Dreyfus BASIC Municipal Bond Portfolio
ANNUAL REPORT August 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the portfolio are subject to change at any time based on
market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Year 2000 Issues (Unaudited)
The portfolio could be adversely affected if the computer systems used by The
Dreyfus Corporation and the portfolio's other service providers do not properly
process and calculate date-related information from and after January 1, 2000.
The Dreyfus Corporation is working to avoid Year 2000-related problems in its
systems and to obtain assurances from other service providers that they are
taking similar steps. In addition, issuers of securities in which the portfolio
invests may be adversely affected by Year 2000-related problems. This could have
an impact on the value of the portfolio's investments and its share price.
Contents
THE PORTFOLIO
- ------------------------------------------------------------
2 Letter from the President
3 Discussion of Performance
6 Portfolio Performance
7 Statement of Investments
16 Statement of Assets and Liabilities
17 Statement of Operations
18 Statement of Changes in Net Assets
19 Financial Highlights
20 Notes to Financial Statements
24 Report of Independent Auditors
25 Important Tax Information
FOR MORE INFORMATION
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Back Cover
The Portfolio
Dreyfus BASIC Municipal Bond Portfolio
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus BASIC Municipal Bond
Portfolio, covering the 12-month period from September 1, 1998 through August
31, 1999. Inside, you' ll find valuable information about how the fund was
managed during the reporting period, including a discussion with the fund's
portfolio manager, Douglas Gaylor.
The past year has been mixed for municipal bond investors. Lower short-term
interest rates adopted by the Federal Reserve Board in the fall of 1998 helped
the U.S. economy withstand the effects of economic weakness in Japan, Asia and
Latin America. As interest rates declined, the prices of many municipal bonds
appreciated.
Soon after 1999 began, however, evidence emerged that the U.S. economy was
growing strongly in an environment characterized by high levels of consumer
spending. Concerns that inflationary pressures might re-emerge caused the
Federal Reserve Board to raise short-term interest rates twice during the summer
of 1999. Higher interest rates led to some erosion of municipal bond prices,
especially toward the end of the reporting period.
In this environment, however, the yields of tax-exempt bonds have recently been
quite attractive compared to the after-tax yields of taxable bonds of comparable
maturity and credit quality. This is especially true for investors in the higher
federal income tax brackets.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus BASIC Municipal Bond Portfolio.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
September 14, 1999
DISCUSSION OF PERFORMANCE
Douglas Gaylor, Portfolio Manager
How did Dreyfus BASIC Municipal Bond Portfolio perform over the period?
The portfolio produced a -1.63% total return over the 12-month period ended
August 31, 1999(1) , which was the same as the total return of the Lipper
Municipal Debt Funds category average.(2) The portfolio's record of relative
performance was mainly affected by its security selection strategy, which
emphasized deep-discount bonds. While deep-discount bonds often perform better
than other types of municipal bonds when markets are rising, they may also tend
to underperform in declining markets.
What is the portfolio's investment approach?
Our goal is to seek a high level of federally tax-exempt income from a
diversified portfolio of municipal bonds. To achieve this objective, we conduct
rigorous analysis of each individual bond's structure. Within the context of our
bond structure analyses, we strive to maximize both income and total return,
which is the combination of income earned and bond price changes over a period
of time.
First, we try to allocate between one-quarter and one-half of the total
portfolio to bonds that we believe have the potential to offer attractive total
returns. We typically look for bonds that are selling at a discount to face
value because they may be temporarily out-of-favor among investors. Our belief
is that these bonds' prices will rise as they return to favor over time. This
may be especially true for bonds that do not currently meet institutions' "de
minimus" requirements -- which govern institutions' ability to earn tax-exempt
income -- but that we expect to do so in the future.
Second, for the remainder of the portfolio, we look for bonds that potentially
can provide consistently high current yields. We often find such opportunities
in modest premium bonds. We not only look for The Portfoli
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
bonds that we expect to provide highly competitive yields, but we try to ensure
that we select bonds that are most likely to obtain attractive prices if and
when we decide to sell them in the secondary market.
What other factors influenced the portfolio's performance?
The portfolio was affected by changing interest rates over the past year. When
the reporting period began on September 1, 1998, investors were concerned about
the potentially adverse economic effects of the global currency and credit
crisis, which had spread from Asia to Russia and was threatening Latin America.
In response, the Federal Reserve Board reduced short-term interest rates last
fall in an attempt to stimulate global economic growth.
