We are pleased to present this semiannual report for Dreyfus Inflation Adjusted Securities Fund, covering the six-month period from August 1, 2018 through January 31, 2019. For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Global trends in economic growth diverged during the reporting period, and markets experienced the return of volatility. While the U.S. economy continued to grow at above-trend rates, other developed economies largely moderated. Economic momentum and strong corporate earnings supported U.S. stocks throughout much of the period, while in other developed markets stocks declined. In emerging markets, equities remained under pressure as the currency crises in Turkey and Argentina led investors to fear that currency depreciation would spread to other markets in the developing world.
Equity markets experienced a sharp sell-off later in the reporting period in part due to heightened concerns about trade tensions and slowing global growth. In addition, certain U.S. technology stocks, which had been enjoying a strong multi-year run, reported disappointing financial results. The sell-off partially reduced prior gains on U.S. indices while losses deepened in international markets. Late in the reporting period, the Federal Reserve suggested it might slow the pace of interest-rate increases, resulting in a broad-based rally.
Fixed income markets struggled throughout most of the reporting period; the yield on the benchmark 10-year Treasury bond breached 3.0% for the second time in 2018, rising to more than 3.2% despite moderate inflation. Towards the end of the period, expectations of fewer Federal Reserve rate hikes and growing investor concerns about global growth caused bonds to rebound, bringing yields down.
We expect economic momentum to continue in the U.S., however, we will monitor relevant data for any signs of a change in our outlook. As always, we encourage you to discuss the risks and opportunities in today’s investment environment with your financial advisor.
Thank you for your continued confidence and support.
DISCUSSION OF FUND PERFORMANCE(Unaudited)
For the period from August 1, 2018 through January 31, 2019, as provided by Robert Bayston, CFA, and Nate Pearson, CFA, Portfolio Managers
Market and Fund Performance Overview
For the six-month period ended January 31, 2019, Dreyfus Inflation Adjusted Securities Fund’s Class I shares produced a total return of 0.87%, Investor shares returned 0.82%, and Class Y shares returned 0.90%.1 In comparison, the fund’s benchmark, the Bloomberg Barclays U.S. TIPS 1-10 Year Index (the “Index”), produced a 1.04% total return for the same period.2
Treasury inflation-protected securities (TIPS) produced moderately positive returns over the six months. The fund is positioned to take advantage of increases in inflation. The break-even inflation rate rose during portions of the reporting period, which supported TIPS valuations. The fund modestly trailed the Index, due primarily to security selection shortfalls.
The Fund’s Investment Approach
The fund seeks returns that exceed the rate of inflation. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in inflation-indexed securities. The inflation-indexed securities issued by the U.S. Treasury and some foreign government issuers, for example, accrue inflation into the principal value of the bond. Other issuers may pay out the Consumer Price Index accruals as part of a semiannual coupon.
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, which are rated investment grade or the unrated equivalent as determined by The Dreyfus Corporation. Other such fixed-income securities may include 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 ten years, and the fund may invest in securities of any maturity without restriction.
Interest-Rate and Spread Volatility Drove Bond Performance
U.S. debt markets were driven by fluctuating interest rates and spread volatility throughout the reporting period. In the late summer and early fall, interest rates rose at many points along the yield curve, suppressing Treasury performance. Corporate high yield debt outperformed like-duration Treasuries. Investment-grade corporate credits, despite high supply levels, also performed well. TIPS gained ground on mounting inflationary pressures. However, the market hit an inflection point in the fourth quarter.
Concerns over decelerating growth and the possibility of continued U.S. Federal Reserve (“Fed”) interest-rate hikes in the face of unsupportive data triggered a sell-off that lasted throughout the remainder of the year. Spreads widened and risk assets came under pricing pressure, which was exacerbated by a lack of liquidity within the market. High yield and investment-grade corporate bond prices fell. TIPS prices also dipped as inflation expectations weakened. A flight to quality among investors increased the demand for Treasuries, raising their prices and pushing down yields.
