within net realized and unrealized gain (loss) on swap contracts, however, prior to August 1, 2003, these interim
		payments were reflected within interest income/expense in the Statement of Operations.The effect of this change for
		the fiscal year ended July 31, 2004, was to increase net investment income per share by less than $.01, decrease net
		realized and unrealized gain (loss) on investments per share by less than $.01 and increase the ratio of net
		investment income to average net assets from 3.80% to 3.85%. Per share data and ratios/supplemental data for
		periods prior to August 1, 2003 have not been restated to reflect this change in presentation.
^b		Based on average shares outstanding at each month end.
^c		Amount represents less than $.01 per share.
^d		The portfolio turnover rates excluding mortgage dollar roll transactions for the periods ended July 31, 2007, July 31,
		2006, July 31, 2005 and July 31, 2004 were 357.70%, 270.18%, 521.83% and 718.14%, respectively.
See notes to financial statements.

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 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 four series, including the fund.The fund’s investment objective is to seek to maximize total return, consisting of capital appreciation and current income.The Dreyfus Corporation (the “Manager” or “Dreyfus”) serves as the fund’s investment adviser. During the reporting period, the Manager was a wholly-owned subsidiary of Mellon Financial Corporation (“Mellon Financial”).

During the reporting period, Dreyfus Service Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, was the distributor of the fund’s shares which are sold to the public without a sales charge. Effective June 30, 2007, the Distributor became known as MBSC Securities Corporation. The fund is authorized to issue 500 million shares of $.001 par value Common Stock in each of the following classes of shares: Investor and Institutional. Investor shares are subject to a shareholder services plan. Other differences between the classes include the services offered to and the expenses borne by each class, the minimum initial investment and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.

The Fund 35

NOTES TO FINANCIAL STATEMENTS (continued)

(a) Portfolio valuation: Investments in securities excluding short-term investments (other than U.S. Treasury Bills), financial futures, options, swap transactions and forward currency exchange contracts are valued each business day by an independent pricing service (the “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 valued 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. Restricted securities, as well as securities or other assets for which recent market quotations are not readily available,that are not valued by a pricing service approved by the Board of Directors, or determined by the fund not to reflect accurately fair value, are valued at fair value as determined in good faith under the direction of the Board of Directors.The factors that may be considered when fair valuing a security include fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Short-term

investments, excluding U.S.Treasury Bills, are carried at amortized cost, which approximates value. Registered open-end investment companies that are not traded on an exchange, are valued at their net asset value. Financial futures and options, which are traded on an exchange, 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. Options traded over-the-counter are priced at the mean between the bid and the asked price. Investments in swap transactions are valued each business day by a pricing service approved by the Board of Trustees. Swaps are valued by the service by using a swap pricing model which incorporates among other factors, default probabilities, recovery rates, credit curves of the underlying issuer and swap spreads on interest rates. 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 fund 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 market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

The Fund 37

NOTES TO FINANCIAL STATEMENTS (continued)

the amounts of dividends, interest, and foreign withholding taxes recorded on the fund’s 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 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, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.

Pursuant to a securities lending agreement with Mellon Bank, N.A., an affiliate of the Manager, the fund may lend securities to qualified institutions. It is the fund’s policy, that at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Cash collateral is invested in certain money market mutual funds managed by the Manager. The fund is entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction.Although each security loaned is fully collateralized, the fund bears the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner.

(d) Affiliated issuers: Investments in other investment companies advised by the Manager are defined as “affiliated” in the Act.

(e) 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. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles.

(f) 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 FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year.Adoption of FIN 48 is required for fiscal years beginning after December 15,2006 and is to be applied to all open tax years as of the effective date. Management does not believe that the application of this standard will have a material impact on the financial statements of the fund.

At July 31, 2007, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $3,835,862, accumulated capital losses $17,298,296 and unrealized depreciation $5,690,435. In addition, the fund had $3,465,644 of capital losses

The Fund 39

NOTES TO FINANCIAL STATEMENTS (continued)

realized after October 31, 2006, which were deferred for tax purposes to the first day of the following fiscal year.

The accumulated capital loss carryover is available to be applied against future net securities profits, if any, realized subsequent to July 31,2007. If not applied, $3,468,128 of the carryover expires in fiscal 2012, $5,388,717 expires in fiscal 2013, $1,724,165 expires in fiscal 2014 and $6,717,286 expires in fiscal 2015.