The Federal Reserve's strategy apparently was effective. Economies in Japan and
Southeast Asia appear to have halted their deterioration early in 1999, and the
growth of the U.S. economy was stronger than most analysts expected. Municipal
bond yields and prices stabilized in this environment. In the second quarter,
however, strong economic growth raised concerns among fixed-income investors
that inflationary pressures might re-emerge. The Federal Reserve Board increased
short-term interest rates twice during the summer of 1999 in an attempt to
forestall a reacceleration of inflation. This change in monetary policy -- and
the increased attractiveness of taxable bonds with higher yields -- caused
municipal bond prices to fall in July and August.
In addition, because of strong economic conditions throughout the country,
municipalities have had less need to borrow. Yet, demand has remained high from
individual and institutional investors seeking to reduce their income tax
liabilities. This imbalance between supply and demand constrained the rise of
municipal bond yields relative to the yields of taxable bonds. As a result, the
municipal bond market generally outperformed the U.S. Treasury securities market
over the first eight months of 1999.
What is the portfolio's current strategy?
We have continued to search for bonds with attractive structures in the national
municipal bond market. We have found such values, in our opinion, in "de
minimus" bonds in the 15- to 20-year maturity range that are selling at a
discount to their face values and that cannot be redeemed by their issuers any
time soon. These bonds typically sell at lower prices because they may be
temporarily out-of-favor among institutional investors. While discount bonds
have the potential to appreciate faster than other municipal bonds in rising
markets, their prices also tend to fall faster in declining markets, as we
experienced toward the end of the reporting period.
In addition, we have continued to focus on high-quality issuers. Although the
differences in yields between the highest quality bonds and lower quality bonds
have widened from very narrow levels recently, we currently see little reason to
assume the added credit risk lower rated bonds entail.
September 14, 1999
(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. INCOME MAY BE SUBJECT TO STATE AND LOCAL
TAXES, AND SOME INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX
(AMT) FOR CERTAIN INVESTORS. CAPITAL GAINS, IF ANY, ARE FULLY TAXABLE.
(2) SOURCE: LIPPER ANALYTICAL SERVICES, INC.
The Portfolio
<TABLE>
<CAPTION>
PORTFOLIO PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus BASIC Municipal
Bond Portfolio and the Lehman Brothers Municipal Bond Index
- --------------------------------------------------------------------------------
Average Annual Total Returns AS OF 8/31/99
Inception
1 Year 5 Years (5/6/94)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PORTFOLIO -1.63% 6.63% 7.03%
</TABLE>
((+)) SOURCE: LEHMAN BROTHERS.
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. THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, UNLIKE THE PORTFOLIO, 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 OR
UNDERPERFORMING 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
$14,356
Dreyfus BASIC Municipal Bond Portfolio
$14,000
Lehman Brothers Municipal Bond Index((+)
<TABLE>
<CAPTION>
(STATEMENT OF INVESTMENTS
August 31, 1999
STATEMENT OF INVESTMENTS CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS--97.5% Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
ALABAMA--1.3%
Alabama Private Colleges and Universities
Facilities Authority, Revenue
(Tuskegee University Project)
<S> <C> <C> <C>
5.75%, 9/1/2026 2,400,000 2,334,312
Alabama Water Pollution Control Authority,
