<PAGE>
THE DREYFUS
DREYFUS EQUITY INCOME FUND
EDGAR DESCRIPTIONS
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a lion's face.
<PAGE>
Dear Shareholder,
We are please to provide you with certain portfolio information for the Dreyfus
Equity Income Fund for the period ended October 31, 1994.
As you know from recent correspondence, The Laurel Family of Funds is
integrating with The Dreyfus Family of Funds. As part of this integration,
the Laurel Equity Income Fund is now known, and publicly listed, as the
Dreyfus Equity Income Fund. Please be assured that the new name does not
affect the value of your account or the investment objective or strategy of
your Fund. The integration is discussed in greater detail in the notes to the
financial statements of this report.
In the pages that follow, we have provided detailed financial statements for
the reporting period.
We would like to extend our appreciation for your support and hope that you
will find that the Fund, which is now part of The Dreyfus Family of
Funds, will continue to satisfy your investment needs. As always, we welcome
your thoughts and suggestions.
Sincerely,
Marie E. Connolly
President
Dreyfus Equity Income Fund
December 9, 1994
1
<PAGE>
DREYFUS EQUITY INCOME FUND
<TABLE>
TABLE OF CONTENTS
********************************************************
<S> <C>
Shareholder Letter................................ 1
Economic Review................................... 3
Portfolio of Investments.......................... 4
Statement of Assets and Liabilities............... 10
Statement of Operations........................... 11
Statement of Changes in Net Assets................ 12
Financial Highlights.............................. 13
Notes to Financial Statements..................... 15
Independent Auditors' Report...................... 19
</TABLE>
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
ALL MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THE FUND IS DISTRIBUTED BY PREMIER MUTUAL FUND SERVICES, INC.
2
<PAGE>
ECONOMIC REVIEW
- ---------------
One of the biggest news stories of the year--business or otherwise--was
the rise in interest rates. This year's rise in rates was the most dramatic in
decades and impacted the markets, the housing industry, the growth of the
economy and perhaps even had an effect on the outcome of the November mid-term
elections, held one week after the end of the fiscal year.
On February 4, 1994, the Federal Reserve Board embarked on the first of
five interest rate hikes during the fiscal year ending October 31, 1994. On
November 15, 1994, the sixth and largest rate increase occurred. All told, the
Fed raised rates a total of 2.50 percentage points, nearly doubling short-term
rates from 3.00% to 5.50%.
At the same time, long-term interest rates rose in lock step to
short-term rates, creating havoc in the bond markets. Between October 31, 1993
and October 31, 1994, the Lehman Brothers Treasury Bond Index fell 4.46%.
Stocks, as measured by the Standard & Poor's 500 Composite Stock Price Index,
performed better--up 3.86% for the period. Stocks are influenced by many
factors, principally corporate earnings.
Despite rising interest rates throughout fiscal 1994, the economy grew
at a rate of 3.50%. Inflation is still a risk, but our 1995 outlook is still
under 3.50%. We expect the latest Fed action to slow the economy slightly in
1995 to 3.00%. We expect that inflation fears will ebb, and that long-term
interest rates will flatten out, which is good news for the battered bond
market.
Recent overall growth rates understate the vigor in the private
economy. While Gross Domestic Product advanced at a rate of 3.70% in the first
six months of 1994, a 3.10% decline in the public sector masked a soaring 5.20%
advance in the private economy.
Higher interest rates have taken some steam out of housing activity,
but rising job and income growth have proven to be powerful offsets. Moreover,
recent homebuyers are contributing to still-solid gains in consumer outlays for
furniture and appliances. In addition, the rise in interest rates has not yet
dampened either consumers' desire to borrow or lenders' willingness to supply
credit.
However, two factors may dampen consumer optimism by early next year.
First, rising rates will increase monthly mortgage payments for consumers
holding adjustable rate mortgages. Those adjustable rate mortgages will reset
at rates approximately 2 percentage points higher than they carried in 1994,
taking $12-15 billion out of the spending stream by 1995. Thus, housing and the
consumer may shift away from starring roles in the expansion of the economy.
Second, exports and capital spending are taking center stage, and should offset
the effects of slower household spending growth on economic performance. U.S.
exports should benefit from the dollar's 1994 weakness by taking advantage of
overseas growth and increased capital spending worldwide.