However, volatility subsided in January, due in part to the Fed’s announcement, after its first meeting of 2019, which emphasized its focus on data as a driver for rate-hike decisions, and its ability to suspend additional rate increases when the data is not supportive. Since this meeting,
3
DISCUSSION OF FUND PERFORMANCE(Unaudited) (continued)
spreads have narrowed and risk assets have recovered. The break-even inflation rate rebounded as well, allowing TIPS to recover their fourth-quarter losses.
Security Selection Detracted While Yield-Curve Positioning Was Additive
The fund’s return mildly trailed that of the Index for the period. Security selection detracted moderately from relative results. The benchmark is composed of a broader range of inflation-adjusted securities than the fund’s portfolio. The fund’s inability to invest in the entire range of securities included in the benchmark led to security selection shortfalls.
Conversely, the fund’s yield-curve positioning was additive. A relative overweight to five-year-maturity securities contributed to results as nominal rates at that part of the yield curve fell during the period, helping valuations. The portfolio’s short-duration positioning relative to the Index also helped to bolster results. An allocation to cash, along with an overweight to the six-month part of the curve, benefited results as they helped to reduce the portfolio’s duration. In addition, an underweight to the two-year part of the curve was also incremental.
Positioned for Moderate Growth and Inflation
We believe that growth and inflation rates in the U.S. will remain at or slightly above trend for the near term. We expect this environment of moderate growth and inflation will support TIPS valuations over the next six to nine months. Regarding interest rates, we believe that after taking a pause during the early part of 2019, it is possible that the Fed may initiate additional rate increases later in the year. Due to the potential for rising rates, we will continue to maintain underweight duration positioning.
February 15, 2019
1 Total return includes reinvestment of dividends and any capital gains paid. Past performance is no guarantee of future results. Share price, yield, and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost.
2 Source: Lipper Inc. — The Bloomberg Barclays U.S. TIPS 1-10 Year Index measures the performance of the U.S. Treasury Inflation-Protected Securities (TIPS) market with a maturity greater than 1 year and less than 10 years. Federal Reserve holdings of U.S. TIPS are not index-eligible and are excluded from the face amount outstanding of each bond in the index. Investors cannot invest directly in any index.
Bonds are subject generally to interest-rate, credit, liquidity, and market risks, to varying degrees, all of which are more fully described in the fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause price declines.
Interest payments on inflation-protected bonds will vary as the bond’s principal value is periodically adjusted based on the rate of inflation. If the index measuring inflation falls, the interest payable on these securities will be reduced. Any increase in the principal amount of an inflation-protected bond (which follows a rise in the relevant inflation index) will be considered taxable ordinary income, even though investors do not receive their principal until maturity.
During periods of rising interest rates and flat or declining inflation rates, inflation-protected bonds can underperform. Inflation-protected bonds issued by corporations generally do not guarantee repayment of principal.
Investing internationally involves special risks, including changes in currency exchange rates, political, economic, and social instability, a lack of comprehensive company information, differing auditing and legal standards, and less market liquidity.
Investments in foreign currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedged positions, that the U.S. dollar will decline relative to the currency being hedged. Each of these risks could increase the fund’s volatility.
The fund may use derivative instruments, such as options, futures, options on futures, forward contracts, swaps (including credit default swaps on corporate bonds and asset-backed securities), options on swaps, and other credit derivatives. A small investment in derivatives could have a potentially large impact on the fund’s performance. The use of derivatives involves risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets.