The tax character of distributions paid to shareholders during the fiscal periods ended July 31, 2007 and July 31, 2006, were as follows: ordinary income $26,900,186, and $27,225,697, respectively.

During the period ended July 31, 2007, as a result of permanent book to tax differences primarily due to the tax treatment for amortization of premiums, paydown gains and losses on mortgage backed securities, sales treatment for treasury inflation protected securities, contingent deferred debt securities and foreign currency transactions, the fund increased accumulated undistributed investment income-net by $2,350,428, decreased accumulated net realized gain (loss) on investments by $2,109,629 and decreased paid-in capital by $240,799. Net assets were not affected by this reclassification

NOTE 2—Bank Lines of Credit:

The fund may borrow up to $10 million for leveraging purposes under a short-term unsecured line of credit and participates with other Dreyfus-managed funds in a $100 million unsecured line of credit primarily to be utilized for temporary or emergency purposes, including the financing of redemptions. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing. During the period ended July 31, 2007, the fund did not borrow under either line of credit.

NOTE 3—Management Fee and Other Transactions With Affiliates:

(a) Pursuant to a management agreement (“Agreement”) with the Manager, the management fee is computed at the annual rate of .45% of the value of the fund’s average daily net assets and is payable monthly.

The Manager had undertaken through July 31, 2007 to reduce the management fee paid by the fund, if the fund’s aggregate expenses, exclusive of taxes, brokerage fees, interest on borrowings, Shareholder Service Plan fees and extraordinary expenses exceed .55% of the value of the fund’s average daily net assets.The reduction in management fee, pursuant to the undertaking, amounted to $559,737 during the period ended July 31, 2007.

(b) Under the Investor Shares Shareholder Services Plan, the fund pays the Distributor at an annual rate of .25% of the value of Investor Shares 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, 2007, Investor Shares were charged $1,222,272 pursuant to the Shareholder Services Plan.

During the period ended July 31, 2007, the fund was charged $4,499 for services performed by the Chief Compliance Officer.

The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $211,316, shareholder services plan fees $109,928, custodian fees

The Fund 41

NOTES TO FINANCIAL STATEMENTS (continued)

$53,517, chief compliance officer fees $1,607 and transfer agency per account fees $20,032, which are offset against an expense reimbursement currently in effect in the amount of $42,195.

(c) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.

NOTE 4—Securities Transactions:

The following summarizes the aggregate amount of purchases and sales (including paydowns) of investment securities, excluding short-term securities, option transactions, financial futures, forward currency exchange contracts and swap transactions, during the period ended July 31, 2007, amounted to $3,580,606,562 and $3,570,263,438, respectively, of which $976,149,398 in purchases and $976,399,225 in sales were from dollar roll transactions.

A mortgage dollar roll transaction involves a sale by the fund of mortgage related securities that it holds with an agreement by the fund to repurchase similar securities at an agreed upon price and date. The securities purchased will bear the same interest rate as those sold, but generally will be collateralized by pools of mortgages with different prepayment histories than those securities sold.

The fund may purchase and write (sell) put and call options in order to gain exposure to or to protect against changes in the market.

As a writer of call options, the fund receives a premium at the outset and then bears the market risk of unfavorable changes in the price of the financial instrument underlying the option. Generally, the fund would incur a gain, to the extent of the premium, if the price of the underlying financial instrument decreases between the date the option

is written and the date on which the option is terminated. Generally, the fund would realize a loss, if the price of the financial instrument increases between those dates.

As a writer of put options, the fund receives a premium at the outset and then bears the market risk of unfavorable changes in the price of the financial instrument underlying the option. Generally, the fund would incur a gain, to the extent of the premium, if the price of the underlying financial instrument increases between the date the option is written and the date on which the option is terminated. Generally, the fund would realize a loss, if the price of the financial instrument decreases between those dates.

