DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus BASIC
Municipal Bond Portfolio for its annual reporting period ended August 31,
1997. Your Fund produced a total return, including share price changes and
dividend income generated, of 11.03%,* and an annualized tax-free
distribution rate per share of 5.40%.** (Some income may be subject to the
Federal Alternative Minimum Tax for certain shareholders.)
ECONOMIC REVIEW
The performance of the economy over the reporting period has been
remarkable. Economic growth during this time has been robust and virtually
inflation-free. The revised Gross Domestic Product data for the second
quarter revealed that the economy grew at a much stronger rate than
originally reported (3.6% versus 2.2%). A significant portion of this
unexpectedly strong growth came from a large buildup in inventories which
rose at the fastest pace since 1984. Such a rapid increase in inventories
could trigger a subsequent slowdown in the economy if companies cut
production in order to work off the unsold backlog. Yet, it is possible that
the momentum in the economy, combined with more vigorous consumer spending,
could absorb these inventories without any diminution in production.
Increasingly secure income and plentiful jobs have given workers a
growing sense that their jobs are safe which, in turn, has spurred measures
of consumer confidence to rise to all-time high levels. This confidence has
sparked a recovery in retail sales, which, after a second quarter slow-down,
has since revived. This resurgence in retail sales coincided with a boost in
overall consumer spending, a combination that could fuel additional economic
expansion in the third quarter. This could cause the Federal Reserve Board to
again raise interest rates, despite the lack of any evidence of inflationary
excess, since the Federal Reserve is concerned that continued strong growth
may raise the risk of inflation.
So far, even with a tightening labor market (the unemployment rate near
the end of the reporting period was 4.8%, a 23-year low), wage pressures have
been subdued, as has inflation. Inflation has fallen to its lowest level
since the early 1960s, with the Consumer Price Index running at annual rates
of about 2%. A broader measure of inflation, the Gross Domestic Product
Deflator, was even lower, rising at an annual pace of 1.5%. Farther up the
economic pipeline, producer prices fell for the seventh straight month in
July, the first time this has occurred in over 40 years. The Producer Price
Index is essentially unchanged from a year ago.
This inflationless prosperity has stayed the Fed from causing further
increases in interest rates. The dramatic reduction in the budget deficit
(the result of a sharp growth in tax receipts from booming corporate profits
and rising individual incomes) has also made the Fed more willing to allow
economic events to play themselves out. The Federal Open Market Committee
(FOMC), the policy-making arm of the Federal Reserve, has raised interest
rates just once in more than two years. The last increase in short-term
interest rates came on March 25, 1997 when the FOMC increased the Federal
Funds rate by a modest one-quarter of a percentage point to 5.50%. (The
Federal Funds rate is the rate of interest that banks charge one another for
overnight loans.) Since March, the FOMC has voted three times to leave
interest rates unchanged.
There has been much talk that huge capital investments by businesses
combined with new technology have given the economy far greater capacity for
expansion than standard economic theories allow. This could be so. Yet, the
Fed is not an entity given to economic experimentation. The economy is in its
seventh year of expansion, labor markets are tightening, and thus wage
pressures could begin to build. We are mindful that the role of the Federal
Reserve is to anticipate the future consequences of current monetary policy.
Even with the lack of specific inflationary evidence, another modest,
cautionary increase in rates could occur, particularly if the economy
continues to grow faster than expected.
MARKET ENVIRONMENT
At the present time, long-term municipals appear to be fairly valued when
you compare them to long-term U. S. Treasuries. Both supply and demand for
municipals appear to be in equilibrium; however, the forward new issue supply
is currently building. If demand doesn't increase, municipal interest rates
would have to rise to entice additional buyers into the market. If this
occurs, outstanding municipals potentially would underperform comparable
taxable investments. Of course, there is no guarantee how the municipal
market will perform in the future.
Heavy new issue volume in some high income-tax states could easily flood
a local market's demand. This would allow national municipal funds the
opportunity to purchase specialty state issues at attractive levels. Because
of the modest supply of new issue bonds during the summer, national funds had
a difficult time executing this type of strategy. If supply continues to
build, the Fund would look to selectively execute this strategy.