4
UNDERSTANDING YOUR FUND’S EXPENSES(Unaudited)
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 August 1, 2018 to January 31, 2019. 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 January 31, 2019 | |
| | | Class I | Investor Shares | Class Y |
Expenses paid per $1,000† | | $2.63 | | $4.00 | | $2.38 |
Ending value (after expenses) | | $1,008.70 | | $1,008.20 | | $1,009.00 |
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 January 31, 2019 |
| | | Class I | Investor Shares | Class Y |
Expenses paid per $1,000† | | $2.65 | | $4.02 | | $2.40 |
Ending value (after expenses) | | $1,022.58 | | $1,021.22 | | $1,022.84 |
† Expenses are equal to the fund’s annualized expense ratio of .52% for Class I, .79% for Investor Shares and .47% for Class Y, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
5
STATEMENT OF INVESTMENTS
January 31, 2019 (Unaudited)
| | | | | | | | | | |
| |
Description | Coupon
Rate (%) | | Maturity
Date | | Principal
Amount ($) | | Value ($) | |
Bonds and Notes - 98.0% | | | | | |
U.S. Government Securities - 98.0% | | | | | |
United States Treasury Inflation Indexed Bonds,
US CPI Urban Consumers Not Seasonally Adjusted | | 2.00 | | 1/15/2026 | | 6,596,923 | a | 7,163,477 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.13 | | 4/15/2021 | | 6,859,059 | a | 6,745,925 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.13 | | 4/15/2020 | | 4,396,481 | a | 4,339,150 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.13 | | 7/15/2022 | | 1,742,624 | a,b | 1,714,433 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.13 | | 7/15/2026 | | 998,897 | a | 957,698 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.38 | | 7/15/2025 | | 11,765,307 | a | 11,559,414 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.38 | | 7/15/2023 | | 9,514,331 | a,b | 9,425,633 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.38 | | 7/15/2027 | | 7,578,077 | a | 7,362,822 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.50 | | 1/15/2028 | | 4,184,189 | a | 4,083,017 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.63 | | 7/15/2021 | | 9,790,366 | a,b | 9,794,291 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.63 | | 4/15/2023 | | 4,941,492 | a | 4,922,157 | |
6
| | | | | | | | | | |
| |
Description | Coupon
Rate (%) | | Maturity
Date | | Principal
Amount ($) | | Value ($) | |
Bonds and Notes - 98.0% (continued) | | | | | |
U.S. Government Securities - 98.0% (continued) | | | | | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.63 | | 1/15/2026 | | 3,792,074 | a | 3,764,621 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 0.63 | | 1/15/2024 | | 7,480,246 | a | 7,465,306 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 1.25 | | 7/15/2020 | | 9,551,778 | a | 9,628,403 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 1.75 | | 1/15/2028 | | 8,836,549 | a | 9,573,273 | |
United States Treasury Inflation Indexed Notes,
US CPI Urban Consumers Not Seasonally Adjusted | | 2.50 | | 1/15/2029 | | 2,400,646 | a | 2,790,094 | |
TotalBonds and Notes
(cost $101,786,711) | | 101,289,714 | |
| | Annualized
Yield (%) | | | | | | | |
Short-Term Investments - 1.7% | | | | | |
U.S. Government Securities | | | | | |
U.S. Treasury Bills
(cost $1,726,612) | | 2.08 | | 4/25/2019 | | 1,736,000 | c | 1,726,664 | |
| | 1-Day
Yield (%) | | | | Shares | | | |
Investment Companies - .5% | | | | | |
Registered Investment Companies - .5% | | | | | |
Dreyfus Institutional Preferred Government Plus Money Market Fund
(cost $551,016) | | 2.37 | | | | 551,016 | d | 551,016 | |
Total Investments(cost $104,064,339) | | 100.2% | 103,567,394 | |
Liabilities, Less Cash and Receivables | | (0.2%) | (190,397) | |
Net Assets | | 100.0% | 103,376,997 | |
a Principal amount for accrual purposes is periodically adjusted based on changes in the Consumer Price Index.
b Security, or portion thereof, on loan. At January 31, 2019, the value of the fund’s securities on loan was $13,352,878 and the value of the collateral held by the fund was $13,595,378, consisting of U.S. Government & Agency securities.
c Security is a discount security. Income is recognized through the accretion of discount.
d Investment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.
7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| | |
Portfolio Summary (Unaudited)† | Value (%) |
Government | 99.7 |
Investment Companies | .5 |
| | 100.2 |
† Based on net assets.
See notes to financial statements.