Revolving Fund Loan
6.25%, 8/15/2014 (Insured; AMBAC) 750,000 774,698
ARIZONA--.8%
Tempe, GO 4%, 7/1/2016 2,500,000 2,037,850
CALIFORNIA--8.1%
California Community College Financing Authority, LR
4.625%, 10/1/2019 (Insured; MBIA) 4,000,000 3,495,920
California Public Works Board, LR
California Community College)
5.625%, 3/1/2019 (Insured; AMBAC) 1,500,000 1,508,040
Culver City Redevelopment Finance Authority,
Revenue 4.60%, 11/1/2020 (Insured; AMBAC) 3,500,000 3,024,070
Kings River Conservation District, Pine Flat Power Revenue
4.75%, 1/1/2020 5,250,000 4,622,048
Los Angeles County, COP
(Disney Parking Referendum Project)
4.75%, 3/1/2023 (Insured; AMBAC) 2,000,000 1,749,800
Los Angeles Harbor Department, Revenue
5.375%, 11/1/2023 1,000,000 945,660
Saddleback Valley, Unified School District Public Financing
Authority, Special Tax Revenue
5.65%, 9/1/2017 (Insured; FSA) 1,000,000 1,012,510
San Mateo County, JT Powers Authority, LR
4.75%, 7/15/2023 2,000,000 1,747,780
Walnut Valley, Unified School District
6.50%, 8/1/2019 (Insured; FGIC) 1,765,000 1,931,987
COLORADO--3.0%
Colorado Springs, Utility Revenue 6.75%, 11/15/2021 500,000 533,025
Denver City and County, Airport Revenue
7%, 11/15/2025 820,000 851,767
Jefferson County, Open Space Sales Tax Revenue
4.625%, 11/01/2016 6,900,000 6,114,849
FLORIDA--9.6%
Bay County, Sales Tax Revenue
4.75%, 9/1/2023 (Insured; FSA) 3,160,000 2,749,548
The Portfolio
CONTINUED)
STATEMENT OF INVESTMENTS (CONTINUED)
STATEMENT OF INVESTMENTS Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
Florida State Board of Education Capital Outlay (Public Education):
4.50%, 6/1/2018 (Insured; MBIA) 1,250,000 1,073,963
4.50%, 6/1/2020 (Insured; MBIA) 7,625,000 6,449,378
4.50%, 6/1/2021 3,000,000 2,513,100
4.50%, 6/1/2022 (Insured; FSA) 5,810,000 4,852,280
4.75%, 6/1/2023 (Insured; MBIA) 3,000,000 2,584,230
Florida State Municipal Loan Council Revenue
4.75%, 4/1/2019 (Insured; MBIA). 3,990,000 3,556,846
Palm Beach County, Solid Waste IDR
(Osceola Power Limited Partnership)
6.85%, 1/1/2014 ) 200,00(a) 124,000
GEORGIA--3.0%
Georgia Housing and Finance Authority, SFMR
5.85%, 12/1/2028 4,475,000 4,437,365
Municipal Electric Authority of Georgia (Project One)
4.50%, 1/1/2019 (Insured; MBIA) 3,650,000 3,089,324
HAWAII--.8%
Hawaii, Department of Budget and Finance,
Special Purpose Revenue (Hawaiian Electric Co.)
5.65%, 10/1/2027 (Insured; MBIA) 2,000,000 1,936,220
ILLINOIS--.8%
Cicero, GO 6.50%, 12/1/2014 (Insured; MBIA)
(Prerefunded 12/1/2004) 500,000(b 554,790
Illinois Development Finance Authority, Revenue
(Steppenwolf Theatre Company) 5.50%, 10/1/2028 1,500,000 1,404,150
KANSAS--.8%
Johnson County Union School District No 512 (Shawnee Mission)
4.50%, 10/1/2019 2,370,000 2,003,432
KENTUCKY--1.0%
Jefferson County, PCR (Louisville Gas and Electric Co. Project)
5.625%, 8/15/2019 1,300,000 1,301,911
Trimble County, PCR (Louisville Gas and Electric Co.)
7.625%, 11/1/2020 1,000,000 1,049,570
LOUISIANA--1.2%
Louisiana Stadium and Expo District,
Hotel Occupancy Tax and Stadium Revenue
4.75%, 7/1/2021 (Insured; FGIC) 2,850,000 2,464,481
West Feliciana Parish, PCR (Gulf States Utilities Co. Project)
8%, 12/1/2024 500,000 513,530
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
MAINE--3.2%
Maine Health and Higher Educational Facilities Authority, Revenue
4.625%, 7/1/2015 (Insured; MBIA) 4,370,000 3,909,227
Maine State Turnpike Authority, Special Obligation
5%, 7/1/2018 (Insured; MBIA) 4,265,000 3,962,185
MARYLAND--1.3%
Maryland State Health and Higher Educational
Facilities Authority, Revenue
(Doctors Community Hospital) 5.50%, 7/1/2024 3,500,000 3,126,375
MASSACHUSETTS--1.9%
Boston 4.25%, 11/1/2018 (Insured; MBIA) 2,840,000 2,316,020
Massachusetts Health and Educational
Facilities Authority, Revenue
(Mt. Auburn Hospital Issue)
