<PAGE>
Dreyfus
Municipal Reserves
Annual Report
October 31, 1995
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to provide you with a review of the economic
environment as well as performance information for Dreyfus Municipal Reserves
for the 12-month period ended October 31, 1995. As you may know, effective
June 9, 1995, your Fund changed its name from Dreyfus/Laurel Tax-Exempt Money
Market Fund to Dreyfus Municipal Reserves. In addition, as of June 9, 1995,
your Fund may invest without limitation in municipal obligations the interest
from which may be subject to the Federal Alternative Minimum Tax.
ECONOMIC REVIEW
The Economy Reaccelerates Modestly
After slowing down somewhat during the first six months of the Fund's
recent fiscal period, the U.S. economy began to pick up its pace once again.
Lower interest rates rekindled demand in such credit-sensitive sectors as
autos and houses. Meanwhile, many companies stopped cutting production.
However, investors should take note of several limiting factors which are now
pointing to an economic expansion that will be muted rather than robust and
continued low inflation.
First of all, certain foreign economies, especially Mexico and Japan,
are still struggling. This economic lethargy, along with the rebounding
dollar, should continue to restrain U.S. export growth. Second, since
household spending rose faster than income over the year, it is likely that
consumers will stop spending and start saving again. Higher home sales will
probably stimulate housing-related retail sales, but spending for other
discretionary items could easily soften. Finally, capital spending, the lead
sector of the U.S. economy, has been stagnant as lack of pricing power trims
business profits and cash while making it more difficult to justify
additional expansion plans. In addition, the economies of California and the
heavily populated Northeast region are lagging far behind the rest of the
nation, so the overall economy is actually not firing on all cylinders. All
of these factors point toward more moderate economic growth going forward,
which should help keep inflation at bay.
Inflation Slows More Than Expected
By early October 1995, inflation had dropped to approximately 21/2%,
a more dramatic slowdown than many analysts had expected. This deceleration
allayed fears that the economy was operating close to full capacity, a
situation which could have begun to stimulate inflation. At the same time,
long-term disinflationary forces have continued to stymie the ability of
businesses to raise prices on their goods and services.
This scenario of relatively stable economic growth and low inflation
could set the stage for the Federal Reserve Board to lower interest rates
again. A key interest rate, the Federal Funds rate, is currently more than 3%
above the underlying inflation rate. Thus, monetary policy is still
restrictive by historical standards and the Fed could easily defend another
easing step. However, we believe the Fed will wait for more economic data
along with a resolution of the Federal budget before determining if, when,
and how much to ease rates.
Market Outlook
As short-term interest rates have fallen in recent months, so have
yields on money market securities and mutual funds. In terms of supply and
demand, interest-rate uncertainty kept supplies of new money market
securities fairly light during the recent period as issuers awaited the next
move by the Federal Reserve Board. At the same time, demand stayed fairly
steady as investors continued to recognize the importance of money market
instruments in a balanced investment portfolio.
<PAGE>
Muni Money Market Yields Stay Relatively Strong
While yields on money market instruments have trended downward along
with interest rates in recent months, these investments still represent a
good value for today's conservative, quality-conscious investor. In fact, for
investors in moderate to higher tax brackets, tax exempt money market
securities currently offer an attractive yield advantage over comparable
taxable issues. Paradoxically, tax exempt securities are benefiting from the
perceived threat of the flat-tax proposals now before Congress. While these
proposals could affect their future tax-advantaged status, the near-term
effect has been a runup of tax exempt yields. We will be watching
Congressional movements carefully over the next several months. However, we
do not expect any changes until after the 1996 Presidential election. In the
meantime, Fund managers will seek to take advantage of buying opportunities
created by the market's uncertainty in seeking to continue providing
shareholders with high quality investments and solid tax-free returns.
PORTFOLIO OVERVIEW
During the annual period ended October 31, 1995, Dreyfus Municipal
Reserves continued to provide shareholders with a steady stream of tax exempt
income*, along with its hallmarks of high quality and a stable $1 share
price. For the 12 months ended October 31, 1995, the Fund's yield was 3.23%
for Investor shares. Reinvesting the Fund's dividends and calculating the
effect of compounding resulted in an effective yield of 3.28%.** For
taxpayers in the highest Federal tax bracket of 39.60%, a comparable taxable
investment would have had to yield 5.35% and 5.43%, respectively, in order to
equal these returns. The Fund's yield for Class R shares during the same
period was 3.43%, with an effective yield of 3.48%.**For taxpayers in the
highest Federal tax bracket of 39.60%, a comparable taxable investment would
have had to yield 5.68% and 5.76%, respectively, in order to equal these
returns.
Several strategic moves enabled the Fund to deliver this performance.
First, we took advantage of some good values to lock in higher yields for the
Fund by extending the portfolio's average maturity from 36 to over 50 days.
Many of our shorter-term securities matured in July. Instead of repurchasing
similar securities, we reinvested the proceeds in attractively priced
one-year notes. We also purchased some floating-rate securities with yields
that reset daily and weekly based on traditional money market indices
including the Prime lending rate, the Federal Funds rate, and the LIBOR
Index.+ Reduced demand for these securities from bond mutual funds and other
sources made their prices very attractive. As the annual period progressed,
their yields rose, buoying the Fund's income stream along the way.
Going forward, we believe that the Fund's conservative strategy,
emphasis on traditional, high quality municipal money market instruments, and
diversified portfolio should enable us to maintain the stability we have
provided thus far. Of course, we will continue to monitor the economy,
interest rates, and the Congressional flat-tax proposals carefully in order
to anticipate any need for change in our investment strategy.
Sincerely,
John F. Flahive
Portfolio Manager
November 15, 1995
New York, N.Y.
* Some income may be subject to the Federal Alternative Minimun Tax (AMT)
for certain shareholders.
** Effective yield is based upon dividends declared daily and reinvested
monthly.
+ The London Interbank Offered Rate ("LIBOR") is "the rate that most
creditworthy international banks dealing in Eurodollars charge each other
for large loans." -- John Downes and Jordan Elliot Goodman, Dictionary of
Finance and Investment Terms (New York: Barron's, 1985) s.v.
