form

N-CSR 1 form.htm FORM NCSR form

		UNITED STATES
		SECURITIES AND EXCHANGE COMMISSION
		Washington, D.C. 20549


		FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
		INVESTMENT COMPANIES

Investment Company Act file number 811-6377

		DREYFUS MUNICIPAL FUNDS, INC.
		(Exact name of Registrant as specified in charter)


		c/o The Dreyfus Corporation
		200 Park Avenue
		New York, New York 10166
		(Address of principal executive offices) (Zip code)

		Mark N. Jacobs, Esq.
		200 Park Avenue
		New York, New York 10166
		(Name and address of agent for service)

Registrant's telephone number, including area code: (212) 922-6000

Date of fiscal year end:		08/31

Date of reporting period:		08/31/06

FORM N-CSR

Item 1. Reports to Stockholders.

Dreyfus BASIC
Municipal Money
Market Fund

ANNUAL REPORT August 31, 2006

Save time. Save paper. View your next shareholder report online as soon as it's available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It's simple and only takes a few minutes.

The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.

Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value

		Contents

		THE FUND

2		Letter from the Chairman
3		Discussion of Fund Performance
6		Understanding Your Fund's Expenses
6		Comparing Your Fund's Expenses
		With Those of Other Funds
7		Statement of Investments
19		Statement of Assets and Liabilities
20		Statement of Operations
21		Statement of Changes in Net Assets
22		Financial Highlights
23		Notes to Financial Statements
27		Report of Independent Registered
		Public Accounting Firm
28		Important Tax Information
29		Information About the Review and Approval
		of the Fund's Management Agreement
33		Board Members Information
35		Officers of the Fund
		FOR MORE INFORMATION

		Back Cover

Dreyfus BASIC
Municipal Money
Market Fund

The Fund

LETTER FROM THE CHAIRMAN

Dear Shareholder:

We are pleased to present this annual report for Dreyfus BASIC Municipal Money Market Fund, covering the 12-month period from September 1, 2005, through August 31, 2006.

After more than two years of steady and gradual increases, on August 8 the Federal Reserve Board (the "Fed") decided to hold short-term interest rates unchanged at 5.25% . In the announcement of its decision, the Fed indicated that its previous rate hikes and higher energy prices have contributed to a mild slowdown in U.S. economic growth. Recent reports of cooling housing markets in many regions of the United States appeared to confirm this view.

However, the Fed's recent pause does not necessarily mean that it has finished raising short-term interest rates. Some inflation risks remain, and we expect the Fed to remain vigilant in its attempts to forestall any further acceleration of inflation. However, while inflation expectations seem to have remained somewhat above the Fed's comfort zone,a recent economic release, commonly known as the "beige book," may suggest that the Fed is dually committed not to raise rates so much as to damper the current economic growth cycle. In our judgment, future Fed action is likely to depend mainly on economic data, particularly employment numbers and such "core" inflation indicators as CPI and PPI.

For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund's portfolio manager.

Thank you for your continued confidence and support.

Sincerely,

Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
September 15, 2006

DISCUSSION OF FUND PERFORMANCE

Colleen Meehan, Senior Portfolio Manager

How did Dreyfus BASIC Municipal Money Market Fund perform during the period?

For the 12-month period ended August 31, 2006, the fund produced a yield of 2.78% .Taking into account the effects of compounding, the fund produced an effective yield of 2.81% .¹

Municipal money market yields continued to rise along with short-term interest rates, as the Federal Reserve Board (the "Fed") maintained its efforts to forestall inflationary pressures over most of the reporting period.

What is the fund's investment approach?

The fund seeks as high a level of current income exempt from federal income tax as is consistent with the preservation of capital and the maintenance of liquidity.To pursue this goal, the fund normally invests substantially all of its net assets in short-term, high-quality municipal obligations that provide income exempt from federal income tax.The fund may also invest in high-quality, short-term structured notes, which are derivative instruments whose value is tied to underlying municipal obligations.

In pursuing this approach, we employ two primary strategies. First, we attempt to add value by constructing a diverse portfolio of high-quality, federally tax-exempt money market instruments. Second, we actively manage the fund's average maturity in anticipation of what we believe are interest-rate trends, supply-and-demand changes in the short-term municipal marketplace and anticipated liquidity needs.

For example, if we expect an increase in short-term supply, we may decrease the average weighted maturity of the fund, in an effort to position the fund to purchase new securities with higher yields, if higher yields materialize as a result of the increase in supply.Yields tend to rise when there is an increase in new-issue supply competing for investor interest. New securities are generally issued with maturities in the one-

The Fund 3

DISCUSSION OF FUND PERFORMANCE (continued)

year range which,if purchased,would tend to lengthen the fund's average weighted maturity.We also may decrease the average weighted maturity in a rising interest-rate environment. If we anticipate limited new-issue supply and lower interest rates, we may extend the fund's average maturity to maintain current yields for as long as we deem practical.At other times, we typically try to maintain an average weighted maturity that reflects our view of short-term interest-rate trends and future supply-and-demand considerations while anticipating liquidity needs.

What other factors influenced the fund's performance?

The reporting period began in the immediate aftermath of Hurricane Katrina, which caused analysts to speculate that the Fed might pause in its ongoing tightening campaign at its September 2005 meeting to assess the storm's economic impact. Instead, the U.S. economy continued to expand, and the Fed raised short-term interest rates at each of three meetings over the final four months of 2005. During the opening months of 2006, the unemployment rate hit multi-year lows, consumer spending remained strong, and the Fed continued to raise short-term interest rates in its ongoing inflation-fighting effort. By July 2006, the overnight federal funds rate stood at 5.25% . However, during the summer of 2006, evidence of a softening housing market and lower-than-expected employment gains began to emerge. Consequently, at its August meeting, the Fed refrained from raising short-term interest rates for the first time in more than two years.

Yields of tax-exempt money market instruments rose along with interest rates. However, yields of shorter-dated municipal money market securities generally rose more sharply than longer-dated securities, causing yield differences along the maturity spectrum to narrow. Investors therefore continued to focus on instruments maturing in six months or less. Even institutional investors who normally favor longer-term securities began to purchase tax-exempt money market securities, adding to demand and putting downward pressure on tax-exempt yields.

The strengthening U.S. economy helped boost tax revenues for most states and municipalities, reducing their need to borrow to cover oper-

ating shortfalls. In addition, some issuers revised their borrowing programs to rely more heavily on variable-rate demand notes on which yields are reset weekly or monthly. Reduced issuance of one-year tax-exempt municipal notes amid robust investor demand helped constrain the rise in tax-exempt money market yields.

In this environment, we found opportunities for incrementally higher yields from tax-exempt commercial paper with maturities in the six to nine month range. For most of the reporting period, we maintained a relatively short weighted average maturity as interest rates rose. However, we moved to a slightly longer-than-average posture during the summer of 2006 to capture what we believed to be attractive yields from newly issued securities. We maintained that position in August, primarily in an effort to smooth out the fund's yield by limiting its exposure to variable-rate instruments.

What is the fund's current strategy?

Recent signs of an economic slowdown suggest to us that short-term interest rates are unlikely to move much higher. In our view, while additional rate hikes are possible, the Fed for now is waiting to assess the effects of its previous moves on inflation and the economy.

September 15, 2006

An investment in the fund is not insured or guaranteed by the FDIC or any other government
agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the fund.
¹Effective yield is based upon dividends declared daily and reinvested monthly. Past performance is
no guarantee of future results.Yields fluctuate. Income may be subject to state and local taxes, and
some income may be subject to the federal alternative minimum tax (AMT) for certain investors.
Yields provided reflect the absorption of certain fund expenses by The Dreyfus Corporation,
pursuant to an agreement in effect until such time as shareholders are given at least 90 days'
notice to the contrary, and has committed to continue this agreement at least until August 31,
2007. Had these expenses not been absorbed, the fund's yield would have been 2.61% and the
fund's effective yield would have been 2.64%.

The Fund 5

UNDERSTANDING YOUR FUND'S EXPENSES (Unaudited)

As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund's prospectus or talk to your financial adviser.