In addition, the following summarizes the fund’s call/put options written for the period ended July 31, 2007:

	Face Amount		Options Terminated

	Covered by	Premiums		Net Realized
Options Written:	Contracts ($)	Received ($)	Cost ($)	Gain (Loss) ($)

Contracts outstanding
July 31, 2006	186,320,000	466,448
Contracts written	527,060,000	788,756
Contracts terminated:
Closed	206,120,000	468,863	753,193	(284,330)
Expired	110,300,000	259,827	—	259,827
Total contracts
terminated	316,420,000	728,690	—	(24,503)
Contracts outstanding
July 31, 2007	396,960,000	526,514

The fund may invest in financial futures contracts in order to gain exposure to or protect against changes in the market.The fund is exposed to market risk as a result of changes in the value of the underlying financial instruments. Investments in financial futures require the fund to “mark to market” on a daily basis, which reflects the change in the market value of the contracts at the close of each day’s trading. Typically, variation margin payments are received or made to reflect daily unrealized gains or losses.When the contracts are closed, the fund recognizes a realized gain or loss.These investments require initial margin deposits

The Fund 43

NOTES TO FINANCIAL STATEMENTS (continued)

with a broker, which consist of cash or cash equivalents.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, 2007 are set forth in the Statement of Financial Futures.

The fund enters into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to settle foreign currency transactions. When executing forward currency exchange contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future.With respect to sales of forward currency exchange contracts, the fund would incur a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates.With respect to purchases of forward currency exchange contracts, the fund would incur a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract increases between those dates. The fund is also exposed to credit risk associated with counter party nonperformance on these forward currency exchange contracts which is typically limited to the unrealized gain on each open contract.The following summarizes open forward currency exchange contracts at July 31, 2007:

	Foreign
Forward Currency	Currency			Unrealized
Exchange Contracts	Amounts	Cost ($)	Value ($)	(Depreciation) ($)

Sales:
Euro,
Expiring 09/19/2007	920,000	1,226,838	1,261,136	(34,298)

The fund may enter into swap agreements to exchange the interest rate on, or return generated by, one nominal instrument for the return generated by another nominal instrument.

The fund accrues for the interim payments on swap contracts on a daily basis, with the net amount recorded within unrealized appreciation (depreciation) of swap contracts in the Statement of Assets and Liabilities. Once the interim payments are settled in cash, the net amount is recorded as realized gain (loss) on swaps, in addition to realized gain (loss) recorded upon the termination of swaps contracts in the Statement of Operations. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation (depreciation) on investments.

Credit default swaps involve commitments to pay a fixed interest rate in exchange for payment if a credit event affecting a third party (the referenced company) occurs. Credit events may include a failure to pay interest or principal, bankruptcy, or restructuring. For those credit default swaps in which the portfolio is receiving a fixed rate, the portfolio is providing credit protection on the underlying instrument.The maximum payouts for these contracts are limited to the notional amount of each swap. The following summarizes open credit default swaps entered into by the fund at July 31, 2007:

					Unrealized
Notional	Reference		(Pay)/Receive		Appreciation
Amount ($)	Entity	Counterparty	Fixed Rate (%) Expiration (Depreciation)($)


9,850,000	Altria, 7%,
	11/4/2013	Citibank	(.27)	12/20/2011	17,994
5,710,000	AT&T, 5.875%,	JP Morgan
	8/15/2012	Chase	(.49)	3/20/2017	56,062
4,630,000	AT&T, 5.875%,	JP Morgan
	8/15/2012	Chase	(.44)	3/20/2017	62,813
5,430,000	Autozone,
	5.875%,	Goldman,
	10/15/2012	Sachs & Co.	(.62)	6/20/2017	101,896
2,550,000	BLOCK
	FINANCIAL CORP	Barclays	(1.95)	9/20/2014	(10,682)
1,830,000	BLOCK	Morgan
	FINANCIAL CORP	Stanley	(1.95)	9/20/2014	(7,666)
2,161,000	Century Tel,
	7.875%,
	8/15/2012	Citibank	(1.16)	9/20/2015	(18,156)

The Fund 45

NOTES TO FINANCIAL STATEMENTS (continued)

					Unrealized
Notional	Reference		(Pay)/Receive		Appreciation
Amount ($)	Entity	Counterparty	Fixed Rate (%) Expiration (Depreciation)($)


