DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this report on the Dreyfus BASIC
Intermediate 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 8.95%,* and an annualized tax-free
distribution rate per share of 5.01%.** (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, intermediate-term municipals appear to be fairly
valued when you compare them to intermediate-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 INTERMEDIATE MUNICIPAL BOND PORTFOLIO AUGUST 31, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS BASIC
INTERMEDIATE MUNICIPAL BOND PORTFOLIO AND THE LEHMAN BROTHERS 10-YEAR
MUNICIPAL BOND INDEX
[Exhibit A:
Dollars
$12,811
Lehman Brothers
10-Year Municipal
Bond Index*
$12,638
Dreyfus BASIC
Intermediate Municipal
Bond Portfolio
*Source: Lehman Brothers]
Average Annual Total Returns
One Year Ended From Inception (5/4/94)
August 31, 1997 to August 31, 1997
---------------------- -------------------------
8.95% 7.28%
Past performance is not predictive of future performance.
The above graph compares a $10,000 investment made in Dreyfus BASIC
Intermediate Municipal Bond Portfolio on 5/4/94 (Inception Date) to a $10,000
investment made in the Lehman Brothers 10-Year 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 5/4/94. All dividends and capital gain distributions
are reinvested.
The Portfolio invests primarily in municipal securities and maintains a
portfolio with a weighted-average maturity ranging between 3 and 10 years.
The Portfolio's performance shown in the line graph takes into account fees
and expenses. Unlike the Portfolio, the Lehman Brothers 10-Year Municipal
Bond Index is an unmanaged total return performance benchmark for the
investment-grade, 10-year tax exempt bond market, consisting of municipal
bonds with maturities of 9-12 years. The Index does not take into account
charges, fees and other expenses and, coupled with the potentially longer
maturity of the Index, 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 INTERMEDIATE MUNICIPAL BOND PORTFOLIO
STATEMENT OF INVESTMENTS AUGUST 31, 1997
Principal
Long-Term Municipal Investments-100.0% Amount Value
-------------
<S> <C> <C>
Alabama-1.7%
Alabama Agricultural and Mechanical University, Revenues
6%, 11/1/2006 (Insured; MBIA)............................................. $ 1,000,000 $ 1,092,770
Arizona-3.0%
Arizona Transportation Board, Highway Revenue, Refunding 5%, 7/1/2010....... 900,000 904,176
Maricopa County, COP 5.625%, 6/1/2000....................................... 1,000,000 1,022,920
California-4.3%
California Statewide Communities Development Authority, COP, Revenue,
Refunding
(Triad Healthcare) Zero Coupon, 8/1/2007
(Insured; California Health Facilities Construction Loan Fund)............ 3,000,000 1,756,200
Foothill/Eastern Transportation Corridor Agency, Toll Road Revenue
Zero Coupon, 1/1/2004..................................................... 1,000,000 725,140
Hemet, COP (Capital Projects) 6.50%, 2/1/2003............................... 200,000 210,596
Colorado-4.6%
Denver City and County, Airport Revenue:
6.80%, 11/15/1997......................................................... 750,000 753,967
7.25%, 11/15/2007......................................................... 200,000 223,296
Westminster, MFHR, Refunding (Semper Village Apartments)
5.95%, 9/1/2006 (Guaranteed; AXA Reinsurance)............................. 1,830,000 1,907,537
Florida-2.4%
Palm Beach County, Criminal Justice Facilities Revenue
5.90%, 6/1/2008 (Insured; FGIC)........................................... 1,400,000 1,508,164
Hawaii-3.4%
Hawaii 5.80%, 1/1/2005...................................................... 1,000,000 1,068,180
Hawaii Harbor, Capital Improvement Revenue, Refunding
6.20%, 7/1/2008 (Insured; FGIC)........................................... 1,000,000 1,084,190
Illinois-1.6%
Chicago Public Building Commerce, Building Revenue
(Chicago Park District) 5.80%, 1/1/2013 (Insured; FGIC)................... 1,000,000 1,028,160
Indiana-1.7%
Indiana Transportation Finance Authority, Airport Facilities LR
(United Air) 6.25%, 11/1/2003............................................. 1,000,000 1,074,100
Massachusetts-2.2%
Massachusetts Health and Educational Facilities Authority, Revenue
(Sisters Providence Health Systems) 6.20%, 11/15/2002..................... 250,000 261,840
University of Massachusetts Building Authority, Revenue, Refunding
6.50%, 5/1/2006........................................................... 1,000,000 1,126,910
Michigan-3.5%
Greater Detroit Resource Recovery Authority, Revenue, Refunding
6.25%, 12/13/2008 (Insured; AMBAC)........................................ 1,000,000 1,113,150
DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Long-Term Municipal Investments (continued) Amount Value
------- ------