Review your fund's expenses

The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus BASIC Municipal Money Market Fund from March 1, 2006 to August 31, 2006. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended August 31, 2006


Expenses paid per $1,000 ^†		$ 2.24
Ending value (after expenses)		$1,015.50

COMPARING YOUR FUND's EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)

Using the SEC's method to compare expenses

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund's expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended August 31, 2006


Expenses paid per $1,000 ^†		$ 2.24
Ending value (after expenses)		$1,022.99

^†Expenses are equal to the fund's annualized expense ratio of .44%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

STATEMENT OF INVESTMENTS
August 31, 2006

Short-Term	Coupon	Maturity	Principal
Investments—99.2%	Rate (%)	Date	Amount ($)	Value ($)

Alabama—.6%
Haleyville Industrial Development
Board, Revenue (Door
Components, LLC Project)
(LOC; Regions Bank)	3.53	9/7/06	2,000,000 ^a	2,000,000
Arizona—2.7%
Salt River Project Agricultural
Improvement and Power
District, CP (Liquidity
Facility: Bank of America,
Bank One, Citibank NA,
JPMorgan Chase Bank,
Marshall and Isley Bank,
and Wells Fargo Bank)	3.60	9/5/06	8,000,000	8,000,000
The Industrial Development
Authorities of the City of
Tucson and the County of Pima,
Joint SFMR (GIC; Trinity
Funding Corporation and LOC:
FHLMC, FNMA and GNMA)	4.90	8/3/07	1,750,000	1,763,307
Arkansas—.8%
Arkansas Development Finance
Authority, IDR (Defiance Metal
Products of Arkansas Project)
(LOC; Standard Federal Bank)	3.58	9/7/06	2,760,000 ^a	2,760,000
California—.7%
California Statewide Communities
Development Authority, MFHR
(Vista Montana Apartments)
(Liquidity Facility; Merrill Lynch)	3.51	9/7/06	2,500,000 ^a,b	2,500,000
Colorado—3.2%
City and County of Denver,
MFHR (Broadway Plaza Lofts
Project) (Liquidity Facility;
Merrill Lynch)	3.54	9/7/06	5,915,000 ^a,b	5,915,000
Colorado Health Facilities
Authority, Revenue
(Catholic Health Initiatives)	5.50	12/1/06	1,000,000	1,004,645
Colorado Housing and Finance
Authority, EDR (Closet Factory
Project) (LOC; The Bank of
New York)	3.57	9/7/06	2,300,000 ^a	2,300,000

The Fund 7

STATEMENT OF INVESTMENTS (continued)

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

Colorado (continued)
Section 14 Metropolitan District
Jefferson County, GO Notes,
Refunding (LOC; U. S. Bank NA)	3.50	12/1/06	2,300,000	2,300,000
District of Columbia—1.5%
District of Columbia,
Revenue (Idea Public Charter
School) (LOC; Allfirst Bank)	3.63	9/7/06	2,300,000 ^a	2,300,000
District of Columbia,
Revenue (Merlots Program)
(Insured; MBIA and Liquidity
Facility; Wachovia Bank)	3.45	9/7/06	3,105,000 ^a,b	3,105,000
Florida—2.2%
Broward County Health Facilities
Authority, Revenue, Refunding
(John Knox Village of Florida,
Inc. Project) (Insured; Radian
Bank and Liquidity Facility;
SunTrust Bank)	3.62	9/1/06	2,770,000 ^a	2,770,000
Jacksonville Health Facilities
Authority, HR (Baptist
Medical Center Project)
(LOC; Bank of America)	3.57	9/1/06	3,900,000 ^a	3,900,000
Putnam County Development
Authority, PCR, Refunding
(Florida Power and Light
Company Project)	3.57	9/1/06	1,300,000 ^a	1,300,000
Georgia—9.1%
Atlanta,
Airport Revenue (Merlots
Program) (Insured; FGIC and
Liquidity Facility; Wachovia Bank)	3.50	9/7/06	5,070,000 ^a,b	5,070,000
Gainesville Housing Authority,
MFHR (Lenox Park Apartments
Project) (Liquidity Facility;
Merrill Lynch)	3.54	9/7/06	3,330,000 ^a,b	3,330,000
Gwinnett County Housing Authority,
MFHR, Refunding (Palisades at
Satellite Crossing Apartments
Project) (LOC; SunTrust Bank)	3.47	9/7/06	5,000,000 ^a	5,000,000

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

Georgia (continued)
Savannah Economic Development
Authority, Industrial Revenue
(Home Depot Project)	3.46	9/7/06	20,000,000 ^a	20,000,000
Idaho—1.0%
Oneida County Economic
Corporation, IDR (Hess Pumice
Products, Inc. Project)
(LOC; Key Bank)	3.55	9/7/06	3,500,000 ^a	3,500,000
Illinois—5.7%
Cook County Community Consolidated
School District Number 21,
Educational Purposes TAW	4.75	4/1/07	5,975,000	6,007,006
Illinois,
GO (Liquidity Facility;
Citibank NA)	3.45	9/7/06	2,685,000 ^a,b	2,685,000
Illinois,
GO (Liquidity Facility; Citigroup
Global Markets Holdings)	3.45	9/7/06	2,505,000 ^a,b	2,505,000
Illinois Development Finance
Authority, Revenue (Aurora
Central Catholic High School)
(LOC; Allied Irish Banks)	3.69	9/7/06	1,000,000 ^a	1,000,000
Illinois Development Finance
Authority, Revenue (Park Ridge
Youth Campus Project)
(LOC; ABN-AMRO)	3.53	9/7/06	1,400,000 ^a	1,400,000
Illinois Finance Authority,
IDR (CFC International Inc.
Project) (LOC; ABN-AMRO)	3.51	9/7/06	1,800,000 ^a	1,800,000
University of Illinois,
University Revenue
(Putters Program)
(Insured; MBIA and Liquidity
Facility; PB Capital Corp.)	3.47	9/7/06	5,245,000 ^a,b	5,245,000
Indiana—2.7%
Fort Wayne,
EDR (Park Center Project)
(LOC; National City Bank)	3.47	9/7/06	2,800,000 ^a	2,800,000

The Fund 9

STATEMENT OF INVESTMENTS (continued)

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

Indiana (continued)
Gary,
EDR (Gary County Market
Project) (LOC; ABN-AMRO)	3.51	9/7/06	3,275,000 ^a	3,275,000
Lawrence-Fort Harrison Reuse
Authority, Tax Increment
Revenue (Fort Harrison
Military Base) (LOC; Fifth
Third Bank)	3.60	9/7/06	3,800,000 ^a	3,800,000
Kentucky—1.4%
Kenton County Airport Board,
Special Facilities Revenue
(Airis Cincinnati LLC Project)
(LOC; Deutsche Postbank)	3.50	9/7/06	5,000,000 ^a	5,000,000
Louisiana—2.0%
Lehman Municipal Trust Receipts
(Jefferson Parish Home
Mortgage Authority) (Liquidity
Facility; Lehman Liquidity
Corporation and LOC:
FNMA and GNMA)	3.52	9/7/06	5,140,000 ^a,b	5,140,000
Zachary Community School
District Number 1, GO Notes
(Insured; AMBAC)	5.00	3/1/07	1,940,000	1,951,820
Maryland—.7%
Maryland Economic Development
Corporation, Revenue
(Chesapeake Advertising
Facility) (LOC; M&T Bank)	3.83	9/7/06	2,460,000 ^a	2,460,000
Michigan—5.7%
ABN AMRO Munitops Certificate
Trust, Revenue (Insured;
GNMA and Liquidity
Facility; ABN-AMRO)	3.42	9/7/06	9,495,000 ^a,b	9,495,000
Michigan Hospital Finance
Authority, Revenue (Healthcare
Equipment Loan Program)
(LOC; Fifth Third Bank)	3.45	9/7/06	2,900,000 ^a	2,900,000

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

Michigan (continued)
Michigan Strategic Fund,
LOR (NSS Technologies Project)
(LOC; Wachovia Bank)	3.51	9/7/06	4,000,000 ^a	4,000,000
Oakland County Economic
Development Corporation, LOR
(Michigan Seamless Tube LLC
Project) (LOC; ABM-AMRO)	3.57	9/7/06	4,350,000 ^a	4,350,000
Minnesota—1.4%
Southern Minnesota Municipal Power
Agency, Power Supply System
Revenue, CP (Liquidity
Facility; Landesbank
Hessen-Thuringen Girozentrale)	3.65	11/30/06	5,100,000	5,100,000
Mississippi—.7%
Mississippi Business Finance Corporation,
Revenue (Jackson Preparatory
School Foundation Project)
(LOC; First Tennessee Bank)	3.60	9/7/06	2,420,000 ^a	2,420,000
Missouri—1.0%
Saint Louis Industrial Development
Authority, MFHR (Windward
Estates Project) (GIC; IXIS
Corporate and Investment Bank
and Liquidity Facility;
Merrill Lynch Capital Services)	3.54	9/7/06	3,500,000 ^a,b	3,500,000
Nevada—2.6%
Clark County,
EDR (Lutheran Secondary
School Association Project)
(LOC; Allied Irish Banks)	3.61	9/7/06	3,700,000 ^a	3,700,000
Reno,
Subordinate Lien Sales Tax Revenue
(ReTrac-Reno Transportation
Rail Access Corridor Project)
(Liquidity Facility; Goldman
Sachs Group and LOC;
Goldman Sachs Group)	3.47	9/7/06	5,780,000 ^a,b	5,780,000

The Fund 11

STATEMENT OF INVESTMENTS (continued)

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

North Carolina—.9%
Iredell County Industrial
Facilities and Pollution
Control Financing Authority,
Revenue (Onsrud Inc. Project)
(LOC; Wachovia Bank)	3.51	9/7/06	3,300,000 ^a	3,300,000
Ohio—2.7%
Clark County,
Solid Waste Facilities Revenue
(Eastwood Dairy LLC Project)
(LOC; National City Bank)	3.53	9/7/06	2,750,000 ^a	2,750,000
Ohio State Higher Educational
Facilities, Revenue
(Cedarville University
Project) (LOC; Key Bank)	3.48	9/7/06	6,945,000 ^a	6,945,000
Pennsylvania—13.1%
Bethlehem Area School District,
GO Notes (Insured; FSA and
Liquidity Facility; Dexia
Credit Locale)	3.44	9/7/06	5,000,000 ^a	5,000,000
Bucks County Industrial
Development Authority,
Revenue (Christian Life Center
Project) (LOC; Wachovia Bank)	3.51	9/7/06	1,700,000 ^a	1,700,000
Chester County Industrial
Development Authority, Student
Housing Revenue (University
Student Housing LLC Project)
(LOC; Citizens Bank of
Pennsylvania)	3.46	9/7/06	7,225,000 ^a	7,225,000
Dauphin County General Authority,
Revenue (Insured; FSA and
Liquidity Facility: Bank of
Nova Scotia and KBC Bank)	3.44	9/7/06	2,300,000 ^a	2,300,000
Emmaus General Authority,
Local Government Revenue
(LOC; DEPFA Bank PLC)	3.43	9/7/06	6,400,000 ^a	6,400,000
Lancaster County,
GO Notes (Insured; FSA
and Liquidity Facility;
Royal Bank of Canada)	3.44	9/7/06	3,000,000 ^a	3,000,000