6.30%, 8/15/2024 (Insured; MBIA) 750,000 778,785
Massachusetts Housing Finance Agency,
SFHR 7.125%, 6/1/2025 480,000 501,226
Massachusetts Industrial Finance Agency, Health Care
Facility Revenue (Metro Health Foundation Inc. Project)
6.75%, 12/1/2027 1,000,000 1,023,610
MICHIGAN--4.8%
Hazel Park Building Authority (Ice Arena)
4.625%, 4/1/2019 (Insured; AMBAC) 1,600,000 1,384,960
Kalamazoo Hospital Finance Authority, Hospital Facility Revenue
(Burgess Medical Center) 6.25%, 6/1/2014 (Insured; FGIC) 1,000,000 1,088,240
Lowell Area Schools, Zero Coupon, 5/1/2016 (Insured; FGIC) 1,675,000 656,449
Michigan Building Authority, Revenue (Facilities Program)
4.75%, 10/15/2021 5,355,000 4,667,900
Michigan Municipal Bond Authority
(Local Government Loan Program)
6.125%, 12/1/2018 (Insured; FGIC) 750,000 776,505
Plymouth-Canton Community School District:
4.75%, 5/1/2021 1,365,000 1,185,584
4.75%, 5/1/2023 (Insured; FSA) 2,320,000 1,996,360
MINNESOTA--.1%
Minnesota Housing Finance Agency, SFHR 6.90%, 7/1/2022 225,000 235,033
MISSISSIPPI--1.8%
Mississippi (Capital Improvements)
4.50%, 11/1/2017 (Insured; FGIC) 5,000,000 4,313,500
The Portfolio
STATEMENT OF INVESTMENTS (CONTINUED)
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
MISSOURI--3.9%
Cape Girardeau County Industrial Development Authority, MFHR
(Cape La Croix) 6.40%, 6/20/2031 1,245,000 1,305,420
Missouri Housing Development Commission,
SFMR (Homeowner Loan)
5.90%, 9/1/2028 4,745,000 4,785,997
Missouri State Environmental Improvement and Energy
Resource Authority, Water Pollution Control Revenue
(State Revolving Funds Program) 4.50%, 1/1/2017 3,965,000 3,427,386
MONTANA--.4%
Billings, MFHR (West Park Village) 5.55%, 12/1/2032 1,000,000 967,530
NEVADA--.1%
Clark County IDR (Nevada Power Co. Project)
7.20%, 10/1/2022 250,000 266,520
NEW HAMPSHIRE--2.2%
New Hampshire Higher Educational and
Health Facilities Authority, HR:
(Androscoggin Valley Hospital) 5.75%, 11/1/2017 1,525,000 1,462,689
(Mary Hitchcock Memorial Hospital)
5.75%, 8/15/2023 (Insured; FGIC) 3,850,000 3,764,222
New Hampshire Housing Finance Authority
6.85%, 7/1/2014 235,000 244,969
NEW JERSEY--3.6%
New Jersey GO, 4.75%, 8/1/2015 6,000,000 5,541,540
New Jersey Housing and Mortgage Finance Agency,
Home Buyer Revenue
6.70%, 4/1/2016 (Insured; MBIA) 500,000 529,370
New Jersey Transportation Trust Fund Authority
(Transportation System) 4.50%, 6/15/2019 (Insured; FSA) 1,965,000 1,690,332
New Jersey Turnpike Authority, Turnpike Revenue
6.50%, 1/1/2016 1,000,000 1,101,070
NEW MEXICO--1.1%
New Mexico Mortgage Finance Authority, MFHR
(Rio Volcan II Apartments Project) 5.65%, 7/1/2018 2,800,000 2,793,336
NEW YORK--1.4%
Long Island Power Authority, Electric System General Revenue
4.625%, 4/1/2016 (Insured; MBIA) 3,395,000 2,996,699
New York City Industrial Development Agency,
Special Facility Revenue
(American Airlines Inc., Project) 6.90%, 8/1/2024 500,000 525,280
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA--1.6%
Charlotte-Mecklenberg Hospital Authority,
Health Care System Revenue
5.875%, 1/15/2026 1,400,000 1,392,454
North Carolina Eastern Municipal Power Agency,
Power System Revenue
7%, 1/1/2008 250,000 268,723
North Carolina State (Capital Improvement)
4.75%, 2/1/2013 2,500,000 2,372,500
NORTH DAKOTA--1.4%
North Dakota State Municipal Bond Bank
(State Revolving Fund Program) 4.625%, 10/1/2019 3,920,000 3,365,085
OHIO--3.6%
Franklin County, Hospital Revenue, Refunding and
Improvement (Children's Hospital Project)
5.75%, 11/1/2020 2,000,000 1,979,300
Hamilton County, Hospital Facilities Revenue
(Bethesda Hospital) 6.25%, 1/1/2012 1,000,000 1,045,670
Kent City, School District 5.75%, 12/1/2021 (Insured; FGIC) 1,500,000 1,514,310
Lorain, Hospital Improvement Revenue
(Lakeland Community Hospital, Inc.)