8
STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS(Unaudited)
| | | | | | | |
Investment Companies | Value
7/31/18($) | Purchases($) | Sales($) | Value
1/31/19($) | Net
Assets(%) | Dividends/
Distributions($) |
Registered Investment Companies; | | | | |
Dreyfus Institutional Preferred Government Plus Money Market Fund | 222,718 | 15,983,230 | 15,654,932 | 551,016 | .5 | 5,582 |
See notes to financial statements.
9
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2019 (Unaudited)
| | | | | | | |
| | | | | | |
| | | Cost | | Value | |
Assets ($): | | | | |
Investments in securities—See Statement of Investments
(including securities on loan, valued at $13,352,878)—Note 1(b): | | | |
Unaffiliated issuers | 103,513,323 | | 103,016,378 | |
Affiliated issuers | | 551,016 | | 551,016 | |
Receivable for investment securities sold | | 2,779,956 | |
Interest and securities lending income receivable | | 49,729 | |
Receivable for shares of Common Stock subscribed | | 17,523 | |
Prepaid expenses | | | | | 29,448 | |
| | | | | 106,444,050 | |
Liabilities ($): | | | | |
Due to The Dreyfus Corporation and affiliates—Note 3(b) | | | | 36,182 | |
Cash overdraft due to Custodian | | | | | 27,767 | |
Payable for investment securities purchased | | 2,791,225 | |
Payable for shares of Common Stock redeemed | | 175,235 | |
Directors fees and expenses payable | | 1,333 | |
Accrued expenses | | | | | 35,311 | |
| | | | | 3,067,053 | |
Net Assets ($) | | | 103,376,997 | |
Composition of Net Assets ($): | | | | |
Paid-in capital | | | | | 122,176,692 | |
Total distributable earnings (loss) | | | | | (18,799,695) | |
Net Assets ($) | | | 103,376,997 | |
| | | | | |
Net Asset Value Per Share | Class I | Investor Shares | Class Y | |
Net Assets ($) | 19,325,180 | 10,347,861 | 73,703,956 | |
Shares Outstanding | 1,573,538 | 844,853 | 5,994,935 | |
Net Asset Value Per Share ($) | 12.28 | 12.25 | 12.29 | |
| | | | | |
See notes to financial statements. | | | | |
10
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2019 (Unaudited)
| | | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | |
Investment Income ($): | | | | |
Income: | | | | |
Interest | | | 511,522 | |
Dividends from affiliated issuers | | | 5,582 | |
Income from securities lending—Note 1(b) | | | 5,507 | |
Total Income | | | 522,611 | |
Expenses: | | | | |
Management fee—Note 3(a) | | | 177,321 | |
Professional fees | | | 46,756 | |
Registration fees | | | 25,574 | |
Shareholder servicing costs—Note 3(b) | | | 25,172 | |
Loan commitment fees—Note 2 | | | 1,684 | |
Directors’ fees and expenses—Note 3(c) | | | 1,303 | |
Custodian fees—Note 3(b) | | | 1,302 | |
Prospectus and shareholders’ reports | | | 1,286 | |
Miscellaneous | | | 19,763 | |
Total Expenses | | | 300,161 | |
Investment Income—Net | | | 222,450 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | | |
Net realized gain (loss) on investments | (1,598,536) | |
Net unrealized appreciation (depreciation) on investments | | | 2,259,086 | |
Net Realized and Unrealized Gain (Loss) on Investments | | | 660,550 | |
Net Increase in Net Assets Resulting from Operations | | 883,000 | |
| | | | | | | |
See notes to financial statements. | | | | | |
11
STATEMENT OF CHANGES IN NET ASSETS
| | | | | | | | | | |
| | | | | | | | | | |
| | | | Six Months Ended