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments--100% Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Alabama--1.4%
Columbia Industrial Development Board, PCR, Refunding, VRDN
3.25% (Corporate Guaranty; Alabama Power) (a)........................ $ 3,000,000 $ 3,000,000
Alaska--1.7%
Alaska Housing Finance Corporation, VRDN 3.90%, Series A
(LOC: Credit Suisse, Swiss Bank Corp. and Westdeutche Landesbank) (a,b) 3,000,000 3,000,000
Anchorage, Higher Education Revenue, Refunding, VRDN
(Alaska Pacific University)
3.90% (LOC; First National Bank-Tyiokobe) (a,b)...................... 200,000 200,000
Sitka, School Improvement Project, VRDN 4% (LOC; Sumitomo Bank) (a,b).... 500,000 500,000
Arizona--3.2%
Cochise County Pollution Control Corporation, SWDR
(Arizona Electric Power Co-Op Inc. Project)
3.80%, 3/1/96 (LOC; Cooperative Finance Co.) (b)..................... 1,000,000 1,000,000
Mesa Municipal Development Corporation, Special Tax, CP
3.75%, 11/29/95 (LOC; Union Bank of Switzerland) (b)................. 2,000,000 2,000,000
Pima Industrial Development Authority, VRDN (Tuscon Electric)
4%, Series A (LOC; Bank of America) (a,b)............................ 3,000,000 3,000,000
Pinal County Industrial Development Authority, PCR, VRDN
(Magma Copper Co. Project) 3.95% (LOC; Banque Nationale de Paris) (a,b) 1,000,000 1,000,000
Arkansas--.1%
Arkansas Hospital Equipment Finance Authority,
Hospital Equipment Revenue, VRDN 3.90% (LOC; Credit Suisse) (a,b).... 195,000 195,000
California--6.6%
Anaheim Housing Authority, MFHR, VRDN (Bel Page Project)
3.80%, Series A (LOC; FNMA) (a,b).................................... 300,000 300,000
California Health Facilities Financing Authority, Revenue, VRDN:
(Pooled Loan Program) 3.70%, Series B (Insured; FGIC) (a)............ 200,000 200,000
Refunding (Memorial Health Services) 3.70% (a)....................... 1,300,000 1,300,000
California Pollution Control Financing Authority, RRR, VRDN
(Southdown Incorporate) 3.95% (LOC; Societe Generale) (a,b).......... 1,000,000 1,000,000
City of Concord, MFMR, VRDN (Crossroads)
3.70%, Series B (LOC; FNMA) (a,b).................................... 200,000 200,000
Contra Costa Transportation Authority, Sales Tax Revenue, VRDN
3.75%, Series A (Insured; FGIC) (a).................................. 300,000 300,000
City of Glendale, Reliance Development Revenue, VRDN (Public Parking)
3.90% (LOC; Barclays Bank) (a,b)..................................... 900,000 900,000
Irvine Ranch Water District, District Numbers 140-240-105-250, VRDN
3.95% (LOC; Bank of America) (a,b)................................... 3,200,000 3,200,000
City of Los Angeles, MFHR, VRDN (Masselin Manor)
3.65% (LOC; Bank of America) (a,b)................................... 100,000 100,000
Los Angeles County Community Development Commission, COP, VRDN
(Willowbrook Project) 3.80% (LOC; Wells Fargo Bank) (a,b)............ 1,400,000 1,400,000
</TABLE>
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Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments (continued) Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
California (continued)
Los Angeles Regional Airports Improvement Corporation, Lease Revenue,
VRDN (American Airlines-Los Angeles International Airport)
4%, Series B (LOC; Wachovia Bank of Georgia) (a,b)................... $ 1,100,000 $ 1,100,000
Moorpark, MFHR, Refunding, VRDN (Le Club Apartments)
3.70%, Series A (LOC; Citibank) (a,b)................................ 500,000 500,000
Orange County, TRAN 4.50%, Series A, 6/30/96............................. 2,000,000 2,000,000
Rincon Del Diablo Municipal Water District, COP, Revenue
(Rincon Public Facility Corp.) 4%, 11/1/95 (LOC; Fuji Bank) (b)...... 1,200,000 1,200,000
San Diego Housing Authority, MFHR, VRDN (Market Street Square Project)
4%, Series G (LOC; Barclays Bank) (a,b).............................. 1,035,000 1,035,000
Colorado--2.3%
Arapahoe County, IDR, VRDN (CSX Beckett Aviation)
3.81% (LOC; Barclays Bank) (a,b)..................................... 700,000 700,000
Colorado Health Facilities Authority, Revenue:
Health Care Systems (Sisters of Charity-Sunny Acre)
3.75%, 5/1/96 (Insured; MBIA and SBPA; Morgan Guaranty Trust Co.).. 1,000,000 1,000,000
VRDN (North Colorado Medical Center)
3.90% (BPA; Credit Suisse and Insured; MBIA) (a)................... 200,000 200,000
Fort Collins, Prerefunded 7.35%, 12/1/95 (Escrowed in; U.S. Treasuries).. 1,000,000 1,027,936
Lakewood, IDR, VRDN (Service Merchandise Co. Project)
3.80% (LOC; Industrial Bank of Japan) (a,b).......................... 200,000 200,000
South Devner Metropolitan District, Revenue
3.55%, 12/1/95 (LOC; Barclays Bank) (b).............................. 2,000,000 2,000,000
Connecticut--.3%
Fairfield Industrial Development Authority, IDR, VRDN
(R. Dakin and Co. Project) 3.75% (LOC; Bank of America) (a,b)........ 600,000 600,000
Delaware--2.5%
Delaware Economic Development Authority, Revenue, VRDN
(Delmarva Power and Light Co. Project):
Exempt Facility 4.05%, Series A
(Corporate Guaranty; Delmarva Power and Light Co.) (a)......... 600,000 600,000
Gas Facility 4.05%
(Corporate Guaranty; Delmarva Power and Light Co.) (a)......... 3,400,000 3,400,000
New Castle County, PCR, VRDN (Johnson Controls Inc.)