3
<PAGE>
<TABLE>
DREYFUS EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS
<CAPTION>
OCTOBER 31, 1994
VALUE
SHARES (NOTE 1)
<S> <C> <C>
COMMON STOCKS - 89.1%
OIL & GAS - 11.7%
1,200 Amoco Corporation $ 76,050
500 Atlantic Richfield 54,188
2,250 Exxon Corporation 141,469
850 Mobil Corporation 73,100
900 Phillips Petroleum Company 33,187
750 Royal Dutch Petroleum 87,375
500 Sonat Inc. 16,250
800 Texaco Inc. 52,300
1,400 Ultramar Corporation 36,225
800 USX-Marathon Group 15,000
--------
585,144
--------
TELECOMUNICATIONS - 10.1%
1,350 A T & T Corporation 74,250
1,100 BCE Inc. 38,500
1,400 Bell Atlantic Corporation 73,325
1,300 Bellsouth Corporation 69,225
1,250 Nynex Corporation 49,062
1,650 Pacific Telesis Group 52,181
1,550 Southwestern Bell Corporation 64,906
950 Sprint Corporation 30,994
1,400 U S West Inc. 52,675
--------
505,118
--------
DRUGS & COSMETICS - 7.7%
200 Avon Products Inc. 12,650
650 Bristol-Myers Squibb Company 37,944
300 Colgate-Palmolive Company 18,300
350 Gillette Company 26,031
2,100 Merck & Company Inc. 75,075
900 Pfizer Inc. 66,713
1,350 Procter & Gamble Company 84,375
550 Schering-Plough Corporation 39,187
300 Warner Lambert Company 22,875
--------
383,150
--------
MERCHANDISING - 6.1%
900 Albertsons Inc. 27,000
750 American Stores Company 20,344
250 Dayton-Hudson Corporation 19,375
600 Gap Inc. 20,250
1,050 Limited Inc. 19,294
1,650 May Department Stores Company 62,081
300 Nordstrom Inc. 14,775
1,400 Penney J C Company Inc. 70,875
2,200 Wal-Mart Stores Inc. 51,700
--------
305,694
--------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
DREYFUS EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
<CAPTION>
OCTOBER 31, 1994
VALUE
SHARES (NOTE 1)
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS & FERTILIZERS - 5.8%
300 American Cyanamid Company $ 29,625
1,500 Du Pont (EI) De Nemours & Company 89,437
650 Eastman Chemical 35,100
500 Engelhard Corporation 11,750
500 Lyondell Petrochemical Company 13,687
650 Monsanto Company 49,481
1,100 Union Carbide Corporation 36,438
800 WMX Technologies Inc. 23,500
--------
289,018
--------
BANKING - 5.7%
1,600 Bank Of New York Company Inc. 50,800
750 BankAmerica Corporation 32,625
1,400 Chase Manhattan Corporation 50,400
1,650 Corestates Financial Corporation 42,694
200 First Bank System Inc. 7,450
800 First Union Corporation 36,000
1,150 MBNA Corporation 30,763
400 National City Corporation 10,900
1,100 PNC Financial Corporation 25,850
--------
287,482
--------
FOOD - 4.6%
550 Campbell Soup Company 22,687
1,450 Coca-Cola Company 72,862
550 Conagra Inc. 17,119
250 CPC International Inc. 13,375
300 IBP Inc. 10,237
1,600 Pepsico Inc. 56,000
350 Tyson Foods Inc., Class A 8,137
250 Unilever N V 29,687
--------
230,104
--------
PUBLIC UTILITIES - 4.4%
1,750 CINergy Corporation 40,469
1,500 Consolidated Edison Company Inc. 37,312
900 Entergy Corporation 21,037
300 FPL Group Inc. 9,937
550 Pacific Enterprises 11,825
1,350 Peco Energy Company 34,594
3,200 Southern Company 63,200
--------
218,374
--------
OFFICE EQUIPMENT - 3.3%
800 International Business Machines 59,600
600 Pitney Bowes Inc. 20,250
1,200 Reynolds & Reynolds Company 29,850
550 Xerox Corporation 56,375
--------
166,075
--------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
DREYFUS EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
<CAPTION>
OCTOBER 31, 1994
VALUE
SHARES (NOTE 1)
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRICAL EQUIPMENT - 3.0%
250 Avnet Inc. $ 9,375
2,850 General Electric Company 139,294
--------
148,669
--------
INSURANCE - 2.6%
1,100 American General Corporation 30,250
750 American National Insurance Company 35,250
250 Chubb Corporation 17,469
350 Providian Corporation 11,112
500 Safeco Corporation 25,062
300 St. Paul Companies 13087
--------
132,230
--------
ELECTRONICS - 2.6%
650 Corning Inc. 22,100
400 Hewlett Packard Company 39,100
850 Motorola Inc. 50,044
300 Raytheon Company 19,125