January 31, 2019 (Unaudited) | | Year Ended
July 31, 2018a | |
Operations ($): | | | | | | | | |
Investment income—net | | | 222,450 | | | | 3,289,361 | |
Net realized gain (loss) on investments | | (1,598,536) | | | | (461,536) | |
Net unrealized appreciation (depreciation)
on investments | | 2,259,086 | | | | (2,677,119) | |
Net Increase (Decrease) in Net Assets
Resulting from Operations | 883,000 | | | | 150,706 | |
Distributions ($): | |
Distributions to shareholders: | | | | | | | | |
Class I | | | (191,652) | | | | (580,493) | |
Investor Shares | | | (86,403) | | | | (335,690) | |
Class Y | | | (759,385) | | | | (2,507,956) | |
Total Distributions | | | (1,037,440) | | | | (3,424,139) | |
Capital Stock Transactions ($): | |
Net proceeds from shares sold: | | | | | | | | |
Class I | | | 3,818,317 | | | | 8,907,848 | |
Investor Shares | | | 394,850 | | | | 912,820 | |
Class Y | | | 7,974,516 | | | | 20,038,701 | |
Distributions reinvested: | | | | | | | | |
Class I | | | 185,551 | | | | 563,887 | |
Investor Shares | | | 83,353 | | | | 324,027 | |
Class Y | | | 192,405 | | | | 345,258 | |
Cost of shares redeemed: | | | | | | | | |
Class I | | | (6,199,779) | | | | (6,897,422) | |
Investor Shares | | | (2,579,144) | | | | (3,656,545) | |
Class Y | | | (21,880,578) | | | | (22,606,045) | |
Increase (Decrease) in Net Assets
from Capital Stock Transactions | (18,010,509) | | | | (2,067,471) | |
Total Increase (Decrease) in Net Assets | (18,164,949) | | | | (5,340,904) | |
Net Assets ($): | |
Beginning of Period | | | 121,541,946 | | | | 126,882,850 | |
End of Period | | | 103,376,997 | | | | 121,541,946 | |
12
| | | | | | | | | | |
| | | | Six Months Ended
January 31, 2019 (Unaudited) | | Year Ended
July 31, 2018a | |
Capital Share Transactions (Shares): | |
Class Ib | | | | | | | | |
Shares sold | | | 313,044 | | | | 713,659 | |
Shares issued for distributions reinvested | | | 15,218 | | | | 45,334 | |
Shares redeemed | | | (508,654) | | | | (553,075) | |
Net Increase (Decrease) in Shares Outstanding | (180,392) | | | | 205,918 | |
Investor Shares | | | | | | | | |
Shares sold | | | 32,485 | | | | 73,266 | |
Shares issued for distributions reinvested | | | 6,852 | | | | 26,110 | |
Shares redeemed | | | (212,162) | | | | (292,948) | |
Net Increase (Decrease) in Shares Outstanding | (172,825) | | | | (193,572) | |
Class Yb | | | | | | | | |
Shares sold | | | 653,291 | | | | 1,612,757 | |
Shares issued for distributions reinvested | | | 15,816 | | | | 27,715 | |
Shares redeemed | | | (1,798,243) | | | | (1,812,571) | |
Net Increase (Decrease) in Shares Outstanding | (1,129,136) | | | | (172,099) | |
| | | | | | | | | | |
a | Distributions to shareholders include only distributions from net investment income. Undistributed investment income-net was $573,731 in 2018 and is no longer presented as a result of the adoption of SEC's Disclosure Update and Simplification Rule.
| |
|
| |
b | During the period ended January 31, 2019, 31,347 Class Y shares representing $382,954 were exchanged for 31,388 Class I shares and during the period ended July 31, 2018, 103,427 Class Y shares representing $1,290,282 were exchanged for 103,530 Class I shares.
| |
| | |
See notes to financial statements. | | | | | | | | |
13
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund’s financial statements.