6.50%, 11/15/2012 1,000,000 1,090,570
Lucas County, HR 5.45%, 8/15/2014 (Insured; MBIA) 2,500,000 2,473,500
Ohio Building Authority
(State Facilities-Juvenile Correctional Projects)
6.60%, 10/1/2014 (Insured; AMBAC)
(Prerefunded 10/1/2004) 750,000(b) 834,413
OKLAHOMA--2.4%
Norman Regional Hospital Authority,
HR 5.625%, 9/1/2016 (Insured; MBIA) 1,020,000 1,016,685
Pottawatomie County Development Authority,
Water Revenue (North Deer Creek Reservoir):
5.80%, 7/1/2015 (Insured; AMBAC) 1,800,000 1,825,128
5.90%, 7/1/2026 (Insured; AMBAC) 3,150,000 3,190,730
OREGON--.4%
Oregon Housing and Community Services Department,
SFMR (Mortgage Program)
6.45%, 7/1/2026 955,000 991,710
The Portfolio
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--15.6%
Allegheny County Hospital Development Authority, Revenue:
(Health System--Catholic Health East)
4.875%, 11/15/2015 (Insured; AMBAC) 950,000 857,936
(Health System--University of Pennsylvania Medical Center)
4.75%, 12/15/2016 (Insured; AMBAC). 6,000,000 5,308,500
Bucks County Technical School Authority, School Revenue
5.375%, 8/15/2015 (Insured; AMBAC) 1,000,000 988,370
Bulter Area School District 4.75%, 10/1/2022 1,000,000 864,440
Delaware County, Pennsylvania Authority
Health Systems Revenue
(Catholic Health East) 4.875%, 11/15/2015 (Insured; AMBAC) 1,550,000 1,402,812
Dauphin County General Authority, Office and
Packaging Revenue (Riverfront Office)
6%, 1/1/2025 2,000,000 1,890,580
Harrisburg Authority, Office and Packaging Revenue
6%, 5/1/2019 1,000,000 956,580
North Wales Water Authorty, Revenue
5.60%, 11/1/2016 (Insured; FGIC) 1,000,000 1,002,340
Northhampton County Industrial Development Authority, PCR
(Bethlehem Steel) 7.55%, 6/1/2017 250,000 265,183
Pennsylvania, COP 5%, 7/1/2015 (Insured; AMBAC) 4,970,000 4,607,488
Pennsylvania Economic Development Financing Authority
RRR (Northampton Generating) 6.50%, 1/1/2013 3,000,000 3,068,250
Pennsylvania Housing Finance Agency,
Single Family Mortgage 6.75%, 4/1/2016 2,700,000 2,789,370
Pennsylvania Industrial Development Authority,
EDR 5.50%, 1/1/2014 (Insured; AMBAC) 1,000,000 998,440
Philadelphia Hospitals and Higher Education
Facilities Authority, HR
(Temple University Hospital) 6.625%, 11/15/2023 8,225,000 8,444,361
Philadelphia, Water and Wastewater Revenue,
5.75%, 6/15/2013 (Insured; MBIA) 1,405,000 1,437,793
Potter County Hospital Authority, Revenue
(Charles Cole Memorial Hospital) 5.95%, 8/1/2016 1,200,000 1,216,068
Washington County Industrial Development Authority,
PCR (West Penn Power Co.)
6.05%, 4/1/2014 (Insured; AMBAC) 2,500,000 2,603,825
RHODE ISLAND--.1%
Rhode Island Housing and Mortgage Finance Corp.