4.20% (Corporate Guaranty; Johnson Controls Inc.) (a)................ 300,000 300,000
Wilmington, HR, VRDN (Franciscan Health Systems):
4%, Series A (LOC; Toronto Dominion Bank) (a,b)...................... 800,000 800,000
4%, Series B (LOC; Societe Generale) (a,b)........................... 500,000 500,000
Florida--5.3%
Florida Housing Finance Agency, Residential Mortgage, Revenue
4.25%, 12/15/95 (BPA; Citibank)...................................... 5,300,000 5,300,000
Hillsborough County Port District, Special Purpose Revenue, Refunding,
VRDN (IMC Fertilizer) 3.875% (LOC; Rabobank Nederland) (a,b)......... 2,100,000 2,100,000
</TABLE>
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments (continued) Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Florida (continued)
Putnam County Development Authority, PCR:
(Seminole Electric Co-Op) 4.25%, Series D, 12/15/95
(Corporate Guaranty; National Rural Utility Co-Op)................. $ 1,300,000 $ 1,300,000
VRDN (Seminole Electric):
3.95%, Series H-1 (Corporate Guaranty; Cooperative Finance Co.) (a) 1,150,000 1,150,000
3.95%, Series H-2 (Corporate Guaranty; Cooperative Finance Co.) (a) 350,000 350,000
West Orange Memorial Hospital, Tax District Revenue, CP
3.50%, Series A-1, 11/9/95 (LOC; Rabobank Nederland) (b)............. 1,500,000 1,500,000
Georgia--4.4%
Burke County Development Authority, PCR, VRDN
(Georgia Power Co. Project-Vogtle) 3.95% (a)......................... 1,000,000 1,000,000
Cobb County Development Authority, Revenue, VRDN
(Nuclear Power Inc. Project) 3.95% (LOC; Trust Co. Bank) (a,b)....... 1,770,000 1,770,000
Fulton County, TAN, CP (General Fund) 4.75%, 12/29/95.................... 3,000,000 3,002,759
Fulton County Development Authority, Industrial Revenue, VRDN
3.90% (LOC; National Westminster Bank) (a,b)......................... 1,900,000 1,900,000
Hart County Industrial Building Authority, IDR, Refunding, VRDN
(Dundee Mills Inc. Project) 4.10% (LOC; Trust Co. Bank) (a,b)........ 2,000,000 2,000,000
Hawaii--2.1%
State of Hawaii, Airports Systems Revenue, Refunding (Second Series)
5%, 7/1/96 (Insured; MBIA)........................................... 1,000,000 1,005,469
Hawaii Department of Budget and Finance, Special Purpose Mortgage Revenue
(Kaiser Permanente Medical Care) 3.75%, Series B, 3/1/96............. 2,700,000 2,700,000
Second Market Services Corporation, Student Loan Revenue, Refunding, VRDN
3.90%, Series II (LOC; National Westminster Bank) (a,b).............. 1,000,000 1,000,000
Idaho--1.4%
Idaho Health Facilities Authority, Revenue, VRDN
(Saint Luke's Regional Medical Center Project)
3.95% (LOC; Credit Suisse) (a,b)..................................... 3,075,000 3,075,000
Illinois--17.8%
Alsip, IDR, VRDN (Ardco Inc. Project)
4.19% (LOC; Harris Trust and Savings Bank) (a,b)..................... 1,675,000 1,675,000
Burbank, IDR, VRDN (Service Merchandise Co. Inc.)
3.80% (LOC; Canadian Imperial Bank of Commerce) (a,b)................ 400,000 400,000
City of Chicago:
GO, VRDN 3.90%, Series B (LOC; Canadian Imperial Bank of Commerce) (a,b) 1,000,000 1,000,000
Tender Notes 3.75%, 10/31/96 (LOC; Morgan Guaranty Trust Co.) (b).... 1,000,000 1,000,000
Chicago O'Hare International Airport, Revenue (General Airport Second Lien)
3.80%, Series B, 1/1/96 (LOC; Westpac Banking Corporation) (b)....... 800,000 800,000
Illinois Development Finance Authority, VRDN:
IDR:
(Columbia Graphics Corporation Project)
4.10% (LOC; Harris Trust and Savings Bank) (a,b)............... 1,300,000 1,300,000
(Overton Gear and Tool Corp.)
4.10% (LOC; Harris Trust and Savings Bank) (a,b)............... 2,100,000 2,100,000
</TABLE>
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments (continued) Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Illinois (continued)
Illinois Development Finance Authority, VRDN (continued):
Revenue:
(Aurora Central Catholic High School)
3.95% (LOC; Northern Trust Co.) (a,b).......................... $ 1,000,000 $ 1,000,000
(Council Jewish Ederly) 3.90% (LOC; Lasalle National Bank) (a,b)... 2,200,000 2,200,000
(Lyric Opera Chicago Project) 3.90% (LOC: Harris Trust and Savings
Bank,
National Bank of Detroit and Northern Trust Co.) (a,b)......... 1,100,000 1,100,000
(Residention Rental-F.C. Harris Pavilion Project)
3.90% (LOC; FNMA) (a,b)........................................ 3,500,000 3,500,000
(Saint Paul's House Project) 3.85% (LOC; Lasalle National Bank) (a,b) 1,625,000 1,625,000
(WBEZ Alliance Inc. Project) 3.95% (LOC; Lasalle National Bank) (a,b) 1,000,000 1,000,000
Illinois Educational Facilities Authority, Revenues, VRDN:
(Aurora University) 3.95% (LOC; Harris Trust and Savings Bank) (a,b). 500,000 500,000
(Chicago Historical Society) 3.80% (LOC; Northern Trust Co.) (a,b)... 3,400,000 3,400,000
(Newberry Library) 3.90% (LOC; Northern Trust Co.) (a,b)............. 615,000 615,000
Illinois Health Facilities Authority, Revenue:
CP (Alexian Brothers Medical Center) 3.80%, Series B, 11/6/95
(Insured; MBIA and SBPA; Morgan Guaranty Trust Co.)................ 2,570,000 2,570,000
VRDN:
(Condell Memorial Hospital) 3.80% (LOC; Bank of Tokyo) (a,b)....... 400,000 400,000
(Evangelical Hospitals Corp.) 3.75% (LOC; Barclays Bank) (a,b)..... 2,060,000 2,060,000
(Palos Community Hospital) 3.85%, Series B (LOC; ABN-Amro Bank) (a,b) 1,530,000 1,530,000
City of Lockport, IDR, VRDN (Panduit Corp. Project)
3.95% (LOC; Commerzbank) (a,b)....................................... 3,200,000 3,200,000
City of Naperville, IDR, VRDN (Service Merchandise Co.) 3.80% (a)........ 2,000,000 2,000,000
City of New Lenox, IDR, VRDN (Panduit Corporation Project)
3.95% (LOC; Commerzbank) (a,b)....................................... 1,300,000 1,300,000
City of Northbrook, IDR, Refunding, VRDN (Euromarket Designs Inc.)