| | | | | | | | |
| | | | |
| | Six Months Ended
January 31, 2019 | Year Ended July 31, |
Class I Shares | (Unaudited) | 2018 | 2017 | 2016 | 2015 | 2014 |
Per Share Data ($): | | | | | | |
Net asset value, beginning of period | 12.28 | 12.61 | 12.85 | 12.51 | 12.89 | 12.80 |
Investment Operations: | | | | | | |
Investment income—neta | .02 | .33 | .21 | .10 | .01 | .28 |
Net realized and unrealized
gain (loss) on investments | .09 | (.32) | (.26) | .31 | (.30) | .07 |
Total from Investment Operations | .11 | .01 | (.05) | .41 | (.29) | .35 |
Distributions: | | | | | | |
Dividends from
investment income-net | (.07) | (.34) | (.19) | (.07) | (.09) | (.26) |
Dividends from net realized
gain on investments | (.04) | - | - | - | - | - |
Total Distributions | (.11) | (.34) | (.19) | (.07) | (.09) | (.26) |
Net asset value, end of period | 12.28 | 12.28 | 12.61 | 12.85 | 12.51 | 12.89 |
Total Return (%) | .87b | .11 | (.39) | 3.27 | (2.24) | 2.76 |
Ratios/Supplemental Data (%): | | | | | | |
Ratio of total expenses
to average net assets | .52c | .55 | .51 | .54 | .52 | .40 |
Ratio of net expenses
to average net assets | .52c | .55 | .51 | .54 | .52 | .40 |
Ratio of net investment income
to average net assets | .31c | 2.66 | 1.67 | .80 | .05 | 2.23 |
Portfolio Turnover Rate | 46.66b | 47.82 | 51.76 | 59.68 | 53.54 | 74.65 |
Net Assets, end of period ($ x 1,000) | 19,325 | 21,533 | 19,525 | 17,594 | 20,099 | 33,537 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
14
| | | | | | | |
| | Six Months Ended
January 31, 2019 | |
| | Year Ended July 31, |
Investor Shares | (Unaudited) | 2018 | 2017 | 2016 | 2015 | 2014 |
Per Share Data ($): | | | | | | |
Net asset value, beginning of period | 12.24 | 12.58 | 12.81 | 12.50 | 12.90 | 12.81 |
Investment Operations: | | | | | | |
Investment income (loss)—neta | .01 | .30 | .18 | .07 | (.03) | .24 |
Net realized and unrealized
gain (loss) on investments | .09 | (.33) | (.26) | .30 | (.29) | .07 |
Total from Investment Operations | .10 | (.03) | (.08) | .37 | (.32) | .31 |
Distributions: | | | | | | |
Dividends from
investment income-net | (.05) | (.31) | (.15) | (.06) | (.08) | (.22) |
Dividends from net realized
gain on investments | (.04) | - | - | - | - | - |
Total Distributions | (.09) | (.31) | (.15) | (.06) | (.08) | (.22) |
Net asset value, end of period | 12.25 | 12.24 | 12.58 | 12.81 | 12.50 | 12.90 |
Total Return (%) | .82b | (.23) | (.60) | 3.00 | (2.52) | 2.44 |
Ratios/Supplemental Data (%): | | | | | | |
Ratio of total expenses
to average net assets | .79c | .80 | .76 | .76 | .74 | .72 |
Ratio of net expenses
to average net assets | .79c | .80 | .76 | .76 | .74 | .72 |
Ratio of net investment income
(loss) to average net assets | .09c | 2.40 | 1.41 | .58 | (.25) | 1.92 |
Portfolio Turnover Rate | 46.66b | 47.82 | 51.76 | 59.68 | 53.54 | 74.65 |
Net Assets, end of period ($ x 1,000) | 10,348 | 12,460 | 15,236 | 19,343 | 21,488 | 26,864 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
15
FINANCIAL HIGHLIGHTS (continued)
| | | | | | | | | |
| | | | |
| | Six Months Ended
January 31, 2019 | Year Ended July 31, |
Class Y Shares | (Unaudited) | 2018 | 2017 | 2016 | 2015 | 2014 |
Per Share Data ($): | | | | | | |
Net asset value, beginning of period | 12.29 | 12.63 | 12.86 | 12.51 | 12.89 | 12.81 |
Investment Operations: | | | | | | |
Investment income—neta | .03 | .34 | .22 | .11 | .01 | .28 |
Net realized and unrealized
gain (loss) on investments | .08 | (.33) | (.25) | .31 | (.29) | .06 |
Total from Investment Operations | .11 | .01 | (.03) | .42 | (.28) | .34 |
Distributions: | | | | | | |
Dividends from
investment income-net | (.07) | (.35) | (.20) | (.07) | (.10) | (.26) |
Dividends from net realized
gain on investments | (.04) | - | - | - | - | - |
Total Distributions | (.11) | (.35) | (.20) | (.07) | (.10) | (.26) |
Net asset value, end of period | 12.29 | 12.29 | 12.63 | 12.86 | 12.51 | 12.89 |
Total Return (%) | .90b | .10 | (.24) | 3.36 | (2.19) | 2.72 |
Ratios/Supplemental Data (%): | | | | | | |
Ratio of total expenses
to average net assets | .47c | .49 | .43 | .44 | .41 | .39 |
Ratio of net expenses
to average net assets | .47c | .49 | .43 | .44 | .41 | .39 |
Ratio of net investment income
to average net assets | .43c | 2.72 | 1.74 | .90 | .11 | 2.24 |
Portfolio Turnover Rate | 46.66b | 47.82 | 51.76 | 59.68 | 53.54 | 74.65 |
Net Assets, end of period ($ x 1,000) | 73,704 | 87,549 | 92,121 | 95,606 | 140,443 | 170,021 |
a Based on average shares outstanding.
b Not annualized.
c Annualized.
See notes to financial statements.
