-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vp54Z8nobMFQci6FposbPtd97tAzGVprajyzh8vFAerQWgwzDSVpRv55i+zmKwEx V2ZCUExtUChvPv/zn36ZBQ== 0000912492-02-000006.txt : 20020610 0000912492-02-000006.hdr.sgml : 20020610 20020607134544 ACCESSION NUMBER: 0000912492-02-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020607 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DREYFUS INSTITUTIONAL SHORT TERM TREASURY FUND CENTRAL INDEX KEY: 0000912492 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07097 FILM NUMBER: 02673366 BUSINESS ADDRESS: STREET 1: 200 PARK AVENUE STREET 2: DREYFUS CORP CITY: NEW YORK STATE: NY ZIP: 10166 BUSINESS PHONE: 2129226000 MAIL ADDRESS: STREET 1: THE DREYFUS CORP STREET 2: 200 PARK AVENUE, 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10166 N-30D 1 semiannual721.txt SEMI-ANNUAL REPORT Dreyfus Institutional Short Term Treasury Fund SEMIANNUAL REPORT March 31, 2002 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 Letter from the Chairman 3 Discussion of Fund Performance 6 Statement of Investments 7 Statement of Assets and Liabilities 8 Statement of Operations 9 Statement of Changes in Net Assets 11 Financial Highlights 13 Notes to Financial Statements FOR MORE INFORMATION - --------------------------------------------------------------------------- Back Cover The Fund Dreyfus Institutional Short Term Treasury Fund LETTER FROM THE CHAIRMAN Dear Shareholder: We present this semiannual report for Dreyfus Institutional Short Term Treasury Fund, covering the six-month period from October 1, 2001 through March 31, 2002. Inside, you' ll find valuable information about how the fund was managed during the reporting period, including a discussion with Gerald E. Thunelius, portfolio manager and Director of the Dreyfus Taxable Fixed Income Team that manages the fund. As of the reporting period's close, we have seen signs of economic recovery, which may signal an end to the U.S. economic recession. As the economy has gained strength, however, some segments of the bond market have given back a portion of the gains achieved during the Federal Reserve Board's aggressive campaign of interest-rate reductions. Indeed, the market' s direction becomes clearer only when viewed from a perspective measured in full economic cycles. Although you may become excited about opportunities or worried about the challenges presented under current market conditions, we encourage you to stop and think of your long-term goals before you take action. And, as always, we urge you to solicit the advice of a professional financial advisor who can help you navigate a smoother course to financial security for yourself and your family. For our part, and as we have for more than 50 years, we at The Dreyfus Corporation are ready to serve you with a full range of investment alternatives and our experienced teams of portfolio managers. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation April 15, 2002 DISCUSSION OF FUND PERFORMANCE Gerald E. Thunelius, Portfolio Manager Dreyfus Taxable Fixed Income Team How did Dreyfus Institutional Short Term Treasury Fund perform relative to its benchmark? For the six-month period ended March 31, 2002, the fund's Institutional shares achieved a total return of 0.78% and produced aggregate income dividends of $0.0360 per share. The fund's Investor shares achieved a total return of 0.18% and produced aggregate income dividends of $0.0337 per share.(1) In comparison, the Merrill Lynch Governments, U.S. Treasury, Short-Term (1-3 Years) Index, the fund' s benchmark, achieved a total return of 0.77% for the same period.(2 The fund' s performance was mainly driven by falling short-term interest rates early in the reporting period and slightly higher rates thereafter. While the fund produced returns similar to that of its benchmark, the fund benefited later in the reporting period when short-term yields rose, primarily because its average duration -- a measure of sensitivity to changing interest rates -- was shorter than that of its benchmark. What is the fund's investment approach? The fund seeks to provide a high level of current income with minimum fluctuation of principal. To pursue this goal, the fund purchases only U.S. Treasury securities and may enter into repurchase agreements collateralized by such securities. To help minimize fluctuations of principal, the fund will limit the remaining maturities of the Treasury securities it purchases to three years or less and its repurchase agreements to those that mature the next business day. The portfolio's dollar-weighted average maturity does not exceed two years What other factors influenced the fund's performance? The reporting period began just weeks after the September 11 terrorist attacks, which caused a "flight to quality" among investors, driving The Fund DISCUSSION OF FUND PERFORMANCE (CONTINUED) up the prices of U.S. Treasury securities. The attacks also led to additional