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

Pennsylvania (continued)
Lancaster Industrial Development
Authority, Revenue (Student
Lodging and Student Services
Project) (LOC; Fulton Bank)	3.51	9/7/06	4,315,000 ^a	4,315,000
Mount Lebanon School District,
GO Notes (Merlots Program)
(Insured; MBIA and Liquidity
Facility; Wachovia Bank)	3.45	9/7/06	5,175,000 ^a,b	5,175,000
Philadelphia Authority for
Industrial Development,
Healthcare Facility Revenue
(Greater Philidelphia Health Action
Project) (LOC; Commerce Bank)	3.44	9/7/06	3,400,000 ^a	3,400,000
Reading Regional Airport
Authority, Revenue (Insured;
AMBAC and Liquidity Facility;
Wachovia Bank)	3.46	9/7/06	3,940,000 ^a	3,940,000
Scranton Redevelopment Authority,
LR (LOC; PNC Bank N.A.)	3.46	9/7/06	1,900,000 ^a	1,900,000
Spring Grove Area School District,
GO Notes (Insured; FSA and Liquidity
Facility; Dexia Credit Locale)	3.44	9/7/06	3,500,000 ^a	3,500,000
South Carolina—1.4%
South Carolina Association of
Governmental Organizations,
COP, TAN	4.25	4/13/07	5,000,000	5,009,810
Tennessee—10.0%
Chattanooga Metropolitan Airport
Authority, Revenue, Refunding
(LOC; First Tennessee Bank)	3.70	9/7/06	9,325,000 ^a	9,325,000
Sevier County Public Building
Authority, Revenue (Local
Government Public Improvement)
(Insured; AMBAC and Liquidity
Facility; KBC Bank)	3.43	9/7/06	12,500,000 ^a	12,500,000
Tennergy Corporation,
Gas Revenue (Putters Program)
(Liquidity Facility; JPMorgan
Chase Bank)	3.47	9/7/06	5,000,000 ^a,b	5,000,000

The Fund 13

STATEMENT OF INVESTMENTS (continued)

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

Tennessee (continued)
Tennergy Corporation,
Gas Revenue (Putters Program)
(LOC; BNP Paribas)	3.46	9/7/06	10,000,000 ^a,b	10,000,000
Texas—8.9%
El Paso County Hospital District,
GO Notes (Putters Program)
(Insured; AMBAC and Liquidity
Facility; Deutsche Postbank)	3.47	9/7/06	3,470,000 ^a,b	3,470,000
Greenville Industrial Development
Corporation, IDR (Woodgrain
Project) (LOC; General
Electric Capital Corp.)	3.51	9/7/06	3,225,000 ^a	3,225,000
Gulf Coast Industrial Development
Authority, SWDR (CITGO
Petroleum Corporation Project)
(LOC; Wachovia Bank)	3.65	9/1/06	8,000,000 ^a	8,000,000
Houston,
CP (Liquidity Facility;
JPMorgan Chase Bank)	3.62	1/10/07	5,000,000	5,000,000
Lower Neches Valley Authority
Industrial Development
Corporation, Exempt Facilities
Revenue (Onyx Environmental
Services, LLC Project)
(LOC; Bank of America)	3.46	9/7/06	3,400,000 ^a	3,400,000
Port of Port Arthur Navigation
District, Environmental
Facilities Revenue, Refunding
(Motiva Enterprises Project)	3.62	9/7/06	5,945,000 ^a	5,945,000
Revenue Bond Certificate Series
Trust, Revenue (Siena Place)
(GIC; AIG Funding Inc.)	3.83	9/7/06	3,315,000 ^a,b	3,315,000
Utah—2.6%
Intermountain Power Agency,
Power Supply Revenue (Insured;
AMBAC and Liquidity Facility;
Morgan Stanley Bank)	3.60	12/1/06	3,050,000	3,050,000
Utah Housing Finance Agency,
MFHR, Refunding (Candlestick
Apartments LLC) (Insured; FNMA
and Liquidity Facility; FNMA)	3.45	9/7/06	6,400,000 ^a	6,400,000

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

Vermont—.2%
Vermont Educational and Health
Buildings Financing Agency,
Revenue (Capital Asset
Financing Program)
(LOC; M&T Bank)	3.52	9/7/06	900,000 ^a	900,000
Virginia—3.8%
Hanover County Industrial
Development Authority, IDR
(Iron and Metal Company
Project) (LOC; Branch Banking
and Trust Company)	3.55	9/7/06	3,525,000 ^a	3,525,000
Patrick County Industrial
Development Authority, IDR
(Narroflex Inc. Project)
(LOC; HSBC Bank USA)	3.65	9/7/06	3,710,000 ^a	3,710,000
Roanoke Industrial Development
Authority, IDR (Virginia
Transformer Corporation)
(LOC; SunTrust Bank)	3.56	9/7/06	1,440,000 ^a	1,440,000
Virginia Housing Development
Authority, Commonwealth
Mortgage Revenue	3.80	12/12/06	5,000,000	5,000,000
Washington—4.7%
Port Chehalis Industrial
Development Corporation,
Revenue (JLT Holding LLC
Project) (LOC; Key Bank)	3.55	9/7/06	2,970,000 ^a	2,970,000
Washington Housing Finance
Commission, MFHR (Vintage
Everett Living) (Insured; FNMA
and Liquidity Facility; FNMA)	3.47	9/7/06	5,250,000 ^a	5,250,000
Washington Housing Finance
Commission, MFHR, Refunding
(Avalon Ridge Apartments
Project) (Collateralized; FNMA)	3.50	9/7/06	8,755,000 ^a	8,755,000
Wisconsin—2.2%
Racine,
Note Anticipation Notes	4.50	10/10/06	3,800,000	3,804,194
Sturgeon Bay,
Note Anticipation Notes	4.40	4/2/07	1,000,000	1,002,112

The Fund 15

STATEMENT OF INVESTMENTS (continued)

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

Wisconsin (continued)
Wisconsin Health and Educational
Facilities Authority, Revenue
(Mequon Jewish Project)
(LOC; Bank One)	3.44	9/7/06	3,190,000 ^a	3,190,000
Wyoming—3.0%
Campbell County,
IDR (Two Elk Power Generation
Station Project) (GIC; Royal
Bank of Canada)	3.55	11/30/06	4,000,000	4,000,000
Campbell County,
IDR (Two Elk Power
Generation Station Project)
(LOC; Citibank NA)	3.55	11/30/06	7,000,000	7,000,000


Total Investments (cost $360,167,894)			99.2%	360,167,894
Cash and Receivables (Net)			.8%	3,062,960
Net Assets			100.0%	363,230,854

The Fund 17

STATEMENT OF INVESTMENTS (continued)

Summary of Combined Ratings (Unaudited)

Fitch	or	Moody's	or	Standard & Poor's	Value (%) ^†

F1+,F1		VMIG1,MIG1,P1		SP1+,SP1,A1+,A1	80.6
AAA,AA,A ^c		Aaa,Aa,A ^c		AAA,AA,A ^c	4.3
Not Rated ^d		Not Rated ^d		Not Rated ^d	15.1
					100.0

^†Based on total investments.
^cNotes which are not F, MIG and SP rated are represented by bond ratings of the issuers
^dSecurities which, while not rated by Fitch, Moody's and Standard & Poor's, have been determined by the Manager to
be of comparable quality to those rated securities in which the fund may invest
See notes to financial statements.

STATEMENT OF ASSETS AND LIABILITIES
August 31, 2006

	Cost	Value

Assets ($):
Investments in securities—See Statement of Investments	360,167,894	360,167,894
Cash		1,098,673
Interest receivable		2,126,141
Prepaid expenses		11,214
		363,403,922

Liabilities ($):
Due to The Dreyfus Corporation and affiliates—Note 2(b)		110,286
Payable for shares of Common Stock redeemed		3,932
Accrued expenses		58,850
		173,068

Net Assets ($)		363,230,854

Composition of Net Assets ($):
Paid-in capital		363,237,191
Accumulated net realized gain (loss) on investments		(6,337)

Net Assets ($)		363,230,854

Shares Outstanding
(3 billion shares of $.001 par value Common Stock authorized)		363,237,191
Net Asset Value, offering and redemption price per share ($)		1.00

See notes to financial statements.