3.95% (LOC; Harris Trust and Savings Bank) (a,b)..................... 100,000 100,000
City of Zion, Revenue, VRDN (H & M Enterprises LLC Project)
4.35%, Series A (LOC; Federal Home Loan Banks) (a,b)................. 3,050,000 3,050,000
Indiana--2.7%
City of Auburn, EDR, VRDN (RJ Tower Corp. Project)
4.25% (LOC; Comerica Bank) (a,b)..................................... 425,000 425,000
Indiana Development Finance Authority, Exempt Facility Revenue, VRDN
(Mid America Project) 4.10% (LOC; Union Bank of Switzerland) (a,b)... 2,000,000 2,000,000
Indiana Hospital Equipment Financing Authority, Revenue, VRDN
3.90% (Insured; MBIA and SBPA; The Bank of New York) (a)............. 2,600,000 2,600,000
Purdue University, University Revenue, VRDN (Student Fee)
3.80%, Series E (a).................................................. 1,000,000 1,000,000
Iowa--.9%
Iowa Municipalities Workers Compensation Association,
Self Insurance Funding Revenue
4.10%, 7/1/96 (LOC; Dai-Ichi Kangyo Bank) (b)........................ 2,000,000 2,000,000
</TABLE>
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments (continued) Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Kansas--.3%
City of Wamego, PCR, VRDN (Missouri Public Service Co. Project)
3.90% (LOC; Credit Suisse) (a,b)..................................... $ 700,000 $ 700,000
Kentucky--1.9%
City of Hopkinsville, IDR, VRDN (American Precision Machinery)
4% (LOC; Mitsubishi Bank) (a,b)...................................... 2,250,000 2,250,000
Kentucky Economic Development Finance Authority, VRDN (Sisters of Charity)
4% (a)............................................................... 400,000 400,000
Pendelton County, Self Insurance Funding Revenue
(Kentucky Association Community) 4%, 7/1/96 (LOC; PNC Bank) (b)...... 1,500,000 1,500,000
Louisiana--.6%
East Baton Rouge Parish, PCR, Refunding, VRDN (Rhone-Poulenc Inc. Project)
4% (LOC; Banque Nationale de Paris) (a,b)............................ 100,000 100,000
Plaquemines, Port, Harbor and Terminal District, Port Facilities Revenue
(International Marine Terminal Project)
4.50%, Series B, 3/15/96 (LOC; Morgan Guaranty Trust Co.) (b)........ 1,250,000 1,250,000
Maine--.7%
State of Maine, Notes 4.10%, 2/1/96...................................... 1,500,000 1,500,920
Maryland--1.8%
State of Maryland, Revenue (First Series) 6.50%, 3/1/96.................. 4,000,000 4,037,427
Massachusetts--1.1%
Town of Adams, BAN 4.04%, 6/14/96........................................ 500,000 500,000
Commonwealth of Massachusetts, VRDN
3.80%, Series E (LOC; ABN-Amro Bank) (a,b)........................... 1,000,000 1,000,000
Massachusetts Health and Educational Facilities Authority, Revenue, VRDN
(Harvard University) 3.70%, Series I (a)............................. 1,000,000 1,000,000
Michigan--.7%
Michigan Underground Storage Tank Final Assurance Authority, Revenue, VRDN
3.90%, Series I (LOC; Canadian Imperial Bank of Commerce) (a,b)...... 1,500,000 1,500,000
Minnesota--3.2%
Saint Cloud, Hospital Facilities Revenue, VRDN (Saint Cloud Hospital)
3.90%, Series A (LOC; Kredietbank) (a,b)............................. 3,100,000 3,100,000
Southern Minnesota Municipal Power Agency, Power Supply Systems Revenue
7.125%, Series C, 1/1/96 (Escrowed in; U.S. Treasuries).............. 3,800,000 3,896,762
Mississippi--1.9%
Jackson County, IDR, VRDN (McCarthy-Holman Co. Project)
3.95% (LOC; Barclays Bank) (a,b)..................................... 300,000 300,000
Jackson Water Systems, Revenue, Refunding
3.60%, 2/1/96 (Corporate Guaranty; Chevron USA Inc.)................. 4,000,000 4,000,000
</TABLE>
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments (continued) Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Missouri--2.4%
Kansas City Industrial Development Authority, MFHR, VRDN
(Timberline Village Apartments Project) 4% (LOC; Bank of America) (a,b) $ 1,300,000 $ 1,300,000
Missouri Health and Educational Facilities Authority,
Health Facilities Revenue, VRDN (Barnes Hospital Project)
3.90% (LOC; Morgan Guaranty Trust Co.) (a,b)......................... 2,000,000 2,000,000
Saint Charles County Industrial Development Authority, Industrial Revenue,
Refunding, VRDN (Cedar Ridge Apartments)
3.95%, Series A (LOC; Bank One) (a,b)................................ 2,045,000 2,045,000
Montana--.1%
Butte-Silver Bow, PCR, VRDN (Rhone-Poulenc Inc. Project):
3.90% (LOC; Banque Nationale de Paris) (a,b)......................... 105,000 105,000
Refunding 3.90% (LOC; Banque Paribas) (a,b).......................... 100,000 100,000
Nevada--.4%
Clark County, IDR, VRDN (Nevada Power Co. Project)
3.90% (LOC; Barclays Bank) (a,b)..................................... 1,000,000 1,000,000
New Hampshire--.7%
New Hampshire Higher Educational and Health Facilities Authority, Revenue
(Dartmouth Educational Loan Corp.) 4.10%, 6/1/96..................... 1,630,000 1,630,000
New Jersey--.4%
Newark, Healthcare Facility Revenue, VRDN (New Community Facility)
3.90%, Series A (Collateralized in; GNMA and Insured; FHA) (a)....... 1,000,000 1,000,000
New York--1.6%
Broome County Industrial Development Agency, IDR, Refunding, VRDN
(Bing Realty Project) 3.75% (LOC; Meridian Bancorp Inc.) (a,b)....... 250,000 250,000
New York City Municipal Water Finance Authority, CP