interest-rate reductions from the Federal Reserve Board (the "Fed") and delayed any prospect of economic recovery. Nonetheless, it was not long before investors began to anticipate the start of a recovery. As early as November, signs began to emerge that the economy had bottomed. By late January, the Fed signaled that it was becoming more comfortable with economic conditions when it left interest rates unchanged at its first meeting of 2002. As positive economic data accumulated in February -- including reports of increased manufacturing activity and strong consumer spending -- many analysts expected that the Fed would soon move to a more neutral stance to reflect the likelihood that the recession is over. This proved to be the case when the Fed indicated at its March meeting that an economic recovery was apparently underway and that the risks of recession and inflation were evenly balanced. With this pronouncement, the Fed signaled that its aggressive rate-cutting campaign was complete, and many investors began to anticipate higher short-term interest rates. In this environment, prices of short-term U.S. Treasury securities rallied while interest rates were falling during the fourth quarter of 2001, and they fell when the economy gained strength during the first quarter of 2002. Accordingly, during the reporting period' s first half we generally maintained the fund's average duration near the two-year mark, which is the long end of its range. This position enabled us to maintain higher yields for as long as practical while interest rates fell. We began to reduce the fund's average duration in early 2002, when it became apparent that the Fed's aggressive rate-cutting campaign was complete. As of March 31, 2002, the fund's average duration was 1.360 years. What is the fund's current strategy? We expect the economic recovery to continue to gain strength. Corporate inventories have been drawn down to low levels, suggesting that manufacturing activity should pick up even if sales remain relatively flat. Consumer spending and confidence have remained strong, providing a critical foundation for a rebound within the corporate sector. As a result, we expect the Fed's next move to be toward higher interest rates. The question is: when will the Fed move? Recent comments from Fed officials suggest that they are currently waiting for firmer evidence that a strong recovery is underway. Therefore, we do not believe that rate hikes are likely in the immediate future. Nonetheless, we have continued to maintain a relatively short average duration in anticipation of higher interest rates later this year. Of course, we are prepared to change our strategies and the fund's composition as market conditions evolve. April 15, 2002 (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. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE MERRILL LYNCH GOVERNMENTS, U.S. TREASURY, SHORT-TERM (1-3 YEARS) INDEX IS AN UNMANAGED PERFORMANCE BENCHMARK FOR TREASURY SECURITIES WITH MATURITIES OF ONE TO THREE YEARS; ISSUES IN THE INDEX MUST HAVE PAR AMOUNTS OUTSTANDING GREATER THAN OR EQUAL TO $1 BILLION. The Fund STATEMENT OF INVESTMENTS March 31, 2002 (Unaudited)
STATEMENT OF INVESTMENTS Principal BONDS AND NOTES--85.7% Amount ($) Value ($) - ------------------------------------------------------------------------------------------------------------------------------------ U.S. TREASURY NOTES: 3%, 2/29/2004 5,775,000 5,707,086 3%, 11/30/2003 2,500,000 2,482,225 3.25%, 12/31/2003 5,000,000 4,977,700 3.875%, 6/30/2003 5,000,000 5,054,450 4.75%, 2/15/2004 5,000,000 5,105,850 5.25%, 8/15/2003 5,000,000 5,143,150 TOTAL BONDS AND NOTES (cost $28,614,805) 28,470,461 - ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS--12.9% - ------------------------------------------------------------------------------------------------------------------------------------ U.S. TREASURY BILLS; 2.325%, 4/4/2002 (cost $4,299,379) 4,300,000 4,300,000 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $32,914,184) 98.6% 32,770,461 CASH AND RECEIVABLES (NET) 1.4% 468,440 NET ASSETS 100.0% 33,238,901 SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES March 31, 2002 (Unaudited) Cost Value - -------------------------------------------------------------------------------- ASSETS ($): Investments in securities-- See Statement of Investments 32,914,184 32,770,461 Cash 173,656 Interest receivable 191,912 Receivable for shares of Beneficial Interest subscribed 112,986 Prepaid expenses 76 33,249,091 - -------------------------------------------------------------------------------- LIABLILITES ($): Due to The Dreyfus Corporation and affiliates 8,508 Payable for shares of Beneficial Interest redeemed 1,682 10,190 - -------------------------------------------------------------------------------- NET ASSETS ($) 33,238,901 - -------------------------------------------------------------------------------- COMPOSITION NET