THE PORTFOLIO
The Fund has continued to implement specific investment strategies which
have enhanced its total return while maintaining a high level of current
income. From September 1996 through early 1997, the Fund maintained a
defensive posture due to a low interest rate environment. During this time,
premium bonds were purchased which emphasize current income and have a better
ability to protect the principal price of the Fund in a declining market. As
interest rates rose through early 1997, this type of bond performed extremely
well.
From early 1997 through May, the Fund reversed strategy and began to
slowly purchase discounted bonds. This type of bond was selling at a
substantial discount when compared to the rest of the municipal market and
represented a good opportunity to enhance the value of the Fund. By June the
Fund's strategy had changed to a more defensive position because interest
rates had declined to a point where deep discounts were no longer adding
value. This strategy has remained in place throughout the summer. If the
heavy new issuance during the fall results in an increase in municipal
interest rates, the Fund would become more constructive and may look to
purchase discounts again.
Included in this report is a series of detailed statements about your
Fund's holdings and its financial condition. We hope they are informative.
Please know that we appreciate greatly your continued confidence in the Fund
and in The Dreyfus Corporation.
Very truly yours,
[Richard J. Moynihan signature logo]
Richard J. Moynihan
Director, Municipal Portfolio Management
The Dreyfus Corporation
September 17, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid.
** Distribution rate per share is based upon dividends per share paid
from net investment income during the period (annualized), divided by the net
asset value per share at the end of the period, adjusted for any capital gain
distributions.
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO AUGUST 31, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS BASIC
MUNICIPAL BOND PORTFOLIO AND
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
[Exhibit A:
$13,294
Dreyfus BASIC
Municipal Bond Portfolio
Dollars
$12,821
Lehman Brothers
Municipal Bond Index*
*Source: Lehman Brothers]
Average Annual Total Returns
One Year Ended From Inception (5/6/94)
August 31, 1997 to August 31, 1997
-------------------- ----------------------
11.03% 8.95%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus BASIC Municipal
Bond Portfolio on 5/6/94 (Inception Date) to a $10,000 investment made in the
Lehman Brothers Municipal Bond Index on that date. For comparative purposes,
the value of the Index on 4/30/94 is used as the beginning value on 5/6/94.
All dividends and capital gain distributions are reinvested.
The Portfolio invests primarily in municipal securities and its performance
shown in the line graph takes into account fees and expenses. Unlike the
Portfolio, the Lehman Brothers Municipal Bond Index is an unmanaged total
return performance benchmark for the long-term, investment-grade tax exempt
bond market, calculated by using municipal bonds selected to be
representative of the municipal market overall. The Index does not take into
account charges, fees and other expenses which can contribute to the Index
potentially outperforming the Portfolio. Further information relating to
Portfolio performance, including expense reimbursements, if applicable, is
contained in the Financial Highlights section of the Prospectus and elsewhere
in this report.
<TABLE>
<CAPTION>
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
STATEMENT OF INVESTMENTS AUGUST 31, 1997
Principal
Long-Term Municipal Investments-94.9% Amount Value
------- -------
<S> <C> <C>
Alabama-2.9%
Alabama Private Colleges and Universities Facilities Authority, Revenue
(Tuskegee University Project) 5.75%, 9/1/2026............................. $ 2,400,000 $ 2,413,608
Alabama Water Pollution Control Authority, Revolving Fund Loan
6.25%, 8/15/2014 (Insured; AMBAC)......................................... 750,000 795,165
Arizona-.9%
Tuscon, GO 4.90%, 7/1/2013.................................................. 1,000,000 964,480
California-4.3%
Los Angeles, Wastewater System Revenue, Refunding 4.70%, 11/1/2017 (Insured; FGIC) 1,960,000 1,772,408