--------
130,369
--------
MEDICAL - 2.5%
1,900 Abbott Labs 58,900
350 Baxter International Inc. 9,100
1,050 Johnson & Johnson 57,356
--------
125,356
--------
AUTOMOTIVE - 2.4%
1,100 Chrysler Corporation 53,625
300 Echlin Inc. 9225
500 General Motors Corporation 19,750
1,000 General Motors Corporation, Class H 36,000
--------
118,600
--------
AEROSPACE & AVIATION - 2.2%
450 Lockheed Corporation 32,400
200 McDonnell Douglas Corporation 28,200
450 Northrop Corporation 19,744
250 Sunstrand 11,375
250 United Technologies 15750
--------
107,469
--------
BUILDING MATERIALS - 2.0%
300 Georgia Pacific Corporation 22,162
800 PPG Industries Inc. 32,600
1,200 Weyerhaeuser Company 47,100
--------
101,862
--------
TOBACCO & VENDING - 1.7%
1,400 Philip Morris Companies Inc. 85,750
--------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
DREYFUS EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
<CAPTION>
OCTOBER 31, 1994
VALUE
SHARES (NOTE 1)
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCE - 1.6%
200 Dean Witter Discover & Company $ 7,725
400 Federal National Mortgage Association 30,400
750 KeyCorp 21,469
400 Reuters Holdings Plc ADR 18,850
-------
78,444
-------
PRINTING & PUBLISHING - 1.2%
500 Gannett Company Inc. 24,000
150 McGraw-Hill Inc. 11,213
450 Tribune Company 23,681
-------
58,894
-------
RAILROADS - 1.1%
700 Conrail Inc. 38,063
600 Illinois Central 19,275
-------
57,338
-------
BUSINESS SERVICES - 1.1%
1,200 Block H & R Inc. 53,250
-------
BEVERAGES - 0.9%
600 Anheuser-Busch Companies 30,450
450 Seagram Company Ltd. 13,894
-------
44,344
-------
RESTAURANTS - 0.8%
950 Morrison Restaurants Inc. 27,788
525 Sbarro Inc. 13,059
-------
40,847
-------
MULTI-INDUSTRY - 0.8%
200 ITT Corporation 17,650
450 Textron Inc. 22,950
-------
40,600
-------
MACHINERY & HEAVY EQUIPMENT - 0.6%
400 Deere & Company 28,700
-------
METALS - 0.5%
100 Aluminum Company Of America 8,525
300 Phelps Dodge Corporation 18,413
-------
26,938
-------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
DREYFUS EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
<CAPTION>
OCTOBER 31, 1994
VALUE
SHARES (NOTE 1)
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER - 0.5%
300 International Paper Company $ 22,350
----------
PHOTOGRAPHY & PHOTOGRAPHIC EQUIPMENT - 0.4%
450 Eastman Kodak Company 21,656
----------
ELECTRICAL POWER - 0.4%
700 DQE, Inc. 21,175
----------
TIRE & RUBBER - 0.3%
500 Goodyear Tire & Rubber 17,500
----------
NATURAL GAS - 0.2%
350 El Paso Natural Gas 10,894
----------
TRUCKING - 0.2%
350 Ryder System 8,225
----------
HOME FURNISHINGS - 0.1%
300 Newell Company 6,300
----------
TOTAL COMMON STOCKS (Cost $4,553,337) 4,457,919
----------
CONVERTIBLE PREFERRED STOCKS - 5.8%
300 Ahmanson H F & Company, Depositary Shares,
representing 1/10 share, 6.000%, Series D, C 13,763
300 Ashland Oil Inc.,
6.250% Conv. Pfd. 18,975
200 Barnett Banks Inc.,
$4.50 Series A, Conv. Pfd. 16,050
650 Burlington Northern Inc.,
6.250% Series A, Conv. Pfd. 38,513
1,200 Citicorp, Depositary Shares representing
1/12 share, Series 15, Conv. Pfd. 23,550
650 Ford Motor Company, Depositary Shares
representing 1/1000 share, $4.20, Series A 62,888
350 General Motors Corporation, Depositary Shares
representing 1/10 share Series C, Conv. Pfd. 19,644
2,300 RJR Nabisco Holdings, Depositary Shares
representing 1/10 share, 9.250% Series C, Co 15,813
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
DREYFUS EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
<CAPTION>
OCTOBER 31, 1994
VALUE
SHARES (NOTE 1)
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
950 Sears Roebuck & Company, Depositary Shares
representing 1/4 share, Series A, Conv. Pfd. $ 53,794
500 Travelers Inc.,
5.500% Series B, Conv. Pfd. 27,625
--------
TOTAL CONVERTIBLE PREFFERRED STOCKS 290,615
(Cost $233,531) --------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C> <C>
CONVERTIBLE BONDS AND NOTES - 1.0%