626,000	Century Tel,
	7.875%,	Morgan
	8/15/2012	Stanley	(1.15)	9/20/2015	(4,851)
1,600,000	CMBX 2007-3 A	JP Morgan
	Index	Chase	(.62)	12/13/2049	61,202
3,870,000	CMBX 2007-3 A	Deutsche
	Index	Bank	(.62)	12/13/2049	121,203
4,310,000	CMBX 2007-3	JP Morgan
	AAA Index	Chase	(.08)	12/13/2049	72,995
5,190,000	CMBX 2007-3	Morgan
	AAA Index	Stanley	(.08)	12/13/2049	82,781
950,000	Dow Jones	Deutsche
	CDX.EM.6 Index	Bank	1.40	12/20/2011	(3,824)
1,660,000	Dow Jones	Morgan
	CDX.EM.6 Index	Stanley	1.40	12/20/2011	(40,437)
2,470,000	Dow Jones
	CDX.EM.6 Index	UBS	1.40	12/20/2011	(44,283)
2,776,300	Dow Jones
	CDX.NA.IG.4 Index	Merrill Lynch	(.31)	6/20/2010	4,238
1,889,700	Dow Jones	Morgan
	CDX.NA.IG.4 Index	Stanley	(.35)	6/20/2010	551
8,200,000	Dow Jones	Goldman,
	CDX.NA.IG.8 Index	Sachs & Co.	(.60)	6/20/2017	227,675
1,900,000	Ford Motor
	Company, 7.45%,	Morgan
	7/16/2031	Stanley	5.35	3/20/2012	(91,584)
1,670,000	Ford Motor
	Company, 7.45%,	Morgan
	7/16/2031	Stanley	4.50	3/20/2012	(129,882)
1,375,000	Freeport-McMoran
	C & G, 10.125%,
	2/1/2010	Merrill Lynch	.92	6/20/2010	10,962
1,900,000	General Motors,
	7.125%,	Morgan
	7/15/2013	Stanley	(3.80)	3/20/2012	132,032
1,670,000	General Motors,
	7.125%,	Morgan
	7/15/2013	Stanley	(3.30)	3/20/2012	144,823
9,545,000	JPMCC
	2006-CB15,
	CL.AJ, 5.89%,
	6/12/2043	Merrill Lynch	(.13)	6/12/2043	27,641
1,425,000	Kaupthing Bank,
	5.51%, 12/1/2009	Deutsche
		Bank	.65	9/20/2007	1,579
5,625,000	Kaupthing Bank,
	5.51%, 12/1/2009	Deutsche
		Bank	.52	9/20/2007	4,340
360,000	Kaupthing Bank,	JP Morgan
	5.51%, 12/1/2009	Chase	.57	9/20/2007	324
505,000	Kimberly Clark,
	6.875%,	Morgan
	2/15/2014	Stanley	(.38)	12/20/2016	3,500

					Unrealized
Notional	Reference		(Pay)/Receive		Appreciation
Amount ($)	Entity	Counterparty	Fixed Rate (%) Expiration (Depreciation)($)


155,000	Kimberly Clark,
	6.875%,	Morgan
	2/15/2014	Stanley	(.37)	12/20/2016	1,189
1,300,000	Kraft Foods,
	5.625%,
	11/1/2011	Barclays	(.57)	6/20/2017	23,511
1,385,000	Kraft Foods,
	5.625%,	Goldman,
	11/1/2011	Sachs & Co.	(.53)	6/20/2017	29,234
5,618,000	Morgan Stanley,
	6.6%, 4/1/2012	UBS	(.62)	6/20/2015	67,284
4,925,000	Northern Tobacco,
	5%, 6/1/2046	Citibank	1.35	12/20/2011	(83,764)
2,600,000	Republic of
	Venezuela, 9.25%,	Deutsche
	9/15/2027	Bank	(2.87)	10/20/2016	188,424
1,285,000	Republic of
	Venezuela, 9.25%,	Morgan
	9/15/2027	Stanley	(2.53)	1/20/2017	132,617
675,000	Rite Aid, 7.7%	Lehman
	2/15/2027	Brothers	4.55	9/20/2010	7,007
1,225,000	Rite Aid, 7.7%	JP Morgan
	2/15/2027	Chase	3.55	9/20/2010	(21,512)
4,925,000	Southern
	California Tobacco,
	5%, 6/1/2037	Citibank	1.35	12/20/2011	(83,764)
5,430,000	Structured Model
	Portfolio 0-3%	Barclays	13.39	6/20/2012	(1,846,087)
3,900,000	Structured Model	JP Morgan
	Portfolio 0-3%	Chase	—	9/20/2013	(58,500)
2,390,000	Structured Model	Morgan
	Portfolio 0-3%	Stanley	—	9/20/2013	(113,826)
2,975,000	Structured Model
	Portfolio 0-3%	UBS	—	9/20/2013	(47,600)
4,070,000	Structured Model
	Portfolio 5-7%	Barclays	(4.84)	6/20/2017	4,911
2,680,000	Univision
	Communication,	Lehman
	7.85%, 7/15/2011	Brothers	2.60	6/20/2010	(206,943)
1,510,000	VF, 8.5%,	Morgan
	10/1/2010	Stanley	(.72)	6/20/2016	(17,401)
1,830,000	VF, 8.5%,	Morgan
	10/1/2010	Stanley	(.46)	6/20/2011	(12,403)
900,000	VF, 8.5%,	Morgan
	10/1/2010	Stanley	(.45)	6/20/2011	(5,771)
2,700,000	VF, 8.5%,
	10/1/2010	UBS	(.45)	6/20/2011	(17,313)
Total					(1,277,461)