Saddleback Valley, Unified School District Public Financing Authority,
Special Tax Revenue
5.65%, 9/1/2017 (Insured; FSA)............................................ 1,000,000 1,018,350
Walnut Valley, Unified School District 6.50%, 8/1/2019 (Insured; FGIC)...... 1,765,000 1,960,933
Colorado-1.4%
Colorado Springs, Utility Revenue 6.75%, 11/15/2021......................... 500,000 549,550
Denver City and County, Airport Revenue 7%, 11/15/2025...................... 1,000,000 1,057,510
Florida-.1%
Palm Beach County, Solid Waste IDR (Osceola Power Limited Partnership)
6.85%, 1/1/2014 (a)....................................................... 200,000 116,262
Georgia-4.5%
Burke County Development Authority, PCR (Georgia Power Co.- Plant Vogtle)
6.375%, 8/1/2024.......................................................... 500,000 517,800
Georgia Housing and Finance Authority, SFMR
5.85%, 12/1/2028.......................................................... 4,500,000 4,533,795
Illinois-1.4%
Cicero, Tax Increment Revenue, Refunding 6.50%, 12/1/2014................... 500,000 556,320
Robbins, RRR (Robbins Resource Recovery Partners) 8.375%, 10/15/2016........ 1,000,000 1,048,800
Kentucky-1.0%
Trimble County, PCR (Louisville Gas and Electric Co.) 7.625%, 11/1/2020..... 1,000,000 1,099,260
Louisiana-.5%
West Feliciana Parish, PCR, Refunding (Gulf States Utilities Co. Project)
8%, 12/1/2024............................................................. 500,000 34,960
Maryland-.2%
Maryland Community Development Administration, Department of Housing and
Community Development Revenue (Single Family Program) 6.75%, 4/1/2026..... 250,000 65,697
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Long-Term Municipal Investments (continued) Amount Value
------- -------
Massachusetts-1.2%
Massachusetts Health and Educational Facilities Authority, Revenue (Mt. Auburn Hospital Issue)
6.30%, 8/15/2024 (Insured; MBIA).......................................... $ 750,000 $ 803,482
Massachusetts Housing Finance Agency, SFHR 7.125%, 6/1/2025................. 500,000 532,385
Michigan-5.8%
Downtown Detroit Development Authority, Tax Increment Revenue
(Development Area No. 1 Projects) 6.25%, 7/1/2025......................... 1,000,000 1,049,700
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue, Refunding
(Burgess Medical Center) 6.25%, 6/1/2014 (Insured; FGIC).................. 1,000,000 1,119,380
Lowell Area Schools, Refunding, Zero Coupon, 5/1/2016 (Insured; FGIC)....... 1,675,000 604,876
Michigan Hospital Finance Authority, Revenue, Refunding (Sisters of Mercy)
5.25%, 8/15/2021 (Insured; MBIA).......................................... 2,075,000 1,987,705
Michigan Municipal Bond Authority, Revenue (Local Government Loan Program)
6.125%, 12/1/2018 (Insured; FGIC)......................................... 750,000 795,292
Michigan Public Power Agency, Revenue, Refunding (Belle River Project) 5%, 1/1/2019 1,000,000 932,820
Minnesota-.7%
Minnesota Housing Finance Agency, SFHR 6.90%, 7/1/2022...................... 240,000 254,470
Minnesota Public Facilities Authority, Water PCR, Refunding
4.875%, 3/1/2012.......................................................... 550,000 534,677
Mississippi-1.0%
Claiborne County, PCR, Refunding (System Energy Resources, Inc.) 7.30%, 5/1/2025 1,000,000 1,057,470
Missouri-5.7%
Cape Girardeau County Industrial Development Authority, MFHR, Refunding (Cape
LaCroix)
6.40%, 6/20/2031.......................................................... 1,245,000 1,304,237
Missouri Housing Development Commission, SFMR (Homeowner Loan)
5.90%, 9/1/2028........................................................... 5,000,000 5,054,600
Nebraska-1.4%
Nebraska Public Power District, Revenue 5.75%, 1/1/2020..................... 1,500,000 1,512,360
Nevada-.2%
Clark County IDR, Refunding (Nevada Power Co. Project) 7.20%, 10/1/2022..... 250,000 275,232
New Hampshire-3.7%
New Hampshire Higher Educational and Health Facilities Authority, HR
(Mary Hitchcock Memorial Hospital) 5.75%, 8/15/2023 (Insured; FGIC)....... 3,850,000 3,882,070
New Hampshire Housing Finance Authority 6.85%, 7/1/2014..................... 250,000 265,972
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Long-Term Municipal Investments (continued) Amount Value
------- -------
New Jersey-1.5%