$18,000 General Instrument, Convertible Subordinate Notes
5.000% due 6/15/00 25,650
11,000 Pogo Producing Company, Convertible Subordinate Notes
5.500% due 3/15/04 12,595
10,000 Wendy's International Inc., Convertible Subordinate Debent
7.000% due 4/1/06 12,950
-----------
TOTAL CONVERTIBLE BONDS AND NOTES (COST $49,733) 51,195
-----------
REPURCHASE AGREEMENT - 4.7% (COST $234,957)
234,957 Agreement Barclays de Zoete Wedd,
dated 10/31/94, bearing 4.780% to be repurchased at
$234,988 on 11/1/94, collateralized by $241,000
U.S Treasury Bill, 4.360% due 11/10/94 234,957
-----------
TOTAL INVESTMENTS (Cost $5,071,558*) 100.6% $5,034,686
OTHER ASSETS AND LIABILITIES (Net) (0.6)% (29,005)
---------------------------
NET ASSETS 100.0% $5,005,681
===========================
<FN>
_______________________________________________________________________
* Aggregate cost for Federal tax purposes.
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------
Dreyfus Equity Income Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994
-----------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost $5,071,558)(Note 1)
See accompanying schedule............................. $5,034,686
Cash .................................................... 388
Receivable for investment securities sold................ 35,770
Dividends and interest receivable........................ 13,462
----------
Total Assets.......................................... 5,084,306
LIABILITIES:
Payable for investment securities purchased.............. $74,225
Investment management fee payable (Note 2)............... 4,038
Payable for Fund shares redeemed......................... 200
Accrued Directors' fees and expenses (Note 2)............ 162
-------
Total Liabilities..................................... 78,625
----------
NET ASSETS.................................................. $5,005,681
==========
NET ASSETS consist of:
Undistributed net investment income...................... $ 23,451
Accumulated net realized loss on investments sold........ (9,599)
Net unrealized depreciation of investments............... (36,872)
Par value................................................ 503
Paid-in capital in excess of par value................... 5,028,198
----------
Total Net Assets...................................... $5,005,681
==========
NET ASSET VALUE:
Investor Shares:
Net asset value, offering and redemption price per share
($1,015 - 102 shares of capital stock outstanding ) ........ $ 9.95
==========
Class R Shares:
Net asset value, offering and redemption price per share
($5,004,666 - 502,815 shares of capital stock outstanding).. $ 9.95
==========
</TABLE>
See Notes to Financial Statements
10
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------
Dreyfus Equity Income Fund
STATEMENT OF OPERATIONS
For the Period Ended October 31, 1994*
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................... $ 22,688
Interest ................................................ 8,070
---------
Total Investment Income............................... 30,758
EXPENSES:
Investment management fee (Note 2)....................... $7,144
Directors' fees and expenses (Note 2).................... 162
Distribution fee (Note 3)................................ 1
------
Total Expenses........................................ 7,307
---------
NET INVESTMENT INCOME....................................... 23,451
---------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(Notes 1 and 4):
Net realized loss on investments sold during the period.. (9,599)
Net unrealized depreciation of investments during
the period............................................ (36,872)
---------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS............. (46,471)
---------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $(23,020)
=========
<FN>
_________________________
* The Fund commenced operations on September 2, 1994.