The Fund 47

NOTES TO FINANCIAL STATEMENTS (continued)

The fund may enter into interest rate swaps which involve the exchange of commitments to pay and receive interest based on a notional principal amount.At July 31, 2007, there were no open interest rate swaps.

Total return swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount.To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the portfolio will receive a payment from or make a payment to the counterparty, respec-tively.At July 31, 2007, there were no open total return swaps.

Risks may arise upon entering into these agreements from the potential inability of the counterparties to meet the terms of the agreement and are generally limited to the amount of net payments to be received, if any, at the date of default.

At July 31, 2007, the cost of investments for federal income tax purposes was $884,178,373; accordingly, accumulated net unrealized depreciation on investments was $3,668,467, consisting of $4,500,508 gross unrealized appreciation and $8,168,975 gross unrealized depreciation.

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

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 funds comprising Dreyfus Investment Grade Funds, Inc.) as of July 31, 2007, 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 the standards of the Public Company Accounting Oversight Board (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.We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2007 by correspondence with the custodian and others.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, 2007, 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 U.S. generally accepted accounting principles.

New York, New York
September 14, 2007

The Fund 49

IMPORTANT TAX INFORMATION (Unaudited)

For federal tax purposes the fund hereby designates 0.44% of the ordinary dividends paid during the fiscal year ended July 31, 2007 as qualifying for the corporate dividends received deduction. Also certain dividends paid by the fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions paid during the fiscal year, $127,000 represents the maximum amount that may be considered qualified dividend income. Shareholders will receive notification in January 2008 of the percentage applicable to the preparation of their 2007 income tax returns. Also, the fund hereby designates 92.92% of ordinary income dividends paid during the fiscal year ended July 31, 2007 as qualifying “interest related dividends”.

INFORMATION ABOUT THE REVIEW
AND APPROVAL OF THE FUND’S
M A N A G E M E N T A G R E E M E N T (Unaudited)

The Fund 51

I N FO R M AT I O N A B O U T T H E R E V I E W A N D A P P R OVA L O F T H E
F U N D ’S M A N A G E M E N T A G R E E M E N T ( U n a u d i t e d ) ( c o n t i n u e d )

“Performance Group”) and to a larger universe of funds, consisting of all retail no-load intermediate investment grade debt funds, excluding outliers (the “Performance Universe”), selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below). The Board members discussed the results of the comparisons for various periods ended May 31, 2007. The Board members noted that the fund’s total return performance was above the Performance Group and Performance Universe medians for all periods, and that the fund’s yield performance for the past ten one-year periods was above the Performance Group median for eight of the ten periods and above the Performance Universe medians for all periods. Dreyfus also provided a comparison of the fund’s total returns to the returns of the fund’s benchmark index for each of the calendar years for the past ten years.

The Board members also discussed the fund’s management fee and expense ratio and reviewed the range of management fees and expense ratios as compared to a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. The Board members noted that the fund’s contractual management fee was lower than the Expense Group median, and that the actual management fee was lower than the Expense Group and Expense Universe medians, which included the undertaking by Dreyfus to limit the fund’s expense ratio. The Board noted that the expense ratio for the fund was higher than the Expense Group and Expense Universe medians. The Board noted that the fund’s actual management fee and expense ratio were lower due to the undertaking by Dreyfus to waive fees and reimburse expenses.