The Fund 19

STATEMENT OF OPERATIONS
Year Ended August 31, 2006

Investment Income ($):
Interest Income		11,650,299
Expenses:
Management fee—Note 2(a)		1,815,502
Shareholder servicing costs—Note 2(b)		201,219
Professional fees		65,006
Custodian fees		41,833
Directors' fees and expenses—Note 2(c)		22,167
Registration fees		21,922
Prospectus and shareholders' reports		15,166
Miscellaneous		23,102
Total Expenses		2,205,917
Less—reduction in management fee
due to undertaking—Note 2(a)		(571,966)
Less—reduction in custody fees due to
earnings credits—Note 1(b)		(19,382)
Net Expenses		1,614,569
Investment Income—Net, representing net increase in
net assets resulting from operations		10,035,730

See notes to financial statements.

STATEMENT OF CHANGES IN NET ASSETS

	Year Ended August 31,

	2006	2005

Operations ($):
Investment Income—Net,
representing net increase in
net assets resulting from operations	10,035,730	6,140,117

Dividends to Shareholders from ($):
Investment income—net	(10,035,730)	(6,140,117)

Capital Stock Transactions ($1.00 per share):
Net proceeds from shares sold	205,775,507	347,817,846
Dividends reinvested	9,686,729	5,836,402
Cost of shares redeemed	(273,218,253)	(381,493,996)
Increase (Decrease) in Net Assets
from Capital Stock Transactions	(57,756,017)	(27,839,748)
Total Increase (Decrease) in Net Assets	(57,756,017)	(27,839,748)

Net Assets ($):
Beginning of Period	420,986,871	448,826,619
End of Period	363,230,854	420,986,871

See notes to financial statements.

The Fund 21

FINANCIAL HIGHLIGHTS

The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund's financial statements.

		Year Ended August 31,

	2006	2005	2004	2003	2002

Per Share Data ($):
Net asset value, beginning of period	1.00	1.00	1.00	1.00	1.00
Investment Operations:
Investment income—net	.028	.016	.007	.009	.013
Distributions:
Dividends from investment income—net	(.028)	(.016)	(.007)	(.009)	(.013)
Net asset value, end of period	1.00	1.00	1.00	1.00	1.00

Total Return (%)	2.82	1.64	.67	.87	1.36

Ratios/Supplemental Data (%):
Ratio of total expenses
to average net assets	.61	.60	.60	.61	.60
Ratio of net expenses
to average net assets	.44	.44	.44	.45	.45
Ratio of net investment income
to average net assets	2.76	1.63	.67	.87	1.35

Net Assets, end of period ($ x 1,000)	363,231	420,987	448,827	383,146	415,962

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

NOTE 1—Significant Accounting Policies:

Dreyfus BASIC Municipal Money Market Fund (the "fund") is a separate non-diversified series of Dreyfus Municipal Funds, Inc. (the "Company") which is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company and operates as a series company currently offering five series including the fund.The fund's investment objective is to provide investors with as high a level of current income exempt from federal income tax as is consistent with the preservation of capital and maintenance of liq-uidity.The Dreyfus Corporation (the "Manager" or "Dreyfus") serves as the fund's investment adviser.The Manager is a wholly-owned subsidiary of Mellon Financial Corporation ("Mellon Financial"). Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of the Manager,is the distributor of the fund's shares,which are sold to the public without a sales charge.

It is the fund's policy to maintain a continuous net asset value per share of $1.00; the fund has adopted certain investment, fund 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 per share of $1.00.

The fund's financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.

The fund enters into contracts that contain a variety of indemnifications. The fund's maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.

(a) Portfolio valuation: Investments in securities are valued at amortized cost in accordance with Rule 2a-7 of the Act, which has been determined by the Board of Directors to represent the fair value of the fund's investments.

The Fund 23

NOTES TO FINANCIAL STATEMENTS (continued)

(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Cost of investment represents amortized cost.

The fund has an arrangement with the custodian bank whereby the fund receives earnings credits from the custodian when positive cash balances are maintained, which are used to offset custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.

(c) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. Dividends from net realized capital gain, if any, 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 of 1986, as amended (the "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.

(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.

deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.

At August 31, 2006, the components of accumulated earnings on a tax basis were substantially the same as for financial reporting purposes.

The accumulated capital loss carryover of $6,337 is available to be applied against future net securities profits, if any, realized subsequent to August 31, 2006. If not applied, the carryover expires in fiscal 2007.

The tax character of distributions paid to shareholders during the fiscal periods ended August 31, 2006 and August 31, 2005, were all tax exempt income.

At August 31, 2006, 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—Management Fee and Other Transactions with Affiliates:

(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .50% of the value of the fund's average daily net assets and is payable monthly.The Manager has undertaken, until such time as it gives shareholders at least 90 days' notice to the contrary, to reduce the management fee paid by the fund, if the fund's aggregate expenses, exclusive of taxes, brokerage fees, interest on borrowings and extraordinary expenses, exceed an annual rate of .45% of the value of the fund's average daily net assets.The Manager has committed to continue this undertaking at least until August 31, 2007. The reduction in management fee, pursuant to the undertaking, amounted to $571,966 during the period ended August 31, 2006.

The Fund 25

NOTES TO FINANCIAL STATEMENTS (continued)

(b) Under the Shareholder Services Plan, the fund reimburses the Distributor an amount not to exceed an annual rate of .25% of the value of the fund's average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended August 31, 2006, the fund was charged $155,735 pursuant to the Shareholder Services Plan.

The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended August 31, 2006, the fund was charged $30,617 pursuant to the transfer agency agreement.

During the period ended August 31, 2006, the fund was charged $4,313 for services performed by the Chief Compliance Officer.

The components of Due to The Dreyfus Corporation and affiliates in the Statement of Assets and Liabilities consist of: management fees $152,467, chief compliance officer fees $1,895 and transfer agency per account fees $4,800, which are offset against an expense reimbursement currently in effect in the amount of $48,876.

(c) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Dreyfus BASIC Municipal Money Market Fund

We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus BASIC Municipal Money Market Fund (one of the funds comprising Dreyfus Municipal Funds, Inc.) as of August 31, 2006, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the years indicated therein.These financial statements and financial highlights are the responsibility of the fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).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.We were not engaged to perform an audit of the Fund's internal control over financial reporting.Our audits included consideration over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting.Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2006 by correspondence with the custodian.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus BASIC Municipal Money Market Fund at August 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated years, in conformity with U.S. generally accepted accounting principles.

New York, New York
October 9, 2006

The Fund 27

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 August 31, 2006 as "exempt-interest dividends" (not generally subject to regular federal income tax).

INFORMATION ABOUT THE REVIEW AND APPROVAL
OF THE FUND's MANAGEMENT AGREEMENT (Unaudited)

At a meeting of the fund's Board of Directors held on April 18, 2006, the Board considered the re-approval for an annual period of the fund's Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are "interested persons" (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.

Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board members received a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and discussed the nature, extent, and quality of the services provided to the fund pursuant to its Management Agreement.The Manager's representatives reviewed the fund's distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each. The Manager's representatives noted the diversity of distribution of the fund as well as among the funds in the Dreyfus fund complex, and the Manager's corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each of the fund's distribution channels. The Board also reviewed the number of shareholder accounts in the fund, as well as the fund's asset size.

The Board members also considered the Manager's research and portfolio management capabilities.The Board members also considered that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements, and the Manager's extensive administrative, accounting and compliance infrastructure.

Comparative Analysis of the Fund's Management Fee, Expense Ratio, and Performance. The Board members reviewed reports prepared by Lipper, Inc., an independent provider of investment company data, which included information comparing the fund's management fee and expense ratio with a group of comparable funds (the "Expense Group") and with a broader group of funds (the "Expense Universe") that were

The Fund 29

INFORMATION ABOUT THE REVIEW AND APPROVAL OF T H E
F U N D 's M A N A G E M E N T A G R E E M E N T ( U n a u d i t e d ) (continued)

selected by Lipper. Included in these reports were comparisons of contractual and actual management fee rates, total operating expenses, and total return performance.The Manager furnished these reports to the Board along with a description of the methodology Lipper used to select the Expense Group and Expense Universe.

The Board reviewed the results of the Expense Group and Expense Universe comparisons for various periods ended February 28, 2006. The Board reviewed the range of management fees and expense ratios of the funds in the Expense Group and Expense Universe, and noted that the fund's contractual and actual management fees were above and below the Expense Group medians, respectively.The Board also noted that the fund's total expense ratio was lower than the median of the Expense Group and Expense Universe (in the first quartile, which reflects the group of funds with the lowest expense ratios).

Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates reported in the same Lipper category as the fund (the "Similar Funds"), and explained the nature of the Similar Funds and any differences, from the Manager's perspective, in providing services to the Similar Funds as compared to the fund.The Manager's representatives also reviewed the costs associated with distribution through intermediaries.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the management fees paid in light of the Manager's performance, and the services provided.

The Board members considered the relevance of the fee information provided for the Similar Funds, to evaluate the appropriateness and reasonableness of the fund's management fee.

Representatives of the Manager noted that there were no similarly managed institutional separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies, and strategies as the fund.

Analysis of Profitability and Economies of Scale. The Manager's representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit.The Board considered information, previously provided and discussed, prepared by an independent consulting firm regarding the Manager's approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board members also considered that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund, including the decline in fund assets from the prior year, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. The Board members also considered potential benefits to the Manager from acting as investment adviser to the fund and noted that there were no soft dollar arrangements in effect with respect to trading the fund's portfolio.