3.75%, 11/9/95 (LOC; Canadian Imperial Bank of Commerce) (b)......... 2,000,000 2,000,000
New York State Energy, Research and Development Authority, PCR, Refunding,
VRDN (New York State Electric and Gas)
3.70%, Series C (LOC; Morgan Guaranty Trust Co.)(a,b)................ 600,000 600,000
New York State Local Government Assistance Corporation, VRDN
3.80%, Series F (LOC; Toronto-Dominion Bank) (a,b)................... 700,000 700,000
North Carolina--.5%
Halifax County Industrial Facilities and Pollution Control Financing
Authority,
Exempt Facilities Revenue, VRDN (Westmoreland)
4.10% (LOC; Credit Suisse) (a,b)..................................... 1,200,000 1,200,000
North Dakota--.4%
Mercer County, PCR, VRDN (United Power-National Rural)
3.95%, Series C (LOC; Charter Finance Corporation) (a,b)............. 850,000 850,000
Oregon--.5%
Multnomah County School District Number 15, Notes 4.75%, 5/30/96......... 1,000,000 1,005,863
</TABLE>
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments (continued) Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Pennsylvania--5.9%
Allegheny County Industrial Development Authority, Revenue, CP (Duquesne)
3.75%, Series A, 11/30/95 (LOC; Canadian Imperial Bank of Commerce) (b) $ 3,500,000 $ 3,500,000
Bucks County Industrial Development Authority, Revenue, VRDN
(SHV Real Estate Inc.) 3.85% (LOC; ABN-Amro Bank) (a,b).............. 200,000 200,000
Chartiers Valley, Industrial and Commercial Development Revenue, VRDN
(William Penn Place Project) 4% (LOC; PNC Bank) (a,b)................ 1,100,000 1,100,000
Chester County Industrial Development Authority, IDR, VRDN
(Keystone Foods Corporation) 3.85% (LOC; Bank of Scotland) (a,b)..... 1,700,000 1,700,000
Jeanette Health Service Authority, HR, VRDN
(Jeanette District Memorial Hospital Project)
4.15% (LOC; PNC Bank) (a,b).......................................... 600,000 600,000
Lehigh County Industrial Development Authority, PCR, VRDN
(Allegheny Electric Corp.) 3.90% (LOC; Rabobank Nederland) (a,b)..... 120,000 120,000
Moon Industrial Development Authority, IDR, VRDN
(Executive Office Association Project) 4% (LOC; PNC Bank) (a,b)...... 1,250,000 1,250,000
Pennsylvania Higher Education Assistance Agency, Student Loan Revenue, VRDN
4% (LOC; Student Loan Marketing Association) (a,b)................... 2,300,000 2,300,000
Schuylkill County Industrial Development Authority, Revenue, VRDN
(Pine Grove Landfill Inc.) 4.10% (LOC; Meridian Bancorp) (a,b)....... 300,000 300,000
Upper Allegheny Joint Sanitation Authority, Electric Revenue
(Allegheny Valley North)
4.50%, Series C, 1/15/96 (Escrowed in; U.S. Treasuries).............. 1,550,000 1,550,000
Washington County Industrial Development Authority, IDR, Refunding, VRDN
(Wetterau Finance Co. Project) 4% (LOC; PNC Bank) (a,b).............. 500,000 500,000
South Carolina--3.2%
Lexington County, Industrial Revenue, Prerefunded, VRDN
(Safety-Kleen Corporation Project)
4% (LOC; Union Bank of Switzerland) (a,b)............................ 400,000 400,000
South Carolina Public Service Authority,
Electric Revenue and Electric Systems Revenue, Prerefunded
7.875%, 1/1/96 (Escrowed in U.S. Treasuries)......................... 415,000 425,999
City of Walhalla, Revenue, Refunding, VRDN (Avondale Mills Inc. Project)
3.95% (LOC; Trust Co. Bank) (a,b).................................... 1,600,000 1,600,000
York County, PCR (North Carolina Electric Project):
3.75%, Series N-5, 3/15/96 (LOC; Cooperative Finance Co.) (b)........ 1,965,000 1,965,000
VRDN 3.95%, Series N-2 (LOC; Cooperative Finance Co.) (a,b).......... 2,800,000 2,800,000
Tennessee--.2%
Knox County Industrial Development Board, Industrial Revenue, VRDN
(Service Merchandise Co.) 3.80% (LOC; Industrial Bank of Japan) (a,b) 400,000 400,000
Texas--9.8%
Birdville Independent School District, Revenue
7.50%, 2/15/96 (Guaranteed by; Texas Public School).................. 400,000 403,399
Dallas-Fort Worth International Airport Facility Improvement Corporation,
Revenue, CP 3.55%, 11/1/95 (LOC; National Westminster Bank) (b)...... 1,020,000 1,020,000
</TABLE>
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments (continued) Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Texas (continued)
Dallas Industrial Development Corporation, IDR, VRDN
(Sealed Power Corp.) 3.75% (LOC; National Bank of Detroit) (a,b)..... $ 1,100,000 $ 1,100,000
Grapevine Industrial Development Corporation, Revenue, VRDN
(Multiple Mode-American Airlines):
4%, Series A-4 (LOC; Sanwa Bank) (a,b)............................. 1,300,000 1,300,000
4%, Series B-1 (LOC; Sanwa Bank) (a,b)............................. 400,000 400,000
Gulf Coast Waste Disposal Authority, Water Pollution Control,
Contract Revenue (Amoco Oil-Amoco Chemicals)
6%, 1/15/96 (Corporate Guaranty; Amoco Credit)....................... 2,640,000 2,641,316
Lower Colorado River Authority, Revenue, CP
3.70%, Series D, 11/9/95 (LOC; Morgan Guaranty Trust Co.) (b)........ 1,000,000 1,000,000
Lubbock Health Facilities Development Corporation, HR (Methodist Hospital)
5.80%, 12/1/95 (Insured; MBIA)....................................... 1,000,000 1,001,025
North Central Health Facility Development Corporation, HR, VRDN
(Presbyterian Medical Center) 4%, Series D (Insured; MBIA) (a)....... 200,000 200,000
North Texas Higher Education Authority, Student Loan Revenue, VRDN