New Jersey Housing and Mortgage Finance Agency, Home Buyer Revenue
6.70%, 4/1/2016 (Insured; MBIA)........................................... $ 500,000 $ 537,935
New Jersey Turnpike Authority, Turnpike Revenue, Refunding 6.50%, 1/1/2016.. 1,000,000 1,116,970
New Mexico-.9%
Rio Rancho, Water and Wastewater System Revenue 6%, 5/15/2022 (Insured; FSA) 1,000,000 1,047,530
New York-.5%
New York City Industrial Development Agency, Special Facility Revenue
(American Airlines Inc., Project) 6.90%, 8/1/2024......................... 500,000 548,450
North Carolina-6.1%
Charlotte-Mecklenberg Hospital Authority, Health Care System Revenue
5.875%, 1/15/2026......................................................... 1,400,000 1,446,592
Fayetteville Public Works Commission, Revenue, Refunding
4.75%, 3/1/2014 (Insured; FGIC)........................................... 5,400,000 5,030,910
North Carolina Eastern Municipal Power Agency, Power System Revenue,
Refunding
7%, 1/1/2008.............................................................. 250,000 83,048
Ohio-6.9%
Hamilton County, Hospital Facilities Revenue, Refunding (Bethesda Hospital)
6.25%, 1/1/2012........................................................... 1,000,000 1,057,050
Kent City, School District 5.75%, 12/1/2021 (Insured; FGIC)................. 1,500,000 1,550,565
Lorain, Hospital Improvement Revenue, Refunding (Lakeland Community Hospital,
Inc.)
6.50%, 11/15/2012......................................................... 1,000,000 1,104,460
Lucas County, Hospital Revenue 5.45%, 8/15/2014 (Insured; MBIA)............. 2,500,000 2,517,900
Ohio Air Quality Development Authority, Revenue (Columbus and Southern Ohio)
6.375%, 12/1/2020 (Insured; FGIC)......................................... 505,000 52,101
Ohio Building Authority (State Facilities-Juvenile Correctional Projects)
6.60%, 10/1/2014 (Insured; AMBAC)......................................... 750,000 39,543
Oklahoma-4.6%
Pottawatomie County Development Authority, Water Revenue, Refunding
(North Deer Creek Reservoir):
5.80%, 7/1/2015 (Insured; AMBAC)........................................ 1,800,000 1,851,156
5.90%, 7/1/2026 (Insured; AMBAC)........................................ 3,150,000 3,235,145
Oregon-1.0%
Oregon Housing and Community Services Department, SFMR (Mortgage Program)
6.45%, 7/1/2026........................................................... 1,000,000 1,053,480
Pennsylvania-22.4%
Lehigh County General Purpose Authority, Revenue (Wiley House) 9.50%, 11/1/2016 3,000,000 3,282,750
North Wales Water Authority, Revenue, Refunding 5.60%, 11/1/2016 (Insured; FGIC) 1,000,000 1,014,050
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Long-Term Municipal Investments (continued) Amount Value
------- -------
Pennsylvania (continued)
Northhampton County Industrial Development Authority, PCR, Refunding
(Bethlehem Steel) 7.55%, 6/1/2017......................................... $ 250,000 $ 274,658
Pennsylvania, COP 5%, 7/1/2015 (Insured; AMBAC)............................. 5,220,000 4,931,021
Pennsylvania Economic Development Financing Authority, Exempt Facilities
Revenue
(MacMillan Limited Partnership Project) 7.60%, 12/1/2020.................. 500,000 576,515
Pennsylvania Higher Educational Facilities Authority, College and University
Revenue
(Duquesne University Project) 6.35%, 1/15/2017 (Insured; MBIA)............ 500,000 531,660
Pennsylvania Housing Finance Agency, Single Family Mortgage 6.75%, 4/1/2016. 2,700,000 2,901,825
Pennsylvania Industrial Development Authority, EDR, Refunding
5.50%, 1/1/2014 (Insured; AMBAC).......................................... 1,000,000 1,009,910
Pennsylvania Turnpike Commission, Oil Franchise, Tax Revenue
5.50%, 12/1/2012 (Insured; AMBAC)......................................... 1,500,000 1,531,485
Philadelphia, Water and Wastewater Revenue, Refunding
5.75%, 6/15/2013 (Insured; MBIA).......................................... 1,405,000 1,448,429
Potter County Hospital Authority, Revenue, Refunding (Charles Cole Memorial Hospital)
5.95%, 8/1/2016........................................................... 1,200,000 1,236,876
Pottstown Borough Authority, Sewer Revenue, Refunding
5.50%, 11/1/2021 (Insured; AMBAC)......................................... 2,000,000 1,997,180
Washington County Industrial Development Authority, PCR (West Penn Power Co.)