The Fund 31

INFORMATION ABOUT THE REVIEW AND APPROVAL OF T H E
F U N D 's M A N A G E M E N T A G R E E M E N T ( U n a u d i t e d ) (continued)

realized any economies of scale would be less. It was noted that the profitability percentage for managing the fund was within ranges determined by appropriate court cases to be reasonable given the services rendered and that the profitability percentage for managing the fund was reasonable given the fund's overall performance and generally superior service levels provided.The Board also noted the Manager's absorption of certain expenses of the fund over the past year and its effect on the profitability of the Manager.

At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund's Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.

The Board concluded that the nature, extent, and quality of the services provided by the Manager are adequate and appropriate.
The Board was satisfied with the fund's performance.
The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative performance and expense and advisory fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in connection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.

The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund's Management Agreement was in the best interests of the fund and its shareholders.

BOARD MEMBERS INFORMATION (Unaudited)

Joseph S. DiMartino (62)

Chairman of the Board (1995)

Principal Occupation During Past 5 Years:

• Corporate Director and Trustee

Other Board Memberships and Affiliations:

• The Muscular Dystrophy Association, Director

• Levcor International, Inc., an apparel fabric processor, Director

• Century Business Services, Inc., a provider of outsourcing functions for small and medium size

companies, Director

• The Newark Group, a provider of a national market of paper recovery facilities, paperboard

mills and paperboard converting plants, Director

• Sunair Services Corporation, engaging in the design, manufacture and sale of high frequency

systems for long-range voice and data communications, as well as providing certain outdoor-

related services to homes and businesses, Director

No. of Portfolios for which Board Member Serves: 189

———————

David W. Burke (70)

Board Member (1994)

Principal Occupation During Past 5 Years:

• Corporate Director and Trustee

Other Board Memberships and Affiliations:

• John F. Kennedy Library Foundation, Director

• U.S.S. Constitution Museum, Director

No. of Portfolios for which Board Member Serves: 80

———————

Gordon J. Davis (65)

Board Member (1995)

Principal Occupation During Past 5 Years:

• Partner in the law firm of LeBoeuf, Lamb, Greene & MacRae, LLP

• President, Lincoln Center for the Performing Arts, Inc. (2001)

Other Board Memberships and Affiliations:

• Consolidated Edison, Inc., a utility company, Director

• Phoenix Companies, Inc., a life insurance company, Director

• Board Member/Trustee for several not-for-profit groups

No. of Portfolios for which Board Member Serves: 24

The Fund 33

BOARD MEMBERS INFORMATION (Unaudited) (continued)

Joni Evans (64)

Board Member (1991)

Principal Occupation During Past 5 Years:

• Principal, Joni Evans Ltd.

Senior Vice President of the William Morris Agency (2005)

No. of Portfolios for which Board Member Serves: 15

———————

Arnold S. Hiatt (79)

Board Member (1991)

Principal Occupation During Past 5 Years:

• Chairman of The Stride Rite Charitable Foundation

Other Board Memberships and Affiliations:

• Isabella Stewart Gardner Museum,Trustee

• John Merck Fund, a charitable trust,Trustee

• Business for Social Responsibility, Director

• The A.M. Fund,Trustee

No. of Portfolios for which Board Member Serves: 15

———————

Burton N. Wallack (55)

Board Member (1991)

Principal Occupation During Past 5 Years:

• President and co-owner of Wallack Management Company, a real estate management company

No. of Portfolios for which Board Member Serves: 15

———————

Once elected all Board Members serve for an indefinite term.The address of the Board Members and Officers is in c/o The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Additional information about the Board Members is available in the fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611.

Samuel Chase, Emeritus Board Member

OFFICERS OF THE FUND (Unaudited)

STEPHEN E. CANTER, President since March 2000.

Chairman of the Board and Chief Executive Officer of the Manager, and an officer of 90 investment companies (comprised of 189 portfolios) managed by the Manager. Mr. Canter also is a Board member and, where applicable, an Executive Committee Member of the other investment management subsidiaries of Mellon Financial Corporation, each of which is an affiliate of the Manager. He is 61 years old and has been an employee of the Manager since May 1995.

STEPHEN R. BYERS, Executive Vice President since November 2002.

Chief Investment Officer,Vice Chairman and a director of the Manager, and an officer of 90 investment companies (comprised of 189 portfolios) managed by the Manager. Mr. Byers also is an officer, director or an Executive Committee Member of certain other investment management subsidiaries of Mellon Financial Corporation, each of which is an affiliate of the Manager. He is 52 years old and has been an employee of the Manager since January 2000.

MARK N. JACOBS, Vice President since March 2000.

Executive Vice President, Secretary and General Counsel of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 60 years old and has been an employee of the Manager since June 1977.

MICHAEL A. ROSENBERG, Vice President and Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 46 years old and has been an employee of the Manager since October 1991.

JAMES BITETTO, Vice President and Assistant Secretary since August 2005.

Associate General Counsel and Assistant Secretary of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 40 years old and has been an employee of the Manager since December 1996.

JONI LACKS CHARATAN, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. She is 50 years old and has been an employee of the Manager since October 1988.

JOSEPH M. CHIOFFI, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 44 years old and has been an employee of the Manager since June 2000.

JANETTE E. FARRAGHER, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. She is 43 years old and has been an employee of the Manager since February 1984.

JOHN B. HAMMALIAN, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since February 1991.

The Fund 35

OFFICERS OF THE FUND (Unaudited) (continued)

ROBERT R. MULLERY, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 54 years old and has been an employee of the Manager since May 1986.

JEFF PRUSNOFSKY, Vice President and Assistant Secretary since August 2005.

Associate General Counsel of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 41 years old and has been an employee of the Manager since October 1990.

JAMES WINDELS, Treasurer since November 2001.

Director – Mutual Fund Accounting of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 47 years old and has been an employee of the Manager since April 1985.

ERIK D. NAVILOFF, Assistant Treasurer since August 2005.

Senior Accounting Manager – Taxable Fixed Income Funds of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 38 years old and has been an employee of the Manager since November 1992.

ROBERT ROBOL, Assistant Treasurer since August 2003.

Senior Accounting Manager – Money Market and Municipal Bond Funds of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 42 years old and has been an employee of the Manager since October 1988.

ROBERT SVAGNA, Assistant Treasurer since August 2005.

Senior Accounting Manager – Equity Funds of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 39 years old and has been an employee of the Manager since November 1990.

GAVIN C. REILLY, Assistant Treasurer since December 2005.

Tax Manager of the Investment Accounting and Support Department of the Manager, and an officer of 91 investment companies (comprised of 205 portfolios) managed by the Manager. He is 38 years old and has been an employee of the Manager since April 1991.

JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.

Chief Compliance Officer of the Manager and The Dreyfus Family of Funds (91 investment companies, comprised of 205 portfolios). From November 2001 through March 2004, Mr. Connolly was first Vice-President, Mutual Fund Servicing for Mellon Global Securities Services. In that capacity, Mr. Connolly was responsible for managing Mellon's Custody, Fund Accounting and Fund Administration services to third-party mutual fund clients. He is 49 years old and has served in various capacities with the Manager since 1980, including manager of the firm's Fund Accounting Department from 1997 through October 2001.

WILLIAM GERMENIS, Anti-Money Laundering Compliance Officer since October 2002.

Vice President and Anti-Money Laundering Compliance Officer of the Distributor, and the Anti-Money Laundering Compliance Officer of 87 investment companies (comprised of 201 portfolios) managed by the Manager. He is 35 years old and has been an employee of the Distributor since October 1998.

For More Information

Telephone 1-800-645-6561
Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144
E-mail Send your request to info@dreyfus.com
Internet Information can be viewed online or downloaded at: http://www.dreyfus.com

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The fund's Forms N-Q are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-202-551-8090.

Information regarding how the fund voted proxies relating to portfolio securities for the 12-month period ended June 30, 2006, is available on the SEC's website at http://www.sec.gov and without charge, upon request, by calling 1-800-645-6561.

Dreyfus BASIC
New Jersey Municipal
Money Market Fund

ANNUAL REPORT August 31, 2006

Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value

		Contents

		THE FUND

2		Letter from the Chairman
3		Discussion of Fund Performance
6		Understanding Your Fund's Expenses
6		Comparing Your Fund's Expenses
		With Those of Other Funds
7		Statement of Investments
16		Statement of Assets and Liabilities
17		Statement of Operations
18		Statement of Changes in Net Assets
19		Financial Highlights
20		Notes to Financial Statements
24		Report of Independent Registered
		Public Accounting Firm
25		Important Tax Information
26		Information About the Review and Approval
		of the Fund's Management Agreement
30		Board Members Information
32		Officers of the Fund
		FOR MORE INFORMATION

		Back Cover

Dreyfus BASIC
New Jersey Municipal
Money Market Fund

The Fund

LETTER FROM THE CHAIRMAN

Dear Shareholder:

We are pleased to present this annual report for Dreyfus BASIC New Jersey Municipal Money Market Fund, covering the 12-month period from September 1, 2005, through August 31, 2006.

For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund's portfolio manager.

Thank you for your continued confidence and support.

Sincerely,

Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
September 15, 2006

DISCUSSION OF FUND PERFORMANCE

Joseph Irace, Portfolio Manager

How did Dreyfus BASIC New Jersey Municipal Money Market Fund perform during the period?