Representatives of Dreyfus reviewed with the Board members the advisory fees paid by mutual funds managed by Dreyfus or its affiliates with similar investment objectives, policies and strategies, and included

within the fund’s Lipper category (the “Similar Funds”), and by other accounts managed by Dreyfus or its affiliates, with similar investment objectives, policies and strategies as the fund (the “Similar Accounts”). Dreyfus representatives explained the nature of the Similar Accounts and the differences, from Dreyfus’ perspective, in providing services to such Similar Accounts as compared to managing and providing services to the fund. Dreyfus’ representatives also reviewed the costs associated with distribution through intermediaries. The Board analyzed differences in fees paid to Dreyfus and discussed the relationship of the fees paid in light of the services provided.The Board members considered the relevance of the fee information provided for the Similar Funds and Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee.

Analysis of Profitability and Economies of Scale. Dreyfus’ representatives reviewed the dollar amount of expenses allocated and profit received by Dreyfus and the method used to determine such expenses and profit. The Board considered information, previously provided and discussed, prepared by an independent consulting firm regarding Dreyfus’ approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also considered that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund investors.The Board members also considered potential benefits to Dreyfus from acting as investment adviser and noted that there were no soft dollar arrangements with respect to trading the fund’s investments.

The Fund 53

I N FO R M AT I O N A B O U T T H E R E V I E W A N D A P P R OVA L O F T H E
F U N D ’S M A N A G E M E N T A G R E E M E N T ( U n a u d i t e d ) ( c o n t i n u e d )

The Board concluded that the nature, extent and quality of the ser- vices provided by Dreyfus are adequate and appropriate.
The Board was satisfied with the fund’s performance.
The Board concluded that the fee paid by the fund to Dreyfus was reasonable in light of the services provided, comparative performance, expense and management fee information, including Dreyfus’ under- taking to limit the fund’s expense ratio (which reduced the fund’s actual management fee and expense ratio), costs of the services pro- vided and profits to be realized and benefits derived or to be derived by Dreyfus from its relationship with the fund.

The Board determined that the economies of scale which may accrue to Dreyfus and its affiliates in connection with the manage- ment of the fund had been adequately considered by Dreyfus in connection with the management fee rate charged to the fund and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.

The Fund 55

BOARD MEMBERS INFORMATION (Unaudited)

Joseph S. DiMartino (63)
Chairman of the Board (1995)

Principal Occupation During Past 5 Years:
• Corporate Director and Trustee

Other Board Memberships and Affiliations:

The Muscular Dystrophy Association, Director
Century Business Services, Inc., a provider of outsourcing functions for small and medium size companies, Director
The Newark Group, a provider of a national market of paper recovery facilities, paperboard mills and paperboard converting plants, Director
Sunair Services Corporation, a provider of certain outdoor-related services to homes and businesses, Director
Ivory Investment Management, L.P., a registered investment adviser to three private funds, Senior Adviser

No. of Portfolios for which Board Member Serves: 164

———————

Clifford L. Alexander, Jr. (73)
Board Member (2003)

Principal Occupation During Past 5 Years:

President of Alexander & Associates, Inc., a management consulting firm ( January 1981-present)
Chairman of the Board of Moody’s Corporation (October 2000-October 2003)

Other Board Memberships and Affiliations:

• Mutual of America Life Insurance Company, Director

No. of Portfolios for which Board Member Serves: 53

———————

David W. Burke (71)
Board Member (1994)

Principal Occupation During Past 5 Years:
• Corporate Director and Trustee

Other Board Memberships and Affiliations:
• John F. Kennedy Library Foundation, Director

No. of Portfolios for which Board Member Serves: 88

Whitney I. Gerard (72)
Board Member (1993)

Principal Occupation During Past 5 Years:
• Partner of Chadbourne & Parke LLP

No. of Portfolios for which Board Member Serves: 26

———————

George L. Perry (72)
Board Member (1992)

Principal Occupation During Past 5 Years:

• Economist and Senior Fellow at Brookings Institution

No. of Portfolios for which Board Member Serves: 26

———————

Once elected all Board Members serve for an indefinite term, but achieve Emeritus status upon reaching age 80.The address of the Board Members and Officers is in c/o The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166.Additional information about the Board Members is available in the fund’s Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611.

Lucy Wilson Benson, Emeritus Board Member Arthur A. Hartman, Emeritus Board Member

The Fund 57