</TABLE>
See Notes to Financial Statements
11
<PAGE>
<TABLE>
Dreyfus Equity Income Fund
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Period
Ended
10/31/94*
-----------
<S> <C>
Net investment income............................................ $ 23,451
Net realized loss on investments sold during the period.......... (9,599)
Net unrealized depreciation of investments during the period..... (36,872)
-----------
Net decrease in net assets resulting from operations............. (23,020)
Net increase in net assets from Fund share transactions (Note 5):
Investor Shares............................................... 1,001
Class R Shares................................................ 5,027,700
-----------
Net increase in net assets....................................... 5,005,681
NET ASSETS:
Beginning of period.............................................. 0
-----------
End of period (including undistributed net investment
income of $23,451)............................................ $5,005,681
===========
<FN>
________________________
* The Fund commenced operations on September 2, 1994.
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
<TABLE>
Dreyfus Equity Income Fund
FINANCIAL HIGHLIGHTS
For an Investor Share outstanding throughout the period.
<CAPTION>
Period
Ended
10/31/94*
<S> <C>
Net Asset Value:
Beginning of period............................. $10.00
-------
Income from investment operations:
Net investment income............................. 0.03
Net realized and unrealized loss on
investments..................................... (0.08)
--------------------------------------------------------------
Total from investment operations.................. (0.05)
-------
Net Asset Value:
End of period................................... $ 9.95
==============================================================
Total Return++ (0.50)%
==============================================================
Ratios to average net assets/Supplemental data:
Net assets, end of period (in 000's).............. $ 1
Ratio of operating expenses to average net assets. 1.15%+
Ratio of net investment income to average net asse 2.65%+
Portfolio turnover rate........................... 5%
<FN>
___________________________
* The Fund commenced selling Investor Shares on September 2, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicate
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
Dreyfus Equity Income Fund
FINANCIAL HIGHLIGHTS
For a Class R Share outstanding throughout the period.
<CAPTION>
Period
Ended
10/31/94*
<S> <C>
Net Asset Value:
Beginning of period............................. $10.00
-------
Income from investment operations:
Net investment income............................. 0.05
Net realized and unrealized loss on
investments..................................... (0.10)
--------------------------------------------------------------
Total from investment operations.................. (0.05)
-------
Net Asset Value:
End of period................................... $ 9.95
==============================================================
Total Return++ (0.50)%
==============================================================
Ratios to average net assets/Supplemental data:
Net assets, end of period (in 000's).............. $5,005
Ratio of operating expenses to average net assets. 0.90%+
Ratio of net investment income to average net asse 2.90%+
Portfolio turnover rate........................... 5%
<FN>
_________________________
* The Fund commenced selling Trust Shares on September 2, 1994. Effecti
October 17, 1994, Trust shares were redesignated Class R Shares.
+ Annualized.
++ Total return represents aggregate total return for the period indicate
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
DREYFUS EQUITY INCOME FUND
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
The Dreyfus/Laurel Funds, Inc. (the "Investment Company"), The Dreyfus/Laurel
Funds Trust, The Dreyfus/Laurel Tax-Free Municipal Funds and The Dreyfus/Laurel
Investment Series are all registered open-end management investment companies
that are now part of The Dreyfus Family of Funds. The Investment Company is a
series mutual fund with 19 separate investment portfolios. These financial
statements report on the Dreyfus Equity Income Fund (the "Fund"). The Investment
Company was incorporated on August 6, 1987 as a Maryland corporation and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Fund commenced operations on September 2,
1994. The Fund currently offers two classes of shares: Investor Shares and Class
R Shares (effective October 17, 1994 Trust Shares were redesignated as Class R
Shares). Investor Shares are sold primarily to retail investors and bear a
distribution fee. Class R Shares are sold primarily to bank trust departments
and other financial services providers acting on behalf of customers having a
qualified trust or investment account or relationship at such institution and
bear no distribution fee. Each class of shares has identical rights and
privileges, except with respect to the distribution fee and voting rights on
matters affecting a single class. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements in accordance with generally accepted accounting
principles.