ASSETS ($): Paid-in capital 36,554,259 Accumulated distributions in excess of investment income--net (241,108) Accumulated net realized gain (loss) on investments (2,930,527) Accumulated net unrealized appreciation (depreciation) on investments (143,723) - -------------------------------------------------------------------------------- NET ASSETS ($) 33,238,901 NET ASSET VALUE PER SHARE Institutional Shares Investor Share - -------------------------------------------------------------------------------- Net Assets ($) 18,571,211 14,667,690 Shares Outstanding 9,210,304 7,232,428 - -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ($) 2.02 2.03 SEE NOTES TO FINANCIAL STATEMENTS. The Fund STATEMENT OF OPERATIONS Six Months Ended March 31, 2002 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INTEREST INCOME 277,010 EXPENSES: Management fee--Note 3(a) 27,975 Distribution fees (Investor Shares)--Note 3(b) 12,904 Loan commitment fees--Note 2 84 TOTAL EXPENSES 40,963 INVESTMENT INCOME--NET 236,047 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments 321,143 Net unrealized appreciation (depreciation) on investments (465,075) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (143,932) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 92,115 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS Six Months Ended March 31, 2002 Year Ended (Unaudited) September 30, 2001 - -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 236,047 1,037,384 Net realized gain (loss) on investments 321,143 599,577 Net unrealized appreciation (depreciation) on investments (465,075) 265,686 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 92,115 1,902,647 - -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS FROM ($): Investment income--net: Institutional Shares (164,970) (766,673) Investor Shares (311,711) (268,674) TOTAL DIVIDENDS (476,681) (1,035,347) - -------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ($): Net proceeds from shares sold: Institutional Shares 3,649,123 6,532,593 Investor Shares 12,346,418 3,566,890 Dividends reinvested: Institutional Shares 85,115 239,228 Investor Shares 139,412 212,534 Cost of shares redeemed: Institutional Shares (1,618,329) (6,583,356) Investor Shares (4,762,329) (1,654,170) INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS 9,839,410 2,313,719 TOTAL INCREASE (DECREASE) IN NET ASSETS 9,454,844 3,181,019 - -------------------------------------------------------------------------------- NET ASSETS: Beginning of Period 23,784,057 20,603,038 END OF PERIOD 33,238,901 23,784,057 Undistributed (distributions in excess of) investment income--net (241,108) 5,247 The Fund STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) Six Months Ended March 31, 2002 Year Ended (Unaudited) September 30, 2001 - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: INSTITUTIONAL SHARES Shares sold 1,793,746 3,254,690 Shares issued for dividends reinvested 41,839 119,686 Shares redeemed (796,114) (3,301,081) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,039,471 73,295 - -------------------------------------------------------------------------------- INVESTOR SHARES Shares sold 6,047,252 1,768,370 Shares issued for dividends reinvested 68,176 105,545 Shares redeemed (2,330,519) (818,840) NET INCREASE (DECREASE) IN SHARES OUTSTANDING 3,784,909 1,055,075 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. Six Months Ended March 31, 2002(a) Year Ended September 30, ---------------------------------------------------------------- INSTITUTIONAL SHARES (Unaudited) 2001 2000 1999 1998 1997(b) - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 2.04 1.96 1.96 2.01 1.98 1.98 Investment Operations: Investment income--net .02(c) .10 .11 .11 .12 .12 Net realized and unrealized gain (loss) on investments .00(d) .08 -- (.05) .03 -- Total from Investment Operations .02 .18 .11 .06 .15 .12 Distributions: Dividends from investment income--net (.04) (.10) (.11) (.11) (.12) (.12) Net asset value, end of period 2.02 2.04 1.96 1.96 2.01 1.98 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) .78(e) 9.41 5.68 2.92 7.56 6.23 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .20(f) .20 .20 .20 .20 .20 Ratio of net investment income to average net assets 1.80(f) 5.00 5.55 5.39 5.81 6.04 Portfolio Turnover Rate 847.38(e) 1,614.08 871.42 823.06 756.50 952.81 - ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($x1,000) 18,571 16,697 15,881 31,860 65,163 118,102 (A) AS REQUIRED, EFFECTIVE OCTOBER 1, 2001, THE FUND HAS ADOPTED THE PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES AND BEGAN AMORTIZING DISCOUNT OR PREMIUM ON A SCIENTIFIC BASIS FOR DEBT SECURITIES ON A DAILY BASIS. THE EFFECT OF THIS CHANGE FOR THE PERIOD ENDED MARCH 31, 2002 WAS TO DECREASE NET INVESTMENT INCOME PER SHARE BY $.02 AND INCREASE NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS PER SHARE BY $.02 AND DECREASE THE RATIO OF NET INCOME TO AVERAGE NET