6.05%, 4/1/2014 (Insured; AMBAC).......................................... 2,500,000 2,644,025
West Mifflin Sanitary Sewer Municipal Authority, Sewer Revenue
5.80%, 8/1/2026 (Insured; FGIC)........................................... 1,525,000 1,560,075
Rhode Island-.2%
Rhode Island Housing and Mortgage Finance Corp. (Homeownership Opportunity)
6.50%, 4/1/2027........................................................... 200,000 208,738
Tennessee-2.2%
Maury County Industrial Development Board, PCR, Refunding (Saturn Corp.
Project)
6.50%, 9/1/2024 (Guaranteed; General Motors Corp.)........................ 1,000,000 1,090,700
Sullivan County Industrial Board, Revenue, Refunding 6.35%, 7/20/2027....... 1,000,000 1,046,890
Tennessee Housing Development Agency, Mortgage Finance 6.90%, 7/1/2025...... 250,000 264,355
Texas-4.4%
Alliance Airport Authority, Special Facilities Revenue (American Airlines
Inc., Project)
7.50%, 12/1/2029.......................................................... 500,000 541,780
Allen, Independent School District Building 5.20%, 2/15/2021................ 1,000,000 969,670
Bexar County Health Facilities Development Corp., HR, Refunding
(Baptist Memorial Hospital Systems Project) 6.90%, 8/15/2014 (Insured; MBIA) 750,000 861,945
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Long-Term Municipal Investments (continued) Amount Value
------- -------
Texas-4.4% (continued)
Mesquite, Health Facilities Development, Refunding (Christian Retirement Facility)
6.40%, 2/15/2020.......................................................... $ 1,500,000 $ 1,558,470
San Antonio, Electric and Gas Revenue, Refunding 5%, 2/1/2017............... 1,000,000 949,890
Virginia-.8%
Augusta County Service Authority, Water and Sewer Revenue
5%, 11/1/2024 (Insured; MBIA)............................................. 1,000,000 936,510
Washington-4.4%
Seatac, Local Option Transportation, Tax Revenue 6.50%, 12/1/2013 (Insured; MBIA) 500,000 553,995
Seattle, Water System Revenue, Refunding 5.25%, 12/1/2023................... 2,000,000 1,925,420
Tacoma, Conservation Systems Project Revenue (Tacoma Public Utilities
Division)
6.60%, 1/1/2015........................................................... 1,000,000 1,089,510
Washington, Public Power Supply System, Nuclear Project #2, Revenue,
Refunding
6.25%, 7/1/2012........................................................... 1,250,000 1,309,250
West Virginia-1.9%
Braxton County, SWDR (Weyerhauser Co., Project) 6.50%, 4/1/2025............. 1,000,000 1,080,580
Pleasants County, PCR (West Penn Power Co.) 6.15%, 5/1/2015 (Insured; AMBAC) 1,000,000 1,060,640
Wyoming-.2%
Sweetwater County, SWDR (FMC Corp. Project) 7%, 6/1/2024.................... 200,000 219,702
-------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $102,349,865)................... $105,552,965
=======
Short-Term Municipal Investments-5.1%
Massachusetts-4.2%
Massachusetts Health and Educational Facilities Authority, Revenue, (St.