(A) PORTFOLIO VALUATION
Investments in securities traded on a national securities exchange are valued at
the last reported sales price or, in the absence of a recorded sale, at the mean
of the latest bid and asked prices. Over-the-counter securities are valued at
the mean of the latest bid and asked prices. When market quotations for such
securities are not readily available, securities are valued at fair value, as
determined in good faith by the Board of Directors. Bonds are valued through
valuations obtained from a commercial pricing service or at the most recent mean
of the bid and asked prices provided by investment dealers in accordance with
procedures established by the Board of Directors. Debt securities with
maturities of 60 days or less from the valuation day are valued at amortized
cost.
(B) REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. Under the terms of a
typical repurchase agreement, the Fund, through its custodian, takes possession
of an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is at
least equal, at all times, to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund seeks
to assert its rights. The Fund's investment manager, acting under the
supervision of the Board of Directors, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements to evaluate potential risks.
15
<PAGE>
DREYFUS EQUITY INCOME FUND
Notes to Financial Statements
(C) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Realized gains and losses from securities sold are recorded on the
identified cost basis. Investment income and realized and unrealized gains and
losses are allocated based upon relative average daily net assets of each class.
(D) EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class of
shares are pro rated between the classes based upon the relative average
daily net assets of each class. Distribution expense is directly attributable to
a particular class of shares and is charged only to that class's operations.
(E) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are determined on a class level
and are declared and paid quarterly. Distributions from net realized capital
gains, if any, are determined on a Fund level and are declared and paid
annually. Additional distributions of net investment income and capital gains
for the Fund may be made at the discretion of the Board of Directors in order to
avoid the 4% nondeductible federal excise tax. Income distributions and capital
gain distributions on a Fund level are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund as a whole.
(F) FEDERAL INCOME TAXES
The Fund intends to qualify as a regulated investment company by complying with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and by distributing substantially all of its taxable income
to its shareholders. Therefore, no federal income tax provision is required.
2. INVESTMENT MANAGEMENT FEE, DIRECTORS' FEES AND OTHER PARTY
TRANSACTIONS
Effective as of October 17, 1994, the Investment Company's investment management
agreement with Mellon Bank, N.A. ("Mellon Bank"), a wholly owned subsidiary of
Mellon Bank Corporation, was transferred to The Dreyfus Corporation (the
"Manager"), a wholly owned subsidiary of Mellon Bank. The Manager provides, or
arranges for one or more third parties to provide, investment advisory,
administrative, custody, fund accounting and transfer agency services to the
Investment Company. The Manager also directs the investments of the Fund in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays the Manager a fee, calculated daily and paid monthly, at
the annual rate of 0.90% of the value of the Fund's average daily net assets.
Out of its fee, the Manager pays all of the expenses of the Fund except
brokerage, taxes, interest, Rule 12b-1 distribution fees and expenses, fees and
expenses of non-interested Directors (including counsel fees) and extraordinary
expenses. In addition, the Manager is required to reduce its fee in an amount
equal to the Fund's allocable portion of fees and expenses of the non-interested
Directors (including counsel).
For the period from September 2, 1994 (commencement of operations), through
October 16, 1994, Mellon Bank served as the Fund's investment manager pursuant
to the investment management agreement described above.
16
<PAGE>
DREYFUS EQUITY INCOME FUND
Notes to Financial Statements
Prior to September 23, 1994, Frank Russell Investment Management Company (the
"Administrator") served as the Fund's administrator and provided, pursuant to
an administration agreement, various administrative and corporate secretarial
services to the Fund. For the period from September 2, 1994 (commencement of
operations), to September 23, 1994, Mellon Bank, as investment manager, paid the
Administrator's fee out of the management fee described above.
For the period from September 2, 1994 (commencement of operations), through
October 16, 1994, Funds Distributor, Inc. served as distributor of the
Investment Company's shares. Effective as of October 17, 1994, Premier Mutual
Fund Services, Inc. ("Premier") serves as the Investment Company's distributor.