ASSETS FROM 3.55% TO 1.80%. PER SHARE DATA AND RATIOS/SUPPLEMENTAL DATA FOR PERIODS PRIOR TO OCTOBER 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN PRESENTATION. (B) EFFECTIVE FEBRUARY 2, 1997, CLASS A SHARES WERE REDESIGNATED AS INSTITUTIONAL SHARES. (C) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (D) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE. (E) NOT ANNUALIZED. (F) ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. The Fund FINANCIAL HIGHLIGHTS (CONTINUED) Six Months Ended March 31, 2002(a) Year Ended September 30, ----------------------------------------------------------------- INVESTOR SHARES (Unaudited) 2001 2000 1999 1998 1997(b) - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 2.06 1.97 1.97 2.02 1.99 1.99 Investment Operations: Investment income--net .01(c) .10 .10 .10 .11 .12 Net realized and unrealized gain (loss) on investments (.01) .09 -- (.05) .03 -- Total from Investment Operations -- .19 .10 .05 .14 .12 Distributions: Dividends from investment income--net (.03) (.10) (.10) (.10) (.11) (.12) Net asset value, end of period 2.03 2.06 1.97 1.97 2.02 1.99 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) .18(d) 9.66 5.42 2.68 7.30 5.97 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .45(e) .45 .45 .45 .45 .45 Ratio of net investment income to average net assets 1.49(e) 4.70 5.30 5.16 5.57 5.83 Portfolio Turnover Rate 847.38(d) 1,614.08 871.42 823.06 756.50 952.81 - ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($x1,000) 14,668 7,088 4,722 14,643 10,296 35,296 (A) AS REQUIRED, EFFECTIVE OCTOBER 1, 2001, THE FUND HAS ADOPTED THE PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES AND BEGAN AMORTIZING DISCOUNT OR PREMIUM ON A SCIENTIFIC BASIS FOR DEBT SECURITIES ON A DAILY BASIS. THE EFFECT OF THIS CHANGE FOR THE PERIOD ENDED MARCH 31, 2002 WAS TO DECREASE NET INVESTMENT INCOME PER SHARE BY $.02 AND INCREASE NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS PER SHARE BY $.02 AND DECREASE THE RATIO OF NET INCOME TO AVERAGE NET ASSETS FROM 3.24% TO 1.49%. PER SHARE DATA AND RATIOS/SUPPLEMENTAL DATA FOR PERIODS PRIOR TO OCTOBER 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN PRESENTATION. (B) EFFECTIVE FEBRUARY 2, 1997, CLASS B SHARES WERE REDESIGNATED AS INVESTOR SHARES. (C) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. (D) NOT ANNUALIZED. (E) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1--Significant Accounting Policies: Dreyfus Institutional Short Term Treasury Fund (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified open-end management investment company. The fund's investment objective is to provide investors with a high level of current income with minimum fluctuation of principal value. The Dreyfus Corporation (the "Manager") serves as the fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of the Manager, is the distributor of the fund's shares which are sold without a sales charge. The fund is authorized to issue an unlimited number of $.001 par value shares of Beneficial Interest in the following classes of shares: Institutional Shares and Investor Shares. Investor Shares are subject to a Service Plan adopted pursuant to Rule 12b-1 under the Act. Other differences between the classes include the services offered to and the expenses borne by each class and certain voting rights. The fund' s financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (A) PORTFOLIO VALUATION: Investments in securities (excluding short-term investments other than U.S. Treasury Bills) are valued each business day by an independent pricing service (" Service" ) approved by the Board of Trustees. 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 are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values The Fund NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED) from dealers; and general market conditions. Short-term investments, excluding U.S. Treasury Bills, are carried at amortized cost, which approximates value. (B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Interest income, including, where applicable, amortization of discount on investments, is recognized on the accrual basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Under the terms of the custody agreement, the fund receives net earnings credits based on available cash balances left on deposit. The fund may enter into repurchase agreements with financial institutions, deemed to be creditworthy by the Manager, subject to the seller's agreement to repurchase and the fund' s agreement to resell such securities at a mutually agreed upon price. Securities purchased subject to repurchase agreements are deposited with the fund's custodian and, pursuant to the terms of the repurchase agreement, must have an aggregate market value greater than or equal to the repurchase price plus accrued interest at all times. If the value of the underlying securities falls below the value of the repurchase