(Homeownership Opportunity)
6.50%, 4/1/2027 200,000 206,964
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--1.8%
Greenville Hospital System, Hospital Facilities Revenue
5.50%, 5/1/2016 2,000,000 1,941,460
Pickens and Richland Counties, Hospital Facilities Revenue
(Baptist Hospital)
5.75%, 8/1/2021 (Insured; AMBAC) 2,645,000 2,620,481
TENNESSEE--1.0%
Maury County Industrial Development Board,
PCR (Saturn Corp. Project)
6.50%, 9/1/2024 (Guaranteed; General Motors Corp.) 1,000,000 1,052,120
Sullivan County Industrial Board, Revenue 6.35%, 7/20/2027 1,000,000 1,044,710
Tennessee Housing Development Agency,
Mortgage Finance 6.90%, 7/1/2025 250,000 261,013
TEXAS--9.3%
Alliance Airport Authority, Special Facilities Revenue
(American Airlines Inc., Project) 7.50%, 12/1/2029 500,000 523,715
Brazos River Authority, Revenue
(Houston Industries Inc., Project) 5.125%, 5/1/2019 1,750,000 1,621,060
Cinco Texas Municipal Utilities District No. 1 Contract, Revenue
5.35%, 12/1/2022 (Insured; FSA) 2,845,000(c)2,717,686
Crosby Independent School District, Zero Coupon, 2/15/2017 1,655,000 607,981
Frisco Independent School District 4.625%, 8/15/2022 3,745,000 3,173,588
Irving Independent School District 5%, 2/15/2021 1,800,000 1,635,768
Lower Colorado River Authority, Revenue (Junior Lien)
4.50%, 1/1/2017 (Insured; FSA) 2,000,000 1,713,080
Mesquit Health Facilities Development
(Christian Retirement Facility) 6.40%, 2/15/2020 1,500,000 1,519,455
Mesquite Independent School District:
5.125%, 8/15/2018 2,510,000 2,361,985
5.125%, 8/15/2019 2,640,000 2,471,119
Northside Independent School District 4.75%, 8/15/2024 4,000,000 3,433,160
Spring Independent School District 4.50%, 8/15/2020 1,365,000 1,140,430
VIRGINIA--.7%
Virginia Beach Development Authority,
Health Care Facilities Revenue
(Sentara Health System) 4.75%, 11/1/2021 2,000,000 1,734,120
WASHINGTON--1.6%
King County, School District 5.375%, 12/1/2013 1,905,000 1,897,323
Seatac, Local Option Transportation, Tax Revenue:
6.50%, 12/1/2013 (Insured; MBIA)
(Prerefunded 12/1/2003) 455,000(b) 499,849
6.50%, 12/1/2013 (Insured; MBIA) 45,000 48,985
The Portfolio
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
WASHINGTON (CONTINUED)
Tacoma, Conservation Systems Project Revenue
(Tacoma Public Utilities Division)
6.60%, 1/1/2015 1,000,000 1,066,539
Washington, Public Power Supply System,
Nuclear Project #2, Revenue
6.25%, 7/1/2012 315,000 331,804
WEST VIRGINIA--1.1%
Braxton County, SWDR (Weyerhauser Co., Project)
6.50%, 4/1/2025 1,000,000 1,055,249
Parkersburg, Waterworks and Sewer System Revenue
5.80%, 9/1/2019 (Insured; FSA) 500,000 506,464
Pleasants County, PCR (West Penn Power Co.)
6.15%, 5/1/2015 (Insured; AMBAC) 1,000,000 1,046,169
WYOMING--.1%
Sweetwater County, SWDR (FMC Corp. Project) 7%, 6/1/2024 200,000 208,969
U.S. RELATED--.6%
Commonwealth of Puerto Rico Highway and
Transportation Authority, Highway Revenue
5.50%, 7/1/2019 1,500,000 1,463,639
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $249,165,553) 240,634,752
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS--1.1%
- ---------------------------------------------------------------------------------------------------------------------------------
KENTUCKY--.5%
Louisville & Jefferson County Regional Airport Authority, Special Facilities
Revenue, VRDN (UPS Worldwide Forwarding)
3.20% 1,300,000(d) 1,300,000
NEW YORK--.6%
New York City, VRDN 3.20% 1,500,000(d) 1,500,000
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $2,800,000) 2,800,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $251,965,553) 98.6% 243,434,752
CASH AND RECEIVABLES (NET) 1.4% 3,425,865
NET ASSETS 100.0% 246,860,617
</TABLE>
<TABLE>
<CAPTION>
Summary of Abbreviations
<S> <C> <C> <C>
AMBAC American Municipal Bond MFHR Multi-Family Housing
Assurance Corporation Revenue
COP Certificate of Participation PCR Pollution Control Revenue
EDR Economic Development Revenue RRR Resources Recovey Revenue
FGIC Financial Guaranty Insurance Company SFHR Single Family Housing
FSA Financial Security Assurance Revenue
GO General Obligation SFMR Single Family Mortgage
HR Hospital Revenue Revenue
IDR Industrial Development Revenue SWDR Solid Waste Disposal Revenue
LR Lease Revenue VRDN Variable Rate Demand Notes
MBIA Municipal Bond Investors
Assurance Insurance Corporation
</TABLE>
<TABLE>
<CAPTION>
Summary of Combined Ratings (Unaudited)
Fitch or Moody's or Standard & Poor's Value (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AAA Aaa AAA 65.1
AA Aa AA 20.6
A A A 3.7
BBB Baa BBB 7.5
BB Ba BB .2
F1 MIG1/P1 SP1/A1 1.2
Not Rated (e) Not Rated (e) Not Rated (e) 1.7
100.0
</TABLE>
(A) NON-INCOME PRODUCING SECURITY; INTEREST PAYMENTS IN DEFAULT.