4% (Insured; AMBAC) (a).............................................. 1,300,000 1,300,000
Nueces County Health Facilities Development Corporation, Revenue, VRDN
(Driscoll Foundation Children) 3.95% (LOC; Bank One) (a,b)........... 2,395,000 2,395,000
Rockwall Industrial Development Corporation, IDR, VRDN
(Columbia Extrusion Corporation)
4.20% (LOC; U.S. National Bank of Oregon) (a,b)...................... 1,000,000 1,000,000
San Antonio, Sewer Revenue, Prerefunded
7.25%, 5/1/96 (Escrowed in; U.S. Treasuries)......................... 2,000,000 2,074,643
State of Texas, TRAN 4.75%, Series A, 8/30/96............................ 2,500,000 2,513,360
Texas Public Finance Authority, Revenue, GO, CP
3.75%, Series A, 11/2/95 (Guaranteed by; State of Texas)............. 1,000,000 1,000,000
Tyler Health Facilities Development Corporation, HR, CP
(East Texas Medical Center Regional Health)
3.90%, Series C, 12/8/95 (LOC; Banque Paribas) (b)................... 2,300,000 2,300,000
Utah--3.5%
Intermountain Power Agency, Utah Power Supply Revenue, Prerefunded
7.073%, Series F, 7/1/96 (Escrowed in U.S. Treasuries)............... 1,700,000 1,769,779
State of Utah, Board of Regents, Student Loan Revenue, VRDN:
3.90%, Series B (Insured; AMBAC) (a)................................. 200,000 200,000
4%, Series C (Insured; AMBAC) (a).................................... 300,000 300,000
Washington County School District, TAN (Saint George) 4.375%, 1/31/96.... 2,250,000 2,252,704
City of West Jordan, TRAN 4%, 6/28/96.................................... 3,255,000 3,255,000
Washington--1.1%
State of Washington, Revenue 5.50%, Series C, 7/1/96..................... 1,000,000 1,010,634
Washington State Health Care Facilities Authority, Revenue, VRDN
(Fred Hutchinson Cancer):
4%, Series A (LOC; Morgan Guaranty Trust Co.) (a,b)................ 805,000 805,000
4%, Series B (LOC; Morgan Guaranty Trust Co.) (a,b)................ 595,000 595,000
</TABLE>
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
<TABLE>
<CAPTION>
Principal
Tax Exempt Investments (continued) Amount Value
- ------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
West Virginia--1.6%
Putnam County, IDR, VRDN (FMC Corp.)
3.90% (LOC; Union Bank of Switzerland) (a,b)......................... $ 700,000 $ 700,000
West Virginia Public Energy Authority, Energy Revenue, CP
(Morgantown Association Project)
3.65%, 11/6/95 (LOC; Swiss Bank Corp.) (b)........................... 2,800,000 2,800,000
Wisconsin--2.7%
City of Wisconsin, Promisory Notes, Revenue 4.80%, Series A, 2/15/96..... 1,000,000 1,003,085
City of Platteville, IDR, VRDN (Woodward Communications Project)
4.10% (LOC; Harris Trust and Savings Bank) (a,b)..................... 2,950,000 2,950,000
Wisconsin Health and Educational Facilities Authority, Revenue, CP
(Alexian Village Milwaukee Inc.)
3.50%, Series A, 11/8/95 (LOC; Sumitomo Bank) (b).................... 1,300,000 1,300,000
Wisconsin Health Facilities Authority, Revenue, VRDN
(Franciscan Health Care)
3.80%, Series A-1 (LOC; Toronto-Dominion Bank) (a,b)................. 765,000 765,000
Wyoming--.1%
Green River, Revenue, VRDN (Rhone-Poulenc)
4.15% (LOC; Societe Generale) (a,b).................................. 300,000 300,000
------------
TOTAL INVESTMENTS (cost $221,748,080).................................... $221,748,080
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Summary of Abbreviations
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMBAC American Municipal Bond Assurance Corporation LOC Letter of Credit
BAN Bond Anticipation Notes MBIA Municipal Bond Investors Assurance
BPA Bond Purchase Agreeement Insurance Association
COP Certificate of Participation MFHR Multi-Family Housing Revenue
CP Commercial Paper MFMR Multi-Family Mortgage Revenue
EDR Economic Development Revenue PCR Pollution Control Revenue
FGIC Financial Guaranty Insurance Company RRR Resources Recovery Revenue
FHA Federal Housing Administration SBPA Standby Bond Purchase Agreeement
FNMA Federal National Mortgage Association SWDR Solid Waste Disposal Revenue
GNMA Government National Mortgage Association TAN Tax Anticipation Notes
GO General Obligation TRAN Tax and Revenue Anticipation Notes
HR Hospital Revenue VRDN Variable Rate Demand Notes
IDR Industrial Development Revenue
</TABLE>
<TABLE>
<CAPTION>
Summary of Combined Ratings (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
Fitch (c) or Moody's or Standard & Poor's Percentage of Value
- --------- --------- -------------------- -----------------------
<S> <C> <C> <C>
F1+/F1 VMIG1/MIG1, P1 (d) SP1+/SP1, A1+/A1 (d) 80.5%
F2 VMIG2/MIG2, P2 SP2, A2 0.5%
AAA/AA (e) Aaa/Aa (e) AAA/AA (e) 14.9%
Not Rated (f) Not Rated (f) Not Rated (f) 4.1%
------
100.0%
------
------
</TABLE>
<PAGE>
Dreyfus Municipal Reserves
- --------------------------------------------------------------------------
Statement of Investments (continued) October 31, 1995
Notes to Statement of Investments:
- -------------------------------------------------------------------------
(a) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(b) Secured by letters of credit. At October 31, 1995, 63.4% of the Fund's
net assets are backed by letters of credit issued by domestic banks,
foreign banks, government agencies and brokerage firms.