Premier also serves as the Investment Company's sub-administrator and, pursuant
to a sub-administration agreement with the Manager, provides various
administrative and corporate secretarial services to the Investment Company.
No officer or employee of Premier (or of any parent, subsidiary or affiliate
thereof) receives any compensation from The Dreyfus/Laurel Funds, Inc., The
Dreyfus/Laurel Funds Trust, The Dreyfus Laurel Tax-Free Municipal Funds or The
Dreyfus/Laurel Investment Series (collectively, "The Dreyfus/Laurel Funds") for
serving as an officer or Director/Trustee of The Dreyfus/Laurel Funds. In
addition, no officer or employee of the Manager (or of any parent, subsidiary or
affiliate thereof), serves as an officer or Director/Trustee of The
Dreyfus/Laurel Funds. The Dreyfus/Laurel Funds pays each Director/Trustee who is
not an officer or employee of Premier (or any parent, subsidiary or affiliate
thereof), $27,000 per annum, $1,000 for each Board meeting attended, and $750
for each Audit Committee meeting attended, and $750 for each Audit Committee
meeting attended, and reimburse each Director or Trustee for travel and
out-of-pocket expenses.
3. DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act relating to its Investor Shares. Under the Plan, the Fund may
pay annually up to 0.25% of the value of the average daily net assets
attributable to its Investor Shares to compensate Premier and Dreyfus Service
Corporation, an affiliate of the Manager, for shareholder servicing activities
and Premier for activities primarily intended to result in the sale of Investor
Shares. The Class R Shares bear no distribution fee.
Under its terms, the Plan shall remain in effect from year to year, provided
such continuance is approved annually by a vote of a majority of those
Directors who are not "interested persons" of the Investment Company and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreement related to the Plan.
17
<PAGE>
DREYFUS EQUITY INCOME FUND
Notes to Financial Statements
4. SECURITIES TRANSACTIONS
The cost of purchases and proceeds from sales of securities, excluding
short-term investments and U.S. government securities, for the period ended
October 31, 1994 aggregated $5,009,508 and $163,219, respectively.
At October 31, 1994, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost amounted to
$113, 101. The aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value amounted to $149,973.
<TABLE>
5. SHARES OF CAPITAL STOCK
The Investment Company has authority to issue 25 billion shares of capital
stock with a par value of $0.001. The Fund has authority to issue two classes of
shares. The table below summarizes transactions in Fund shares for the period
indicated:
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1994*
SHARES AMOUNT
------ ------
<S> <C> <C>
INVESTOR SHARES:
Sold ................................. 132 $1,300
Redeemed ............................. (30) (299)
---- -------
Net increase ......................... 102 $1,001
==== =======
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1994*
SHARES AMOUNT
------ ------
<S> <C> <C>
CLASS R SHARES:
Sold ................................. 502,825 $5,027,800
Redeemed ............................. (10) (100)
-------- -----------
Net increase ......................... 502,815 $5,027,700
======== ===========
<FN>
________________
*The Fund commenced operations on September 2, 1994. Effective as of
October 17, 1994, the Fund's Trust Shares were redesignated as Class R Shares.
</TABLE>
6. CAPITAL LOSS CARRYFORWARDS
At October 31, 1994, the Fund had available for federal income tax
purposes unused capital losses of $9,599 expiring in the year 2002.
7. DIVIDENDS
On November 2, 1994, the Board of Directors declared dividends from net
investment income for Investor and Class R Shares in the amount of $.0425 and
$.0466 per share, respectively, payable on November 9, 1994 to shareholders of
record on November 2, 1994.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Dreyfus/Laurel Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Dreyfus Equity Income Fund of The Dreyfus/Laurel Funds, Inc., as of October 31,
1994, and the related statement of operations, statement of changes in net
assets, and the financial highlights for the period then ended. 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 audit.
We conducted our audit 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. Our
procedures included confirmation of securities owned as of October 31, 1994, 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 audit provides 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 the
Dreyfus Equity Income Fund of The Dreyfus/Laurel Funds, Inc. as of October 31,
1994, and the results of its operations, the changes in its net assets, and the
financial highlights for the period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
December 9, 1994
19