price plus accrued interest, the fund will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults on its repurchase obligation, the fund maintains the right to sell the underlying securities at market value and may claim any resulting loss against the seller. (C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gain are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the " Code" ). To the extent that net realized capital gain can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gain. (D) FEDERAL INCOME TAXES: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. The fund has an unused capital loss carryover of approximately $3,242,000 available for Federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to September 30, 2001. If not applied, $2,019,000 of the carryover expires in fiscal 2005 and $1,223,000 expires in fiscal 2008. NOTE 2--Bank Line of Credit: The fund participates with other Dreyfus-managed funds in a $500 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 March 31, 2002, the fund did not borrow under the Facility. NOTE 3--Management Fee and Other Transactions With Affiliates: (A) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .20 of 1% of the value of the fund's average daily net assets and is payable monthly. Unless the Manager gives the fund's investors 90 days notice to the contrary, the Manager, and not the fund, will be liable for fund expenses, exclusive of taxes, brokerage fees, interest on borrowings, commitment fees and extraordinary expenses, other than the following expenses, which will be borne by the fund: the management fee, and with respect to the fund's Investor Shares, Rule 12b-1 Service Plan expenses. The Fund NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED) The Manager 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. The Manager compensates Mellon under a custody agreement for providing custodial services for the fund. (B) Under the Investor Shares Service Plan (the "Plan") adopted pursuant to Rule 12b-1 under the Act, the fund pays the Distributor for distributing the fund's Investor Shares, for servicing shareholder accounts (" Servicing") and for advertising and marketing relating to the fund's Investor Shares. The Plan provides for payments to be made at an annual rate of .25 of 1% of the value of the average daily net assets of Investor Shares. The Distributor determines the amounts, if any, to be paid to Service Agents (a securities dealer, financial institutional or other industry professional) under the Plan and the basis on which such payments are made. The fees payable under the Plan are payable without regard to actual expenses incurred. During the period ended March 31, 2002, the fund was charged $12,904 for Investor Shares pursuant to the Plan. (C) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $45,000 and an attendance fee of $5,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board Members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. NOTE 4--Securities Transactions: The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended March 31, 2002, amounted to $203,556,282 and $197,615,637, respectively. At March 31, 2002, accumulated net unrealized depreciation on investments was $143,723, consisting of $3,298 gross unrealized appreciation and $147,021 gross unrealized depreciation. At March 31, 2002, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). NOTE 5-Change in Accounting Principle: As required, effective October 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies amortizing discount or premium on a scientific basis. Prior to October 1, 2001, the fund did not amortize premiums on fixed income securities and amortized discount on a straight line basis. The cumulative effect of this accounting change had no impact on total net assets of the fund, but resulted in a $5,721 decrease in accumulated undistributed investment income-net and a corresponding $5,721 increase in accumulated net unrealized appreciation (depreciation), based on securities held by the fund on March 31, 2001. The effect of this change for the period ended March 31, 2002 was to decrease net investment income by $244,479, increase net unrealized appreciation (depreciation) by $50,021 and increase net realized gains (losses) by $194,458. The statement of changes in net assets and financial highlights for the prior periods have not been restated to reflect this change in presentation. The Fund For More Information Dreyfus Institutional Short Term Treasury Fund 200 Park Avenue New York, NY 10166 Manager The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 To obtain information: BY TELEPHONE Call 1-800-645-6561 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 BY E-MAIL Send your request to info@dreyfus.com ON THE INTERNET Information can be viewed online or downloaded from: http://www.dreyfus.com (c) 2002 Dreyfus Service Corporation 721SA0302 -----END PRIVACY-ENHANCED MESSAGE-----