Elizabeth's)
3.11% (Insured; FSA) (b).................................................. $ 4,700,000 $ 4,700,000
U.S. Related-.9%
Puerto Rico Commonwealth, Government Development Bank, Refunding, VRDN
2.90% (LOC; Credit Suisse) (c,d).......................................... 1,000,000 1,000,000
-------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $5,700,000).................... $ 5,700,000
=======
TOTAL INVESTMENTS-100.0% (cost $108,049,865)................................ $111,252,965
=======
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
Summary of Abbreviations
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation MBIA Municipal Bond Investors Assurance
COP Certificate of Participation Insurance Corporation
EDR Economic Development Revenue MFHR Multi Family Housing Revenue
FGIC Financial Guaranty Insurance Company PCR Pollution Control Revenue
FSA Financial Security Assurance RRR Resources Recovery Revenue
GO General Obligation SFHR Single Family Housing Revenue
HR Hospital Revenue SFMR Single Family Mortgage Revenue
IDR Industrial Development Revenue SWDR Solid Waste Disposal Revenue
LOC Letter of Credit VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
Summary of Combined Ratings (Unaudited)
Fitch (e) or Moody's or Standard & Poor's Percentage of Value
- -------- -------- ----------------- ------------------
<S> <C> <C> <C>
AAA Aaa AAA 60.3%
AA Aa AA 20.6
A A A 8.2
BBB Baa BBB 5.2
BB Ba BB .6
F-1,F-1+ VMIG1,MIG1,P1 SP1,A1 .9
Not Rated (f) Not Rated (f) Not Rated (f) 4.2
----
100.0%
====
</TABLE>
Notes to Statement of Investments:
(a) Non-income producing security; interest payments in default.
(b) Inverse floater security-the interest rate is subject to change
periodically.
(c) Secured by letter of credit.
(d) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(e) Fitch currently provides creditworthiness information for a limited
number of investments.
(f) Securities which, while not rated by Fitch, Moody's and Standard &
Poor's have been determined by the Manager to be of comparable quality to
those securities in which the Fund may invest.
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1997
Cost Value
-------- --------
<S> <C> <C> <C>
ASSETS: Investments in securities-See Statement of Investments $108,049,865 $111,252,965
Cash....................................... 1,548,814
Interest receivable........................ 1,511,256
Prepaid expenses........................... 25,996
--------
114,339,031
--------
LIABILITIES: Due to The Dreyfus Corporation and affiliates 29,958
Accrued expenses and other liabilities..... 40,578
--------
70,536
--------
NET ASSETS.................................................................. $114,268,495
========
REPRESENTED BY: Paid-in capital............................ $109,447,137
Accumulated undistributed investment income-net31,494
Accumulated net realized gain (loss) on investments 1,586,764
Accumulated net unrealized appreciation (depreciation)
....................... on investments-Note 4 3,203,100
--------
NET ASSETS.................................................................. $114,268,495
========
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized)............. 8,399,895
NET ASSET VALUE, offering and redemption price per share.................... $13.60
========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1997
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME Interest Income............................ $4,759,140
EXPENSES: Management fee-Note 3(a)................... $ 496,223
Shareholder servicing costs-Note 3(b)...... 92,516
Registration fees.......................... 39,796
Auditing fees.............................. 19,576
Custodian fees............................. 10,577
Prospectus and shareholders' reports....... 5,287
Directors' fees and expenses-Note 3(c)..... 3,555
Legal fees................................. 1,627
Loan commitment fees-Note 2................ 791
Miscellaneous.............................. 25,235
------
Total Expenses....................... 695,183
Less-reduction in management fee due to
undertakings-Note 3(a)................. (482,224)
------
Net Expenses......................... 212,959
------
INVESTMENT INCOME-NET....................................................... 4,546,181
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $1,668,646
Net unrealized appreciation (depreciation) on investments 2,419,736
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 4,088,382
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $8,634,563
======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
August 31, 1997 August 31, 1996
-------- --------
<S> <C> <C>
OPERATIONS:
Investment income-net.................................................... $ 4,546,181 $ 2,684,566
Net realized gain (loss) on investments.................................. 1,668,646 643,570
Net unrealized appreciation (depreciation) on investments................ 2,419,736 (623,929)
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations........ 8,634,563 2,704,207
------- -------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net.................................................... (4,523,738) (2,675,515)
Net realized gain on investments......................................... (456,720) (168,945)
------- -------
Total Dividends........................................................ (4,980,458) (2,844,460)
------- -------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................ 135,673,647 34,791,121
Dividends reinvested..................................................... 3,273,233 2,065,204
Cost of shares redeemed.................................................. (84,781,047) (23,180,317)
------- -------
Increase (Decrease) in Net Assets from Capital Stock Transactions...... 54,165,833 13,676,008
------- -------
Total Increase (Decrease) in Net Assets.............................. 57,819,938 13,535,755
NET ASSETS:
Beginning of Period...................................................... 56,448,557 42,912,802
------- -------
End of Period............................................................ $114,268,495 $ 56,448,557
======= =======
Undistributed investment income-net........................................ $ 31,494 $ 9,051
------- -------
Shares Shares
------- -------
CAPITAL SHARE TRANSACTIONS:
Shares sold.............................................................. 10,125,714 2,647,461
Shares issued for dividends reinvested................................... 244,917 156,826
Shares redeemed.......................................................... (6,302,195) (1,770,618)
------- -------
Net Increase (Decrease) in Shares Outstanding.......................... 4,068,436 1,033,669
======= =======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
Common Stock outstanding, total investment return, ratios to average net
assets and other supplemental data for each period indicated. This
information has been derived from the Fund's financial statements.