(c) Fitch currently provides creditworthiness information for a limited
amount of investments.
(d) P1 and A1 are the highest ratings assigned tax-exempt commercial paper by
Moody's and Standard & Poor's, respectively.
(e) Notes which are not F, MIG or SP rated are represented by bond ratings of
the issuers.
(f) Securities which, while not rated by Fitch, Moody's or Standard & Poor's
have been determined by the Fund's Board of Directors to be of comparable
quality to those rated securities in which the Fund may invest.
See notes to financial statements.
<PAGE>
Dreyfus Municipal Reserves
- --------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $221,748,080)--see Statement
of Investments $221,748,080
Cash.................................................................... 2,290,216
Interest receivable..................................................... 1,532,757
------------
225,571,053
LIABILITIES:
Due to The Dreyfus Corporation-Note 2(a)................................ $ 160,160
Payable for investment securities purchased............................. 2,000,000
Dividends payable....................................................... 255,196
Directors' fees payable-Note 2 (c)...................................... 19,146 2,434,502
---------- ------------
NET ASSETS.................................................................. $223,136,551
------------
------------
REPRESENTEDBY:
Paid-in capital......................................................... $223,138,979
Accumulated distributions in excess of investment income-net............ (1,575)
Accumulated net realized (loss) on investments ......................... (853)
------------
NET ASSETS at value......................................................... $223,136,551
------------
------------
NET ASSET VALUE, offering and redemption price per share:
Investor Shares
(1 billion shares of $.001 par value Capital Stock authorized)
($17,763,991 / 17,764,150 shares of Capital Stock outstanding)........ $1.00
-----
-----
Class R Shares
(1 billion shares of $.001 par value Capital Stock authorized)
($205,372,560 / 205,374,226 shares of Capital Stock outstanding)...... $1.00
-----
-----
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Reserves
- --------------------------------------------------------------------------
Statement of Operations Year ended October 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest Income......................................................... $ 8,734,012
Expenses:
Investment management fee-Note 2(a)................................... $1,074,708
Distribution fee (Investor shares)-Note 2(b).......................... 40,029
Directors' fees and expenses-Note 2(c)................................ 39,012
----------
Total Expenses.................................................... 1,153,749
----------
INVESTMENT INCOME--NET ...................................................... 7,580,263
NET REALIZED (LOSS) ON INVESTMENTS........................................... (853)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......................... $7,579,410
----------
----------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Reserves
- --------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------
1995 1994*
------------ ------------
<S> <C> <C>
OPERATIONS:
Investment income--net............................................... $ 7,580,263 $ 4,859,332
Net realized (loss) on investments................................... (853) --
Net Increase In Net Assets Resulting From Operations............... 7,579,410 4,859,332
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net:
Investor Shares.................................................... (665,686) (10,965)
Class R Shares..................................................... (6,913,817) (4,850,099)
------------ ------------
Total Dividends.................................................. (7,579,503) (4,861,064)
------------ ------------
CAPITAL STOCK TRANSACTIONS ($1.00 per share)*:
Net proceeds from shares sold:
Investor Shares.................................................... 13,061,878 1,304,565
Class R Shares..................................................... 744,180,112 639,468,498
Issued in exchange for shares of Dreyfus/Laurel Tax Free Money Fund:
Investor Shares.................................................... 21,402,629 --
Class R Shares..................................................... 17,563,875 --
Dividends reinvested:
Investor Shares.................................................... 582,123 9,953
Class R Shares..................................................... 2,258,237 1,778,576
Cost of shares redeemed:
Investor Shares.................................................... (18,443,197) (153,801)
Class R Shares..................................................... (763,734,703) (623,970,062)
------------ ------------
Increase In Net Assets From Capital Stock Transactions............. 16,870,954 18,437,729
------------ ------------
Total Increase In Net Assets..................................... 16,870,861 18,435,997
NET ASSETS:
Beginning of year.................................................... 206,265,690 187,829,693
------------ ------------
End of year (including distributions in excess of investment income-net:
$1,575 and $2,335, respectively)................................... $223,136,551 $206,265,690
------------ ------------
------------ ------------
<FN>
- ---------------
* The Fund commenced selling Investor shares on April 20, 1994. Any shares
outstanding prior to April 4, 1994 were designated as Class R shares of the
Fund.
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Reserves
- ------------------------------------------------------------------------
Financial Highlights
Contained below is per share performance data for a share of Capital
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.
<TABLE>
<CAPTION>
Investor Shares Class R Shares
-------------------- -----------------------------------------------------------
Year Ended
October 31, Year Ended October 31,
-------------------- -----------------------------------------------------------
PER SHARE DATA: 1995 1994(1)(2) 1995 1994(1)(2) 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
Investment Operations;
Investment income--net..... .0323 .0113 .0343 .0228(3) .0208 .0291 .0291
------- ------- ------- ------- ------- ------- -------
Distributions;
Dividends from investment
income--net.............. (.0323) (.0122) (.0343) (.0228) (.0208) (.0291) (.0291)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN......... 3.28% 1.23% 3.48% 2.29% 2.10% 2.94% 2.94%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets............... .70% .70%(4) .50% .51%(5) .50%(6) .50%(6) .50%(6)
Ratio of net investment income
to average net assets 3.33% 2.11%(4) 3.41% 2.30% 2.08% 2.90% 2.90%
Net Assets, end of year
(000's Omitted).......... $17,764 $1,161 $205,373 $205,105 $187,830 $184,719 $184,719
<FN>
(1) Effective October 17, 1994, The Dreyfus Corporation serves as the Fund's
investment manager. Prior to October 17, 1994, Mellon Bank, N.A. served as
the Fund's investment manager.