16
NOTES TO FINANCIAL STATEMENTS(Unaudited)
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 two 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”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares. The fund is authorized to issue 1.1 billion shares of $.001 par value Common Stock. The fund currently has authorized three classes of shares: Class I (500 million shares authorized), Investor (500 million shares authorized) and Class Y (100 million shares authorized). Class I and Class Y shares are sold at net asset value per share generally to institutional investors. Investor shares are subject to a Shareholder Services Plan fee. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs, 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 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Companyenters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these
17
NOTES TO FINANCIAL STATEMENTS (Unaudited)(continued)
arrangements is unknown. The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements. These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
Registered investment companies that are not traded on an exchange are valued at their net asset value and are generally categorized within Level 1 of the fair value hierarchy.
Investments in securities, excluding short-term investments (other than U.S. Treasury Bills), are valued each business day by an independent pricing service (the “Service”) approved by the Company’s Board of Directors (the “Board”).Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the
18
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 the following: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. These securities are generally categorized within Level 2 of the fair value hierarchy.
The Service is engaged under the general supervision of the Board.
When market quotations or official closing prices are not readily available, or are determined not to accurately reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board. Certain factors may be considered when fair valuing investments such as: 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. These securities are either categorized within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and such securities are generally categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of January 31, 2019in valuing the fund’s investments:
| | | | | |
| | Level 1 - Unadjusted Quoted Prices | Level 2 - Other Significant Observable Inputs | Level 3 - Significant Unobservable Inputs | Total |
Assets($) Investments in Securities: | | | | |
Investment Company | 551,016 | - | - | 551,016 |
U.S. Treasury | - | 103,016,378 | - | 103,016,378 |
19
NOTES TO FINANCIAL STATEMENTS (Unaudited)(continued)
At January 31, 2019, there were no transfers between levels of the fair value hierarchy. It is the fund’s policy to recognize transfers between levels at the end of the reporting period.
(b)Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses 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. Inflation adjustments to the face amount of inflation-indexed securities are included in interest income.
Pursuant to a securities lending agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, 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. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by Dreyfus, or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner, The Bank of New York Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended January 31, 2019, The Bank of New York Mellon earned $953 from lending portfolio securities, pursuant to the securities lending agreement.
(c) Affiliated issuers: Investments in other investment companies advised by Dreyfus are considered “affiliated” under the Act.
(d) Dividends and distributions 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 gains, 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 gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such
20
gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(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 and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended January 31, 2019, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended January 31, 2019, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended July 31, 2018 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund is permitted to carry forward capital losses for an unlimited period. Furthermore, capital loss carryovers retain their character as either short-term or long-term capital losses.