Year Ended August 31,
------------------------------------------------
PER SHARE DATA: 1997 1996 1995 1994(1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period..................... $13.03 $13.01 $12.76 $12.50
---- ---- ---- ----
Investment Operations:
Investment income-net.................................... .74 .73 .76 .19
Net realized and unrealized gain (loss)
on investments......................................... .66 .06 .25 .26
---- ---- ---- ----
Total from Investment Operations......................... 1.40 .79 1.01 .45
---- ---- ---- ----
Distributions:
Dividends from investment income-net..................... (.74) (.72) (.76) (.19)
Dividends from net realized gain on investments.......... (.09) (.05) .- .-
---- ---- ---- ----
Total Distributions...................................... (.83) (.77) (.76) (.19)
---- ---- ---- ----
Net asset value, end of period........................... $13.60 $13.03 $13.01 $12.76
==== ==== ==== ====
TOTAL INVESTMENT RETURN...................................... 11.03% 6.17% 8.30% 4.13%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.................. .26% .39% .20% .-
Ratio of net investment income
to average net assets.................................. 5.50% 5.52% 5.99% 6.03%(3)
Decrease reflected in above expense ratios
due to undertakings by the Manager..................... .58% .52% .77% 2.06%(3)
Portfolio Turnover Rate.................................. 101.27% 59.23% 58.91% 8.82%(2)
Net Assets, end of period (000's Omitted)................ $114,268 $56,449 $42,913 $15,334
(1)From May 6, 1994 (commencement of operations) to August 31, 1994.
(2)Not annualized.
(3)Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus BASIC Municipal Bond Portfolio (the "Fund") is a series of
Dreyfus BASIC Municipal Fund, Inc.
(the "Company") which is registered under the Investment Company Act of 1940
("Act") as a non-diversified open-end management investment company and operat
es as a series company currently offering four series, including the Fund.
The Fund's investment objective is to provide investors with as high a level
of current income exempt from Federal income tax as is consistent with the
preservation of capital. The Dreyfus Corporation ("Manager") serves as the
Fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank,
N.A. Premier Mutual Fund Services, Inc. is the distributor of the Fund's
shares, which are sold to the public without a sales charge.
The Company accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to each fund are
charged to that fund's operations; expenses which are applicable to all funds
are allocated among them on a pro rata basis.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management
estimates and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (excluding options and
financial futures on municipal and U.S. treasury securities) are valued each
business day by an independent pricing service ("Service") approved by the
Board of Directors. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the
judgment of the Service are valued at the mean between the quoted bid prices
(as obtained by the Service from dealers in such securities) and asked prices
(as calculated by the Service based upon its evaluation of the market for
such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Options
and financial futures on municipal and U.S. treasury securities are valued at
the last sales price on the securities exchange on which such securities are
primarily traded or at the last sales price on the national securities market
on each business day. Investments not listed on an exchange or the national
securities market, or securities for which there were no transactions, are
valued at the average of the most recent bid and asked prices. Bid price is
used when no asked price is available.