(B) BONDS WHICH ARE PREREFUNDED ARE COLLATERALIZED BY U.S. GOVERNMENT SECURITIES
WHICH ARE HELD IN ESCROW AND ARE USED TO PAY PRINCIPAL AND INTEREST ON THE
MUNICIPAL ISSUE AND TO RETIRE THE BONDS IN FULL AT THE EARLIEST REFUNDING DATE.
(C) PURCHASED ON A DELAYED DELIVERY BASIS.
(D) SECURITIES PAYABLE ON DEMAND. VARIABLE INTEREST RATE-SUBJECT TO PERIODIC
CHANGE.
(E) SECURITIES WHICH, WHILE NOT RATED BY FITCH, MOODY'S AND STANDARD & POOR'S
HAVE BEEN DETERMINED BY THE MANAGER TO BE OF COMPARABLE QUALITY TO THOSE
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST.
SEE NOTES TO FINANCIAL STATEMENTS.
The Portfolio
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
Cost Value
- -------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 251,965,553 243,434,752
Cash 2,034,625
Interest receivable 3,455,157
Receivable for investment securities sold 2,531,138
Prepaid expenses 20,440
251,476,112
- -------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 74,553
Payable for investment securities purchased 4,472,195
Payable for shares of Common Stock redeemed 19,128
Accrued expenses 49,619
4,615,495
- -------------------------------------------------------------------------------
NET ASSETS ($) 246,860,617
- -------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 256,621,085
Accumulated net realized gain (loss) on investments (1,229,667)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 (8,530,801)
- -------------------------------------------------------------------------------
NET ASSETS ($) 246,860,617
- -------------------------------------------------------------------------------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized) 19,017,815
NET ASSET VALUE, offering and redemption price per share ($) 12.98
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended August 31, 1999
- -------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 11,958,734
EXPENSES:
Management fee--Note 3(a) 1,368,389
Shareholder servicing costs--Note 3(b) 227,512
Registration fees 53,299
Custodian fees 28,784
Professional fees 22,649
Prospectus and shareholders' reports 12,660
Directors' fees and expenses--Note 3(c) 3,382
Loan commitment fees--Note 2 875
Miscellaneous 26,211
TOTAL EXPENSES 1,743,761
Less--reduction in management fee due to
undertaking--Note 3(a) (716,594)
NET EXPENSES 1,027,167
INVESTMENT INCOME--NET 10,931,567
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (314,074)
Net unrealized appreciation (depreciation) on investments (16,411,327)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (16,725,401)
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,793,834)
SEE NOTES TO FINANCIAL STATEMENTS.
The Portfolio
STATEMENT OF CHANGES IN NET ASSETS
Year Ended August 31,
-----------------------------
1999 1998
- -------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 10,931,567 7,568,270
Net realized gain (loss) on investments (314,074) 1,820,159
Net unrealized appreciation (depreciation)
on investments (16,411,327) 4,677,426
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (5,793,834) 14,065,855
- -------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (10,931,567) (7,599,764)
Net realized gain on investments (2,472,375) (1,850,141)
TOTAL DIVIDENDS (13,403,942) (9,449,905)
- -------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 150,648,882 137,713,820
Dividends reinvested 9,582,880 6,550,898
Cost of shares redeemed (84,130,784) (73,191,748)
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 76,100,978 71,072,970
TOTAL INCREASE (DECREASE) IN NET ASSETS 56,903,202 75,688,920
- -------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 189,957,415 114,268,495
END OF PERIOD 246,860,617 189,957,415
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 10,921,658 9,993,748
Shares issued for dividends reinvested 698,197 475,699
Shares redeemed (6,160,143) (5,311,239)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 5,459,712 5,158,208
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the portfolio would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. These figures have been derived from the
portfolio's financial statements.