(2) The Fund commenced selling Investor shares on April 20, 1994. Those
shares outstanding prior to April 4, 1994 were redesignated as Trust shares.
Effective October 17, 1994, the Fund's Trust shares were reclassified as
Class R shares.
(3) Net investment income before expenses reimbursed by the investment
adviser for the year ended October 31, 1994 was $0.0218.
(4) Annualized.
(5) Annualized expense ratio before expenses reimbursed by the investment
adviser for the year ended October 31, 1994 was 0.61%.
(6) For the years ended October 31, 1993, 1992 and 1991, the investment
adviser reimbursed expenses of the fund amounting to $.0024, $.0029 and
$.0036 per share, respectively.
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
The Dreyfus/Laurel Funds, Inc. (the "Company") is registered under the
Investment Company Act of 1940 ("Act") as a diversified open-end management
investment company and operates as a series company currently offering
sixteen Series including the Dreyfus Municipal Reserves (the "Fund"). The
Dreyfus Corporation ("Manager") serves as the Fund's investment adviser. The
Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon Bank").
Premier Mutual Fund Services, Inc. (the "Distributor") acts as the
distributor of the Fund's shares. The Distributor, located at One Exchange
Place, Boston, Massachusetts 02109, is a wholly-owned subsidiary of FDI
Distribution Services, Inc., a provider of mutual fund administration
services, which in turn is a wholly-owned subsidiary of FDI Holdings, Inc.,
the parent company of which is Boston Institutional Group, Inc.
On August 1, 1995, the Fund's Directors approved a change to the Fund's
name, effective June 9, 1995, from "Dreyfus/Laurel Tax Exempt Money Market
Fund" to "Dreyfus Municipal Reserves."
The Fund is currently authorized to issue two classes of shares: Investor
shares and 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 service providers (including
Mellon Bank and its affiliates) 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 Company has the authority to issue 25
billion shares of capital stock with a par value of $.001.
Investment income, net of expenses (other than class specific
expenses) and realized and unrealized gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets of each
class.
(a) Portfolio Valuation: Investments are valued at amortized cost in
accordance with Rule 2a-7 of the Investment Company Act of 1940, which has
been determined by the Fund's Board of Directors to represent the fair value
of the Fund's investments.
It is the Fund's policy to maintain a continuous net asset value per
share of $1.00 for the Fund; the Fund has adopted certain investment,
portfolio valuation and dividend and distribution policies to enable it to do
so. There is no assurance, however, that the Fund will be able to maintain a
stable net asset value of $1.00.
(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 is recognized on the accrual basis. Cost of investments represents
amortized cost.
(c) Repurchase Agreements: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund,
through its custodian and sub-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
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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 a
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 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.
(d) Distributions 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, it is the policy of the Fund not to distribute such gain.
(e) 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.
The Fund has an unused capital loss carryover of approximately $853
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to October 31, 1995.
At October 31, 1995, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
NOTE 2--Investment Management Fee and other Transactions with Affiliates:
(a) Investment Management Fee: Pursuant to an Investment Management
agreement with the Manager, the Manager provides or arranges for one or more
third parties and or affiliates to provide investment advisory,
administrative, custody, fund accounting and transfer agency services to the
Fund. The Manager also directs the investments of the Fund in accordance with
its investment objective, policies and limitations. For these services, the
Fund is contractually obligated to pay the Manager a fee, calculated daily
and paid monthly, at the annual rate of .50% 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 fees, 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).
(b) 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 .25% of the value of
the average daily net assets attributable to its Investor shares to
compensate the Distributor and
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
Dreyfus Service Corporation, an affiliate of the Manager, for shareholder
servicing activities and the Distributor for activities primarily intended to
result in the sale of Investor shares. The Class R shares bear no
distribution fee. For the year ended October 31, 1995, the distribution fee
for the Investor shares was $40,029.
Under its terms, the Plan shall remain in effect from year to year,
provided such continuance is approved annually by a vote of 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.
(c) Directors' Fees: Each director who is not an "interested
person" as defined in the Act receives $27,000 per year, $1,000 for each
Board meeting attended and $750 for each Audit Committee attended and is
reimbursed for travel and out-of-pocket expenses. These expenses are paid in
total by the following funds: the Dreyfus/Laurel Funds, Inc., the
Dreyfus/Laurel Tax-Free Municipal Funds, and the Dreyfus/Laurel Funds Trust.
In addition the Chairman of the Board receives an annual fee of $75,000 per
year. These fees and expenses are charged and allocated to each series based
on net assets.
NOTE 3--Reorganization:
On November 7, 1994, Dreyfus Municipal Reserves, acquired the assets and
certain liabilities of the Dreyfus/Laurel Tax-Free Money Fund, in exchange
for shares of Dreyfus Municipal Reserves, pursuant to a plan of
reorganization approved by Dreyfus/Laurel Tax-Free Money Fund shareholders on
May 20, 1994. Total shares issued by Dreyfus Municipal Reserves and the total
net assets of Dreyfus/Laurel Tax-Free Money Fund acquired are set forth in
the Statement of Changes in Net Assets.
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
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 Municipal Reserves of The Dreyfus/Laurel Funds, Inc., including
the statement of investments, as of October 31, 1995, 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 the
financial highlights for each of the periods indicated herein. 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. Our procedures included confirmation of
securities owned as of October 31, 1995, 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 the Dreyfus Municipal Reserves of The Dreyfus/Laurel Funds, Inc.,
as of October 31, 1995, and 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 periods indicated
herein, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
December 15, 1995
<PAGE>
Dreyfus Municipal Reserves
- ----------------------------------------------------------------------------
Important Tax Information (Unaudited)
In accordance with Federal tax law, the Fund hereby designates all the
dividends paid from investment income--net during the fiscal year ended
October 31, 1995 as "exempt-interest dividends" (not generally subject to
regular Federal income tax).
<PAGE>
Dreyfus Municipal Reserves
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Mellon Bank
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Transfer Agent &
Dividend Disbursing Agent
First Data Investor Services Group, Inc.
P.O. Box 9671
Providence, RI 02940
Further information is contained in the Prospectus,
which must precede or accompany this report.
Printed in U.S.A. 324/724AR9510