Michigan (continued)
Michigan Hospital Finance Authority, HR, Refunding (Genesys Health System)
7.10%, 10/1/2002.......................................................... $ 1,000,000 $ 1,088,590
Minnesota-2.2%
Minnesota Public Facilities Authority, Water Pollution Control Revenue,
Refunding
4.625%, 3/1/2008.......................................................... 1,400,000 1,377,698
Missouri-1.8%
Missouri Regional Convention and Sports Complex Authority
(Convention and Sports Project) 5.50%, 8/15/2013 (Insured; MBIA).......... 1,100,000 1,116,962
New Jersey-3.9%
New Jersey Economic Development Authority, Market Transition Facility Revenue
7%, 7/1/2003 (Insured; MBIA).............................................. 1,000,000 1,122,130
New Jersey Turnpike Authority, Turnpike Revenue 6%, 1/1/2005................ 1,290,000 1,365,929
New York-4.2%
New York State Housing Corp., Revenue, Refunding 6%, 11/1/2003.............. 1,500,000 1,595,055
New York State Thruway Authority, Service Contract Revenue
(Local Highway and Bridge) 5.75%, 4/1/2006................................ 1,000,000 1,053,230
North Carolina-5.4%
North Carolina Eastern Municipal Power Agency, Power System Revenue,
Refunding
7%, 1/1/2008.............................................................. 1,000,000 1,132,190
Wake County 4.50%, 3/1/2010................................................. 2,400,000 2,280,840
Ohio-.9%
Cuyahoga County, HR (Meridia Health System) 6.20%, 8/15/2005................ 505,000 549,395
Pennsylvania-18.7%
Pennsylvania, COP 5.40%, 7/1/2008 (Insured; AMBAC).......................... 5,000,000 5,112,400
Pennsylvania Convention Center Authority, Revenue, Refunding
6.25%, 9/1/2004........................................................... 200,000 211,658
Pennsylvania Turnpike Commission, Oil Franchise Tax Revenue
5.50%, 12/1/2012 (Insured; AMBAC)......................................... 4,000,000 4,083,960
Philadelphia, Water and Wastewater Revenue, Refunding
5.75%, 6/15/2013 (Insured; MBIA).......................................... 1,000,000 1,030,910
Philadelphia Hospitals and Higher Education Facilities Authority, Revenue
(Northwestern Corporation) 6.50%, 6/1/2004................................ 1,280,000 1,361,408
Rhode Island-1.6%
Rhode Island, Consolidated Capital Development Loan
5.95%, 8/1/2013 (Insured; MBIA)........................................... 1,000,000 1,041,580
Texas-8.8%
Brazos Higher Education Authority, Student Loan Revenue, Refunding
6.20%, 12/1/2002.......................................................... 200,000 210,530
DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO
STATEMENT OF INVESTMENTS (CONTINUED) AUGUST 31, 1997
Principal
Long-Term Municipal Investments (continued) Amount Value
------- ------
Texas (continued)
Irving Hospital Authority, HR (Irving Healthcare Systems)
5.70%, 7/1/2008 (Insured; FSA)............................................ $ 1,675,000 $ 1,750,141
Lower Colorado River Authority, Revenue, Refunding
Zero Coupon, 1/1/2003 (Insured; AMBAC).................................... 1,000,000 784,630
Mesquite Health Facilities Development Corporation
Retirement Facilities Revenue, Refunding (Christian Retirement Facility):
5.70%, 2/15/2002........................................................ 285,000 290,558
5.80%, 2/15/2003........................................................ 315,000 322,317
San Antonio, Water Revenue, Refunding 6.30%, 5/15/2004 (Insured; FGIC)...... 1,000,000 1,087,770
Waco 6%, 2/1/2004 (Insured; FGIC)........................................... 1,070,000 1,151,202
Utah-2.5%
Salt Lake County Municipal Building Authority, LR
6.15%, 10/1/2010 (Insured; MBIA).......................................... 1,450,000 1,555,241
Virginia-3.9%
Brunswick County Industrial Development Authority, Correctional Facility LR
5.55%, 7/1/2008 (Insured; MBIA)........................................... 1,325,000 1,401,002
Virginia Housing Development Authority, Commonwealth Mortgage
5.75%, 1/1/2001........................................................... 1,000,000 1,034,370
Washington-3.6%
Snohomish County Public Utility District Number 1, Electric Revenue
6.60%, 1/1/2002 (Insured; FGIC)........................................... 1,000,000 1,082,570
Washington Health Care Facilities Authority, Revenue, Refunding
(Gray Harbor Community Hospital) 5.75%, 7/1/2010 (Insured; Asset Guaranty) 1,180,000 1,213,949
Wisconsin-1.6%
Wisconsin, Transportation Revenue 5.40%, 7/1/2004........................... 1,000,000 1,032,100
Wyoming-1.1%
Wyoming Farm Loan Board, Capital Facilities Revenue
Zero Coupon, 10/1/2004.................................................... 1,000,000 711,490
U.S. Related-11.4%
Puerto Rico Commonwealth Highway and Transportation Authority, Highway
Revenue