For the 12-month period ended August 31, 2006, the fund produced a yield of 2.75% .Taking into account the effects of compounding, the fund produced an effective yield of 2.78% .¹

Yields of tax-exempt money market securities generally rose along with short-term interest rates, as the Federal Reserve Board (the "Fed") continued its efforts to forestall potential inflationary pressures during most of the reporting period.

What is the fund's investment approach?

The fund seeks as high a level of current income exempt from federal and New Jersey state income taxes as is consistent with the preservation of capital and the maintenance of liquidity.To pursue this goal, the fund normally invests substantially all of its net assets in short-term, high-quality municipal obligations that provide income exempt from federal and New Jersey state personal income taxes.The fund may also invest in high-quality, short-term structured notes, which are derivative instruments whose value is tied to underlying municipal obligations.

In pursuing this investment approach, we employ two primary strategies. First, we attempt to add value by constructing a diverse portfolio of high-quality, tax-exempt money market instruments from New Jersey exempt issuers. Second, we actively manage the fund's average maturity in anticipation of what we believe are interest-rate trends and supply-and-demand changes in New Jersey's short-term municipal marketplace.

For example, if we expect an increase in short-term supply, we may decrease the average weighted maturity of the fund, which should position the fund to purchase new securities with higher yields, if higher yields materialize as a result of the increase in supply.Yields tend

The Fund 3

DISCUSSION OF FUND PERFORMANCE (continued)

to rise when there is an increase in new-issue supply competing for investor interest. New securities are generally issued with maturities in the one-year range, which if purchased, would tend to lengthen the fund's average weighted maturity. If we anticipate limited new-issue supply, we may extend the fund's average maturity to maintain then-current yields for as long as we deem practical.At other times, we typically try to maintain an average weighted maturity that reflects our view of short-term, interest-rate trends and future supply-and-demand considerations.

What other factors influenced the fund's performance?

The Fed raised short-term interest rates gradually and steadily during most of the reporting period, driving the overnight federal funds rate to 5.25% by the end of June 2006.The Fed's moves were a response to generally robust economic growth, which proved to be especially strong during the first quarter of 2006, as labor markets strengthened and prices of oil and other commodities surged higher.As a result, during the spring of 2006, investors grew more concerned about inflation. These worries were exacerbated by hawkish comments by some Fed members, leading investors to conclude that the Fed might raise interest rates more than they had expected. Concerns regarding an overheated economy appeared to wane during the summer, however, when U.S. housing markets softened and employment gains moderated. As a result, investors looked forward to a possible end to the Fed's credit tightening campaign.The Fed obliged at its August meeting by holding the federal funds rate steady.

The growing U.S. economy benefited New Jersey's fiscal condition as tax receipts proved to be higher than originally projected. Although the process was contentious at times, the state adopted a relatively conservative budget for the 2007 fiscal year and made progress toward resolving its longer-term structural imbalances.

Yields of tax-exempt money market instruments generally rose along with interest rates. However, yields of shorter-dated municipal money market securities climbed more sharply than longer-dated securities, leaving little difference in the yields of tax-exempt securities with

maturities between six months and four years. Investors therefore focused mainly on instruments maturing in six months or less, which put downward pressure on yields at the short end of the maturity range.

Due to low yields from very short-term, floating-rate instruments, we generally focused on seasoned municipal notes and bonds maturing over six to nine months. We occasionally found opportunities with somewhat longer maturities, enabling us to construct a "laddered" portfolio of securities scheduled to mature at different times over the next nine to 10 months.This strategy is designed to help protect the fund's yield while ensuring that cash remains available for redemptions and new investments.

What is the fund's current strategy?

Despite signs of slower economic growth and the Fed's pause in August, short-term interest rates may move higher if inflation concerns persist. Accordingly, in an effort to balance the need to maintain flexibility with a desire to avoid the volatility and low yields of very short-term instruments, we have set the fund's weighted average maturity in a range we consider slightly longer than industry averages. In our judgment, this is a prudent strategy until current uncertainty regarding Fed policy is resolved.

September 15, 2006

An investment in the fund is not insured or guaranteed by the FDIC or any other government
agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the fund.
¹Effective yield is based upon dividends declared daily and reinvested monthly. Past performance is
no guarantee of future results.Yields fluctuate. Income may be subject to state and local taxes for
non-New Jersey residents, and some income may be subject to the federal alternative minimum tax
(AMT) for certain investors.Yields provided reflect the absorption of certain fund expenses by The
Dreyfus Corporation, pursuant to an agreement in effect until such time as shareholders are given
at least 90 days' notice to the contrary, and has committed to continue this agreement at least until
August 31, 2007. Had these expenses not been absorbed, the fund's yield would have been
2.56% and the fund's effective yield would have been 2.59%.

The Fund 5

UNDERSTANDING YOUR FUND'S EXPENSES (Unaudited)

Review your fund's expenses

The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus BASIC New Jersey Municipal Money Market Fund from March 1, 2006 to August 31, 2006. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended August 31, 2006


Expenses paid per $1,000 ^†		$ 2.29
Ending value (after expenses)		$1,015.40

COMPARING YOUR FUND's EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)

Using the SEC's method to compare expenses

Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended August 31, 2006


Expenses paid per $1,000 ^†		$ 2.29
Ending value (after expenses)		$1,022.94

^†Expenses are equal to the fund's annualized expense ratio of .45%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

STATEMENT OF INVESTMENTS
August 31, 2006

Short-Term	Coupon	Maturity	Principal
Investments—100.7%	Rate (%)	Date	Amount ($)	Value ($)

New Jersey—97.1%
Burlington Township,
GO Notes (Insured; XLCA)	3.75	2/15/07	340,000	340,452
Camden County Improvement
Authority, Health Care
Redevelopment Project Revenue
(Cooper Health System
Obligated Group Issue)
(LOC; Commerce Bank N.A.)	3.51	9/7/06	6,000,000 ^a	6,000,000
Cape May,
GO Notes, BAN	4.25	10/12/06	1,875,000	1,877,203
Cherry Hill Township,
GO Notes, BAN	4.00	11/3/06	4,900,000	4,900,000
Cumberland County,
GO Notes, Refunding
(Insured; MBIA)	4.50	9/15/06	130,000	130,040
Deptford Township,
GO Notes, BAN	4.50	7/20/07	1,000,000	1,005,087
East Brunswick Township,
GO Notes, BAN	4.00	10/11/06	1,000,000	1,001,009
Egg Harbor,
GO Notes, BAN	4.50	6/1/07	1,500,000	1,506,499
Fair Haven Borough,
GO Notes, BAN	4.50	2/20/07	1,000,000	1,004,551
Haddonfield,
GO Notes, BAN	4.30	10/13/06	1,000,000	1,000,938
High Bridge Borough,
BAN	4.50	7/27/07	1,272,700	1,278,539
Hopatcong Borough,
GO Notes, BAN	4.00	9/22/06	1,000,000	1,000,558
Hopewell Township,
GO Notes, BAN	3.75	10/17/06	1,000,000	1,000,305
Hudson County,
COP, Refunding (AGH Leasing, Inc.)
(Insured; MBIA)	6.00	12/1/06	115,000	115,729
Hunterdon County,
General Improvement GO	4.25	12/15/06	125,000	125,154
Irvington Township,
GO Notes, BAN	4.50	3/15/07	1,000,000	1,004,429
Jersey City,
GO Notes, School Refunding	6.00	10/1/06	300,000	300,509

The Fund 7

STATEMENT OF INVESTMENTS (continued)

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

New Jersey (continued)
Lenape Regional High School
District Board of Education,
GO Notes (Insured; FGIC)	5.00	4/1/07	140,000	140,905
Mercer County Improvement
Authority, Revenue (Children's
Home Society Project)
(LOC; Wachovia Bank)	3.47	9/7/06	935,000 ^a	935,000
Middlesex County,
GO Notes	4.00	1/1/07	100,000	100,075
Monmouth County Improvement
Authority, Capital Equipment
Pooled LR	4.50	10/1/06	200,000	200,109
Morris Plains School District,
Temporary Notes	4.50	5/2/07	1,025,000	1,028,772
Mount Laurel Township,
GO Notes, BAN	4.38	11/3/06	1,000,000	1,001,629
New Jersey,
GO Notes (Liquidity Facility;
JPMorgan Chase Bank)	3.50	9/7/06	2,400,000 ^a,b	2,400,000
New Jersey Economic Development
Authority, EDR (AJV Holdings
LLC Project) (LOC; JPMorgan
Chase Bank)	3.85	9/7/06	675,000 ^a	675,000
New Jersey Economic Development
Authority, EDR (ARND LLC
Project) (LOC; Comerica Bank)	3.56	9/7/06	3,500,000 ^a	3,500,000
New Jersey Economic Development
Authority, EDR (Challenge
Printing Project)
(LOC; Wachovia Bank)	3.52	9/7/06	1,225,000 ^a	1,225,000
New Jersey Economic Development
Authority, EDR (Hathaway
Association LLC Project)
(LOC; Wachovia Bank)	3.52	9/7/06	2,115,000 ^a	2,115,000
New Jersey Economic Development
Authority, EDR (Park Lane
Associates Project) (LOC;
Wachovia Bank)	3.52	9/7/06	540,000 ^a	540,000