Year Ended August 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 14.01 13.60 13.03 13.01 12.76
Investment Operations:
Investment income--net .66 .69 .74 .73 .76
Net realized and unrealized
gain (loss) on investments (.86) .60 .66 .06 .25
Total from Investment Operations (.20) 1.29 1.40 .79 1.01
Distributions:
Dividends from investment income--net (.66) (.69) (.74) (.72) (.76)
Dividends from net realized gain
on investments (.17) (.19) (.09) (.05) --
Total Distributions (.83) (.88) (.83) (.77) (.76)
Net asset value, end of period 12.98 14.01 13.60 13.03 13.01
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (1.63) 9.78 11.03 6.17 8.30
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets .45 .45 .26 .39 .20
Ratio of net investment income
to average net assets 4.79 4.97 5.50 5.52 5.99
Decrease reflected in above expense ratios
due to undertakings by the Manager .31 .36 .58 .52 .77
Portfolio Turnover Rate 87.54 43.39 101.27 59.23 58.91
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 246,861 189,957 114,268 56,449 42,913
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
The Portfolio
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus BASIC Municipal Bond Portfolio (the "portfolio" ) is a separate
non-diversified series of Dreyfus BASIC Municipal Fund, Inc. (the "fund") which
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company and operates as a series company
currently offering four series including the portfolio. The portfolio' 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 portfolio' s
investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A.
Premier Mutual Fund Services, Inc. is the distributor of the portfolio's shares,
which are sold to the public without a sales charge.
The fund accounts separately for the assets, liabilities and operations of each
series. Expenses directly attributable to each series are charged to that
series' operations; expenses which are applicable to all funds are allocated
among them on a pro rata basis.
The portfolio' 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 val
ues 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. Under the terms of the custody
agreement, the portfolio received net earnings credits of $12,385 during the
period ended August 31, 1999 based on available cash balances left on deposit.
Income earned under this arrangement is included in interest income.
(c) Dividends to shareholders: It is the policy of the portfolio 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 portfolio 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, if any, it is the policy of the portfolio not
to distribute such gain.
(d) Federal income taxes: It is the policy of the portfolio to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Code, and to make
distributions of income and net realized capital gain sufficient to relieve it
from substantially all Federal income and excise taxes.
The Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Bank Line of Credit:
The portfolio participates with other Dreyfus-managed funds in a $600 million
redemption credit facility (the "Facility" ) to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the portfolio has agreed to pay commitment fees on its pro rata
portion of the Facility. Interest is charged to the portfolio at rates based on
prevailing market rates in effect at the time of the borrowings. During the
period ended August 31, 1999, the portfolio 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 portfolio's average
daily net assets and is payable monthly. The Manager has undertaken, until such
time as it gives shareholders at least 90 days' notice to the contrary, to
reduce the management fee paid by the portfolio, to the extent that the
portfolio' s aggregate expenses, exclusive of taxes, brokerage, interest on
borrowings, commitment fees and extraordinary expenses, exceed an annual rate of
. 45 of 1% of the value of the portfolio's average daily net assets. The
reduction in management fee, pursuant to the undertaking, amounted to $716,594
during the period ended August 31, 1999.
(b) Under the Shareholder Services Plan, the portfolio 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 portfolio'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 portfolio and providing reports and other information,
and services related to the maintenance of shareholder accounts. During the
period ended August 31, 1999, the portfolio was charged $166,578 pursuant to the
Shareholder Services Plan.
The portfolio 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 portfolio. During the
period ended August 31, 1999, the portfolio was charged $39,131 pursuant to the
transfer agency agreement.
(c) Each director who is not an "affiliated person" as defined in the Act
receives from the fund 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, 1999, amounted to
$265,897,829, and $192,868,184, respectively.
At August 31, 1999, accumulated net unrealized depreciation on investments was
$8,530,801, consisting of $1,413,116 gross unrealized appreciation and
$9,943,917 gross unrealized depreciation.
At August 31, 1999, 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).
The Portfolio
REPORT OF 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,
1999, 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
Portfolio' 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, 1999 by correspondence with the custodian and
brokers. 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, 1999, 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.
New York, New York
October 4, 1999
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with Federal tax law, the portfolio hereby makes the following
designations regarding its fiscal year ended August 31, 1999:
--all the dividends paid from investment income-net are "exempt-interest
dividends" (not generally subject to regular Federal income tax), and
--the portfolio hereby designates $.0838 per share as a long-term capital
gain distribution of the $.1681 per share paid on December 9, 1998.
As required by Federal tax law rules, shareholders will receive notification of
their portion of the portfolio's taxable ordinary dividends (if any) and capital
gain distributions (if any) paid for the 1999 calendar year on Form 1099-DIV
which will be mailed by January 31, 2000.
The Portfolio
For More Information
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
100 Church Street
New York, NY 10286
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
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 [email protected]
ON THE INTERNET Information can be viewed online or downloaded from:
http://www.dreyfus.com
(c) 1999 Dreyfus Service Corporation 125AR998
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
8/31/98 13,930 14,594
8/31/99
* Source: Lehman Brothers