5.40%, 7/1/2006........................................................... 7,000,000 7,240,730
-------
TOTAL INVESTMENTS (cost $61,380,304)........................................ $63,253,831
=======
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO
Summary of Abbreviations
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LR Lease Revenue
COP Certificate of Participation MBIA Municipal Bond Investors Assurance
FGIC Financial Guaranty Insurance Company Insurance Corporation
FSA Financial Security Assurance MFHR Multi-Family Housing Revenue
HR Hospital Revenue
</TABLE>
<TABLE>
<CAPTION>
Summary of Combined Ratings (Unaudited)
Fitch (a) or Moody's or Standard & Poor's Percentage of Value
- -------- -------- ----------------- ------------------
<S> <C> <C> <C>
AAA Aaa AAA 55.5%
AA Aa AA 15.0
A A A 17.9
BBB Baa BBB 11.6
----
100.0%
====
</TABLE>
Notes to Statement of Investments:
(a) Fitch currently provides creditworthiness information for a limited
number of investments.
(b) At August 31, 1997, the Fund had $18,487,588 (27.9% of net assets)
invested in securities whose payment of principal and interest is
dependent upon revenues generated by transportation projects.
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
DREYFUS BASIC INTERMEDIATE 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 $61,380,304 $63,253,831
Cash....................................... 2,380,852
Interest receivable........................ 784,716
Prepaid expenses........................... 9,662
-------
66,429,061
-------
LIABILITIES: Due to The Dreyfus Corporation and affiliates 22,341
Accrued expenses and other liabilities..... 34,499
-------
56,840
-------
NET ASSETS.................................................................. $66,372,221
=======
REPRESENTED BY: Paid-in capital............................ $63,690,514
Accumulated undistributed investment income-net17,442
Accumulated net realized gain (loss) on investments 790,738
Accumulated net unrealized appreciation (depreciation)
....................... on investments-Note 4 1,873,527
-------
NET ASSETS.................................................................. $66,372,221
=======
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized)............. 5,009,728
NET ASSET VALUE, offering and redemption price per share.................... $13.25
=======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO
STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1997
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME Interest Income............................ $3,104,910
EXPENSES: Management fee-Note 3(a)................... $ 350,994
Shareholder servicing costs-Note 3(b)...... 39,178
Registration fees.......................... 31,554
Auditing fees.............................. 15,964
Custodian fees............................. 7,205
Prospectus and shareholders' reports....... 3,127
Legal fees................................. 1,708
Directors' fees and expenses-Note 3(c)..... 1,320
Loan commitment fees-Note 2................ 758
Miscellaneous.............................. 16,363
------
Total Expenses....................... 468,171
Less-reduction in management fee due to
undertakings-Note 3(a)................. (328,180)
------
Net Expenses......................... 139,991
------
INVESTMENT INCOME-NET....................................................... 2,964,919
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-Note 4:
Net realized gain (loss) on investments.... $ 830,786
Net unrealized appreciation (depreciation) on investments 1,122,381
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS...................... 1,953,167
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................ $4,918,086
======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC INTERMEDIATE 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..................................................... $ 2,964,919 $ 2,235,887
Net realized gain (loss) on investments................................... 830,786 288,324
Net unrealized appreciation (depreciation) on investments................. 1,122,381 (735,467)
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations......... 4,918,086 1,788,744
------- -------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net..................................................... (2,954,332) (2,229,032)
Net realized gain on investments.......................................... (116,833) ----
------- -------
Total Dividends......................................................... (3,071,165) (2,229,032)
------- -------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold............................................. 63,306,603 19,466,226
Dividends reinvested...................................................... 2,344,563 1,721,467