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

New Jersey (continued)
New Jersey Economic Development
Authority, EDR (Parke Place
Associates Project) (LOC;
Commerce Bank N.A.)	3.73	9/7/06	5,900,000 ^a	5,900,000
New Jersey Economic Development
Authority, EDR (RCC Properties
LLC Project) (LOC; Wachovia Bank)	3.52	9/7/06	1,845,000 ^a	1,845,000
New Jersey Economic Development
Authority, EDR (Saint Peters
Preparatory School)
(LOC; Wachovia Bank)	3.47	9/7/06	940,000 ^a	940,000
New Jersey Economic Development
Authority, EDR (Stamato Realty
LLC Project) (LOC; Comerica Bank)	3.49	9/7/06	3,215,000 ^a	3,215,000
New Jersey Economic Development
Authority, EDR (United Window
and Door Manufacturing Inc.)
(LOC; Wachovia Bank)	3.52	9/7/06	335,000 ^a	335,000
New Jersey Economic Development
Authority, EDR (Wearbest
Sil-Tex Mills Project) (LOC;
The Bank of New York)	3.53	9/7/06	1,405,000 ^a	1,405,000
New Jersey Economic Development
Authority, EDR, Refunding (New
Jersey Foreign Trade Zone
Venture Project) (LOC; The
Bank of New York)	3.60	9/1/06	1,600,000 ^a	1,600,000
New Jersey Economic Development
Authority, EDR, Refunding (RDR
Investment Company LLC)
(LOC; Wachovia Bank)	3.52	9/7/06	500,000 ^a	500,000
New Jersey Economic Development
Authority, First Mortgage
Revenue (Crane's Mill Project)	7.38	2/1/07	120,000 ^c	124,284
New Jersey Economic Development
Authority, IDR (CST Products,
LLC Project) (LOC; National
Bank of Canada)	3.53	9/7/06	3,000,000 ^a	3,000,000

The Fund 9

STATEMENT OF INVESTMENTS (continued)

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

New Jersey (continued)
New Jersey Economic Development
Authority, IDR (Pennwell
Holdings LLC Project)
(LOC; Wachovia Bank)	3.52	9/7/06	2,610,000 ^a	2,610,000
New Jersey Economic Development
Authority, Revenue (Four
Woodbury Mews Project)
(LOC; Bank of America)	3.69	9/7/06	5,000,000 ^a	5,000,000
New Jersey Economic Development
Authority, Revenue (Joseph H.
Moreng, Jr. and James Moreng
Leasing Partnership)
(LOC; Wachovia Bank)	3.47	9/7/06	1,200,000 ^a	1,200,000
New Jersey Economic Development
Authority, Revenue (Melrich
Road Development Company, LLC
Project) (LOC; Wachovia Bank)	3.52	9/7/06	2,370,000 ^a	2,370,000
New Jersey Economic Development
Authority, Revenue (Oak Hill
Academy Project)
(LOC; Wachovia Bank)	3.47	9/7/06	1,980,000 ^a	1,980,000
New Jersey Economic Development
Authority, Revenue, Refunding
(Station Plaza Park and Ride, L.P.
Project) (LOC; Wachovia Bank)	3.47	9/7/06	2,700,000 ^a	2,700,000
New Jersey Economic Development
Authority, School Facilities
Construction Revenue	5.00	9/1/06	765,000	765,000
New Jersey Economic Development
Authority, School Revenue (The
Peddie School Project)	4.00	2/1/07	200,000	200,118
New Jersey Economic Development
Authority, Thermal Energy
Facilites Revenue (Thermal
Energy Limited Partnership I
Project) (LOC; Bank One)	3.47	9/7/06	2,500,000 ^a	2,500,000
New Jersey Educational Facilities
Authority, Dormitory Safety
Trust Fund Revenue	5.00	3/1/07	250,000	251,444

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

New Jersey (continued)
New Jersey Educational Facilities
Authority, Revenue (Higher
Education Capital Improvement
Fund Issue)	5.00	9/1/06	350,000	350,000
New Jersey Educational Facilities
Authority, Revenue, Refunding
(Higher Education Facilities
Trust Fund)	4.00	9/1/06	625,000	625,000
New Jersey Environmental
Infrastructure Trust, Environmental
Infrastructure Bonds	4.50	9/1/06	240,000	240,000
New Jersey Environmental
Infrastructure Trust, Environmental
Infrastructure Bonds	5.00	9/1/06	745,000	745,000
New Jersey Housing and Mortgage
Finance Agency, SFHR
(Liquidity Facility; Dexia
Credit Locale)	3.47	9/7/06	525,000 ^a	525,000
New Jersey Housing and Mortgage
Finance Agency, SFHR
(Liquidity Facility; Dexia
Credit Locale)	3.47	9/7/06	5,165,000 ^a	5,165,000
New Jersey Transportation Trust
Fund Authority (Putters
Program) (Transportation
System) (Insured; FSA and
Liquidity Facility; JPMorgan
Chase Bank)	3.45	9/7/06	3,500,000 ^a,b	3,500,000
New Jersey Transportation Trust
Fund Authority (Transportation
System) (Insured; FGIC)	5.00	12/15/06	250,000	250,804
New Jersey Turnpike Authority,
Turnpike Revenue (Putters
Program) (Insured; MBIA and
Liquidity Facility; JPMorgan
Chase Bank)	3.62	9/7/06	600,000 ^a,b	600,000
Newark, School Qualified Bond Act,
GO Notes (Insured; MBIA)	5.30	9/1/06	410,000	410,000

The Fund 11

STATEMENT OF INVESTMENTS (continued)

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

New Jersey (continued)
Newark Housing Authority,
MFHR (Liquidity Facility;
Merrill Lynch)	3.54	9/7/06	943,000 ^a,b	943,000
North Brunswick Township,
GO Notes, BAN	4.00	11/14/06	150,000	150,042
North Caldwell Borough Board of
Education, GO Notes (Insured; FSA)	3.75	1/16/07	310,000	310,000
Oceanport,
GO Notes, BAN	4.50	5/31/07	572,700	575,169
Port Authority of New York and New
Jersey (Consolidated Bonds,
88th Series)	4.63	10/1/06	325,000	325,241
Port Authority of New York and New
Jersey (Consolidated Bonds,
103th Series) (Insured; MBIA)	4.90	12/15/06	200,000	200,630
Port Authority of New York and New
Jersey (Consolidated Bonds,
126th Series) (Insured; FGIC)	5.00	11/15/06	100,000	100,199
Port Authority of New York and New
Jersey (Consolidated Bonds,
139th Series) (Insured; FGIC)	4.50	10/1/06	305,000	305,191
Port Authority of New York and New
Jersey (Consolidated Bonds,
139th Series) (Insured; FGIC
and Liquidity Facility; Dexia
Credit Locale)	3.46	9/7/06	1,740,000 ^a,b	1,740,000
Port Authority of New York and New
Jersey, Special Obligation
Revenue (Versatile Structure
Obligation) (Liquidity
Facility; Bank of Nova Scotia)	3.60	9/1/06	1,300,000 ^a	1,300,000
Port Authority of New York and New
Jersey, Transit Revenue
(Putters Program) (Insured;
CIFG and Liquidity Facility;
JPMorgan Chase Bank)	3.48	9/7/06	1,755,000 ^a,b	1,755,000
Raritan Township,
GO Notes, BAN	4.00	9/8/06	1,000,000	1,000,184
Stafford Township,
GO Notes, BAN	4.50	12/20/06	1,000,000	1,003,058

Short-Term	Coupon	Maturity	Principal
Investments (continued)	Rate (%)	Date	Amount ($)	Value ($)

New Jersey (continued)
Sussex County Municipal Utilities
Authority, Project Notes	4.50	12/29/06	1,000,000	1,003,306
Tobacco Settlement Financing
Corporation of New Jersey,
Tobacco Settlement
Asset-Backed Bonds (Liquidity
Facility; Merrill Lynch)	3.46	9/7/06	6,250,000 ^a,b	6,250,000
Tobacco Settlement Financing
Corporation of New Jersey,
Tobacco Settlement
Asset-Backed Bonds (Liquidity
Facility; Merrill Lynch)	3.48	9/7/06	4,995,000 ^a,b	4,995,000
Toms River Board of Education,
GO Notes	4.35	11/22/06	1,000,000	1,001,947
Wanaque Borough,
GO Notes, BAN	4.50	2/16/07	541,700	544,350
U.S. Related—3.6%
Puerto Rico Commonwealth,
Public Improvement (Insured;
Assured Guaranty and Liquidity
Facility; Morgan Stanley Bank)	3.44	9/7/06	3,300,000 ^a,b	3,300,000
Puerto Rico Industrial Tourist
Educational Medical and
Enviromental Control Facilities
Financing Authority, Environmental
Control Facilities Revenue (Bristol-
Myers Squibb Company Project)	3.46	9/7/06	900,000 ^a	900,000


Total Investments (cost $116,006,459)			100.7%	116,006,459

Liabilities, Less Cash and Receivables			(.7%)	(815,782)

Net Assets			100.0%	115,190,677

^aSecurities payable on demand.Variable interest rate—subject to periodic change.
^bSecurities exempt from registration under Rule 144A of the Securities Act of 1933.These securities may be resold in
transactions exempt from registration, normally to qualified institutional buyers. At August 31, 2006, these securities
amounted to $25,483,000 or 22.1% of net assets.
^cThese securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are
collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on
the municipal issue and to retire the bonds in full at the earliest refunding date.