The fund has an unused capital loss carryover of $15,928,498 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to July 31, 2018. The fund has $8,191,018 of short-term capital losses and $7,737,480 of long-term capital losses which can be carried forward for unlimited period
The tax character of distributions paid to shareholders during the fiscal year ended July 31, 2018 was as follows: ordinary income $3,424,139. The tax character of current year distributions will be determined at the end of the current fiscal year.
(f) New Accounting Pronouncements: In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization On Purchased Callable Debt Securities (“ASU 2017-08”). The update shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. ASU 2017-08 will be effective for annual periods beginning after December 15, 2018.
Also in August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The update provides guidance that eliminates, adds and
21
NOTES TO FINANCIAL STATEMENTS (Unaudited)(continued)
modifies certain disclosure requirements for fair value measurements. ASU 2018-13 will be effective for annual periods beginning after December 15, 2019. Management is currently assessing the potential impact of these changes to future financial statements.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed long-term open-end funds in a $1.030 billion unsecured credit facility led by Citibank, N.A. (the “Citibank Credit Facility”) and a $300 million unsecured credit facility provided by The Bank of New York Mellon (the “BNYM Credit Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions (each, a “Facility”). The Citibank Credit Facility is available in two tranches: (i) Tranche A is in an amount equal to $830 million and is available to all long-term open-ended funds, including the fund, and (ii) Tranche B is in amount equal to $200 million and is available only to the Dreyfus Floating Rate Income Fund, a series of The Dreyfus/Laurel Funds, Inc. Prior to October 3, 2018, the unsecured credit facility with Citibank, N.A. was $830 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended January 31, 2019, the fund did not borrow under the Facilities.
NOTE 3—Management Fee and Other Transactions with Affiliates:
(a)Pursuant to a management agreement with Dreyfus, 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.
(b)Under the Shareholder Services Plan, Investor shares pay the Distributor at an annual rate of .25% of the value of its 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, such as recordkeeping and sub-accounting services. The Distributor may make payments to Service Agents (securities dealers, financial institutions or other industry professionals) with respect to these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended January 31, 2019,the fund was charged $14,466 pursuant to the Shareholder Services Plan.
22
The fund has arrangements with the transfer agent and the custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes net earnings credits, if any, as an expense offset in the Statement of Operations.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended January 31, 2019, the fund was charged $3,655 for transfer agency services. These fees are included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. These fees are determined based on net assets, geographic region and transaction activity. During the period ended January 31, 2019, the fund was charged $1,302 pursuant to the custody agreement.
During the period ended January 31, 2019, the fund was charged $6,382 for services performed by the Chief Compliance Officer and his staff. These fees are included in Miscellaneous in the Statement of Operations.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $26,955, Shareholder Services Plan fees $2,224, custodian fees $1,380, Chief Compliance Officer fees $4,231 and transfer agency fees $1,392.
(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 aggregate amount of purchases and sales of investment securities, excluding short-term securities during the period ended January 31, 2019, amounted to $53,628,317 and $69,285,160, respectively.
At January 31, 2019, accumulated net unrealized depreciation on investments was $496,945, consisting of $344,299 gross unrealized appreciation and $841,244 gross unrealized depreciation.
At January 31, 2019, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
23
NOTES
24
NOTES
25
Dreyfus Inflation Adjusted Securities Fund
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
Distributor
MBSC Securities Corporation
200 Park Avenue
New York, NY 10166
| | |
Ticker Symbols: | Class I: DIASX Investor: DIAVX Class Y: DAIYX |
Telephone Call your financial representative or 1-800-DREYFUS
Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
E-mailSend your request toinfo@dreyfus.com
InternetInformation can be viewed online or downloaded atwww.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 atwww.sec.gov.
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 most recent 12-month period ended June 30 is available atwww.dreyfus.com and on the SEC’s website atwww.sec.gov and without charge, upon request, by calling 1-800-DREYFUS.
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© 2019 MBSC Securities Corporation
0588SA0119 | 
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