(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. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
(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. To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the Fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2-BANK LINE OF CREDIT:
The Fund participates with other Dreyfus-managed funds in a $600 million
redemption credit facility ("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 at rates based on prevailing
market rates in effect at the time of borrowings. For the period ended August
31, 1997, 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 .60 of 1% of the value of the Fund's
average daily net assets and is payable monthly. The Manager had undertaken
from September 1, 1996 through December 31, 1996 to reimburse all fees and
expenses of the Fund, exclusive of taxes, brokerage, interest on borrowings,
commitment fees and extraordinary expenses, and thereafter, had undertaken
through May 7, 1997 to reduce the management fee paid by the Fund, to the
extent that the Fund's aggregate expenses (exclusive of certain expenses as
described above) exceeded specified annual percentages of the value of the
Fund's average daily net assets. The Manager has currently undertaken from
May 8, 1997 through June 30, 1998, to reduce the management fee paid by the
Fund, to the extent that the Fund's aggregate expenses (exclusive of certain
expenses as described above) exceed an annual rate of .45 of 1% of the value
of the Fund's average daily net assets. The reduction in management fee,
pursuant to the undertakings, amounted to $482,224 during the period ended
August 31, 1997.
(b) Under the Shareholder Services Plan, the Fund reimburses Dreyfus
Service Corporation, a wholly-owned subsidiary of the Manager, an amount not
to exceed an annual rate of .25 of 1% of the value of the Fund's average
daily net assets for certain allocated expenses of providing personal
services and/or maintaining shareholder accounts. 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.
During the period ended August 31, 1997, the Fund was charged an aggregate of
$74,091 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. Such
compensation amounted to $12,523 during the period ended August 31, 1997.
(c) Each director who is not an "affiliated person" as defined in the Act
receives from the Company an annual fee of $1,000 and an attendance fee of
$250 per meeting. The Chairman of the Board receives an additional 25% of
such compensation.
NOTE 4-SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended August 31, 1997,
amounted to $126,719,312 and $79,424,672, respectively.
At August 31, 1997, accumulated net unrealized appreciation on
investments was $3,203,100, consisting of $3,426,660 gross unrealized
appreciation and $223,560 gross unrealized depreciation.
At August 31, 1997, 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).
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Dreyfus BASIC Municipal Bond Portfolio
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus BASIC Municipal Bond
Portfolio (one of the Series constituting Dreyfus BASIC Municipal Fund, Inc.)
as of August 31, 1997, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 1997 by correspondence with
the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus BASIC Municipal Bond Portfolio at August 31, 1997, 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 generally
accepted accounting principles.
[Ernst and Young LLP signature logo]
New York, New York
October 3, 1997
DREYFUS BASIC MUNICIPAL BOND PORTFOLIO
IMPORTANT TAX INFORMATION (UNAUDITED)
In accordance with Federal tax law, the Fund hereby makes the following
designations regarding its fiscal year ended August 31, 1997:
-all the dividends paid from investment income-net are "exempt-interest
dividends" (not generally subject to regular Federal income tax), and
-the Fund hereby designates $.0213 per share as a long-term capital gain
distribution of the $.0902 per share paid on December 5, 1996.
As required by Federal tax law rules, shareholders will receive
notification of their portion of the Fund's taxable ordinary dividends (if
any) and capital gain distributions (if any) paid for the 1997 calendar year
on Form 1099-DIV which will be mailed by January 31, 1998.
Registration Mark
[Dreyfus lion "d" logo]
DREYFUS BASIC MUNICIPAL
BOND PORTFOLIO
200 Park Avenue
New York, NY 10166
MANAGER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Printed in U.S.A. 125AR978
Registration Mark
[Dreyfus logo]
BASIC Municipal
Bond Porfolio
Annual Report
August 31, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN DREYFUS BASIC MUNICIPAL BOND
PORTFOLIO AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
EXHIBIT A:
LEHMAN DREYFUS
BROTHERS BASIC
PERIOD MUNICIPAL MUNICIPAL
BOND INDEX * BOND PORTFOLIO
5/6/94 10,000 10,000
8/31/94 10,244 10,414
8/31/95 11,152 11,278
8/31/96 11,736 11,974
8/31/97 12,821 13,294
* Source: Lehman Brothers