Cost of shares redeemed................................................... (47,723,666) (17,304,524)
------- -------
Increase (Decrease) in Net Assets from Capital Stock Transactions....... 17,927,500 3,883,169
------- -------
Total Increase (Decrease) in Net Assets............................... 19,774,421 3,442,881
NET ASSETS:
Beginning of Period....................................................... 46,597,800 43,154,919
------- -------
End of Period............................................................. $ 66,372,221 $ 46,597,800
======= =======
Undistributed investment income-net......................................... $ 17,442 $ 6,855
------- -------
Shares Shares
------- -------
CAPITAL SHARE TRANSACTIONS:
Shares sold............................................................... 4,858,139 1,499,256
Shares issued for dividends reinvested.................................... 179,212 132,850
Shares redeemed........................................................... (3,660,946) (1,331,127)
------- -------
Net Increase (Decrease) in Shares Outstanding........................... 1,376,405 300,979
======= =======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS BASIC INTERMEDIATE 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..................... $12.83 $12.95 $12.65 $12.50
---- ---- ---- ----
Investment Operations:
Investment income-net.................................... .66 .65 .68 .24
Net realized and unrealized gain (loss)
on investments......................................... .45 (.12) .30 .15
---- ---- ---- ----
Total from Investment Operations......................... 1.11 .53 .98 .39
---- ---- ---- ----
Distributions:
Dividends from investment income-net..................... (.66) (.65) (.68) (.24)
Dividends from net realized gain on investments.......... (.03) - - -
---- ---- ---- ----
Total Distributions...................................... (.69) (.65) (.68) (.24)
---- ---- ---- ----
Net asset value, end of period........................... $13.25 $12.83 $12.95 $12.65
==== ==== ==== ====
TOTAL INVESTMENT RETURN...................................... 8.95% 4.07% 8.09% 3.11%(2)
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.................. .24% .39% .11% -
Ratio of net investment income
to average net assets.................................. 5.07% 5.01% 5.45% 5.53%(3)
Decrease reflected in above expense ratios
due to undertakings by the Manager..................... .56% .46% .81% 1.54%(3)
Portfolio Turnover Rate.................................. 64.65% 54.99% 34.12% 41.15%(2)
Net Assets, end of period (000's Omitted)................ $66,372 $46,598 $43,155 $28,275
(1) From May 5, 1994 (commencement of operations) to August 31, 1994.
(2) Not annualized.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus BASIC Intermediate 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 operates 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 INTERMEDIATE 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 annual 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 annual 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 $328,180 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 the 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
$27,376 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 $9,133 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 $53,099,103 and $35,886,298, respectively.
At August 31, 1997, accumulated net unrealized appreciation on
investments was $1,873,527, consisting of $1,974,353 gross unrealized
appreciation and $100,826 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 INTERMEDIATE MUNICIPAL BOND PORTFOLIO
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Dreyfus BASIC Intermediate Municipal Bond Portfolio
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Dreyfus BASIC Intermediate
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 Intermediate 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 the 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 INTERMEDIATE 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 $.0256 per share as a long-term capital gain
distribution of the $.0287 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 INTERMEDIATE
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. 126AR978
Registration Mark
[Dreyfus logo]
BASIC Intermediate
Municipal Bond
Portfolio
Annual Report
August 31, 1997
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN DREYFUS BASIC INTERMEDIATE MUNICIPAL BOND PORTFOLIO
AND THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX
EXHIBIT A:
LEHMAN BROTHERS DREYFUS BASIC
10-YEAR INTERMEDIATE
PERIOD MUNICIPAL MUNICIPAL
BOND INDEX * BOND PORTFOLIO
5/4/94 10,000 10,000
8/31/94 10,245 10,312
8/31/95 11,228 11,146
8/31/96 11,726 11,599
8/31/97 12,811 12,638
* Source: Lehman Brothers