The Fund 13

STATEMENT OF INVESTMENTS (continued)

Summary of Combined Ratings (Unaudited)

Fitch	or	Moody's	or	Standard & Poor's	Value (%) ^†

F1+,F1		VMIG1,MIG1,P1		SP1+,SP1,A1+,A1	46.1
AAA,AA,A ^d		Aaa,Aa,A ^d		AAA,AA,A ^d	8.8
Not Rated ^e		Not Rated ^e		Not Rated ^e	45.1
					100.0

^†Based on total investments.
^dNotes which are not F, MIG and SP rated are represented by bond ratings of the issuers.
^eSecurities which, while not rated by Fitch, Moody's and Standard & Poor's, have been determined by the Manager to
be of comparable quality to those rated securities in which the fund may invest.
See notes to financial statements.

The Fund 15

STATEMENT OF ASSETS AND LIABILITIES
August 31, 2006

	Cost	Value

Assets ($):
Investments in securities-See Statement of Investments	116,006,459	116,006,459
Cash		263,302
Interest receivable		1,107,634
Prepaid expenses		4,341
		117,381,736

Liabilities ($):
Due to The Dreyfus Corporation and affiliates—Note 2(b)		34,484
Payable for investment securities purchased		2,103,237
Payable for shares of Common Stock redeemed		21
Accrued expenses		53,317
		2,191,059

Net Assets ($)		115,190,677

Composition of Net Assets ($):
Paid-in capital		115,190,677

Net Assets ($)		115,190,677

Shares Outstanding
(1 billion shares of $.001 par value Common Stock authorized)		115,190,677
Net Asset Value, offering and redemption price per share ($)		1.00

See notes to financial statements.

STATEMENT OF OPERATIONS
Year Ended August 31, 2006

Investment Income ($):
Interest Income		3,539,087
Expenses:
Management fee—Note 2(a)		552,703
Shareholder servicing costs—Note 2(b)		66,961
Auditing fees		35,954
Custodian fees		14,774
Registration fees		8,623
Legal fees		7,957
Directors' fees and expenses—Note 2(c)		6,478
Prospectus and shareholders' reports		1,763
Miscellaneous		17,628
Total Expenses		712,841
Less—reduction in management fee
due to undertaking—Note 2(a)		(215,408)
Net Expenses		497,433
Investment Income—Net		3,041,654

Realized and Unrealized Gain (Loss) on Investments—Note 1(b) ($):
Net realized gain (loss) on investments		2,527
Net unrealized appreciation (depreciation) on investments		(1,142)
Net Realized and Unrealized Gain (Loss) on Investments		1,385
Net Increase in Net Assets Resulting from Operations		3,043,039

See notes to financial statements.

The Fund 17

STATEMENT OF CHANGES IN NET ASSETS

	Year Ended August 31,

	2006	2005

Operations ($):
Investment income—net	3,041,654	1,940,439
Net realized gain (loss) on investments	2,527	628
Net unrealized appreciation
(depreciation) on investments	(1,142)	1,142
Net Increase (Decrease) in Net Assets
Resulting from Operations	3,043,039	1,942,209

Dividends to Shareholders from ($):
Investment income—net	(3,041,654)	(1,940,439)

Capital Stock Transactions ($1.00 per share):
Net proceeds from shares sold	49,938,990	60,360,669
Dividends reinvested	2,940,824	1,887,240
Cost of shares redeemed	(48,032,315)	(88,016,169)
Increase (Decrease) in Net Assets from
Capital Stock Transactions	4,847,499	(25,768,260)
Total Increase (Decrease) in Net Assets	4,848,884	(25,766,490)

Net Assets ($):
Beginning of Period	110,341,793	136,108,283
End of Period	115,190,677	110,341,793

See notes to financial statements.

FINANCIAL HIGHLIGHTS

		Year Ended August 31,

	2006	2005	2004	2003	2002

Per Share Data ($):
Net asset value, beginning of period	1.00	1.00	1.00	1.00	1.00
Investment Operations:
Investment income—net	.027	.016	.007	.009	.014
Distributions:
Dividends from investment income—net	(.027)	(.016)	(.007)	(.009)	(.014)
Net asset value, end of period	1.00	1.00	1.00	1.00	1.00

Total Return (%)	2.78	1.59	.71	.89	1.46

Ratios/Supplemental Data (%):
Ratio of total expenses
to average net assets	.64	.64	.63	.63	.62
Ratio of net expenses
to average net assets	.45	.45	.44	.45	.45
Ratio of net investment income
to average net assets	2.75	1.57	.70	.87	1.45

Net Assets, end of period ($ x 1,000)	115,191	110,342	136,108	142,099	124,846

See notes to financial statements.

The Fund 19

NOTES TO FINANCIAL STATEMENTS

NOTE 1—Significant Accounting Policies:

Dreyfus BASIC New Jersey Municipal Money Market Fund (the "fund") is a separate non-diversified series of Dreyfus Municipal Funds, Inc. (the "Company") which is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company and operates as a series company currently offering five series including the fund. The fund's investment objective is to provide investors with as high a level of current income exempt from federal and New Jersey state income taxes as is consistent with the preservation of capital and the maintenance of liquidity.The Dreyfus Corporation (the "Manager" or "Dreyfus") serves as the fund's investment adviser. The Manager is a wholly-owned subsidiary of Mellon Financial Corporation ("Mellon Financial"). Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of the Manager, is the distributor of the fund's shares, which are sold without a sales charge.

It is the fund's policy to maintain a continuous net asset value per share of $1.00; 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 per share of $1.00.

The fund has an arrangement with the custodian bank whereby the fund receives earnings credits, if any, from the custodian when positive cash balances are maintained, which are used to offset custody fees. For financial reporting purposes, the fund includes net earnings credits, if any, as an expense offset in the Statement of Operations.

The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.

The Fund 21

NOTES TO FINANCIAL STATEMENTS (continued)

On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority.Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined.

At August 31, 2006, the components of accumulated earnings on a tax basis were substantially the same as for financial reporting purposes.

The tax character of distributions paid to shareholders during the fiscal periods ended August 31, 2006 and August 31, 2005, were all tax exempt income.

At August 31, 2006, 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—Management Fee and Other Transactions With Affiliates:

.45% of the value of the fund's average daily net assets.The Manager has committed to continue this undertaking at least until August 31, 2007. The reduction in management fee, pursuant to the undertaking, amounted to $215,408 during the period ended August 31, 2006.

(b) Under the Shareholder Services Plan, the fund reimburses the Distributor an amount not to exceed an annual rate of .25% of the value of the fund's average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended August 31, 2006 the fund was charged $52,268 pursuant to the Shareholder Services Plan.

During the period ended August 31, 2006, the fund was charged $4,313 for services performed by the Chief Compliance Officer.

The components of Due to The Dreyfus Corporation and affiliates in the Statement of Assets and Liabilities consist of: management fees $49,130, chief compliance officer fees $1,895 and transfer agency per account fees $1,387, which are offset against an expense reimbursement currently in effect in the amount of $17,928.

(c) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.

The Fund 23

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Dreyfus BASIC New Jersey Municipal Money Market Fund

We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Dreyfus BASIC New Jersey Municipal Money Market Fund (one of the funds comprising Dreyfus Municipal Funds, Inc.), as of August 31, 2006, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the years indicated therein.These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).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.We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2006 by correspondence with the custodian and others or by appropriate auditing procedures where replies from others were not received.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Dreyfus BASIC New Jersey Municipal Money Market Fund at August 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated years, in conformity with U.S. generally accepted accounting principles.

New York, New York
October 9, 2006

IMPORTANT TAX INFORMATION (Unaudited)

The Fund 25

INFORMATION ABOUT THE REVIEW AND APPROVAL
OF THE FUND's MANAGEMENT AGREEMENT (Unaudited)

Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board members received a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and discussed the nature, extent, and quality of the services provided to the fund pursuant to its Management Agreement.The Manager's representatives reviewed the fund's distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each. The Manager's representatives noted the diversity of distribution of the fund as well as among the funds in the Dreyfus fund complex, and the Manager's corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each of the fund's distribution channels.The Board also reviewed the number of shareholder accounts in the fund, as well as the fund's asset size.

The Board reviewed the results of the Expense Group and Expense Universe comparisons for various periods ended February 28, 2006. The Board reviewed the range of management fees and expense ratios of the funds in the Expense Group and Expense Universe, and noted that the fund's contractual and actual management fees were at and below the Expense Group medians, respectively.The Board also noted that the fund's total expense ratio was in the first quintile among its Expense Group and Expense Universe (the first quintile reflecting the ranking group with the lowest expense ratios).

Representatives of the Manager reviewed with the Board members the fee paid to the Manager or its affiliates by the one mutual fund managed by the Manager or its affiliates reported in the same Lipper category as the fund (the "Similar Fund"), and explained the nature of the Similar Fund and any differences, from the Manager's perspective, in providing services to the Similar Fund as compared to the fund.The Manager's representatives also reviewed the costs associated with distribution through intermediaries.The Board discussed the relationship of the management fees paid in light of the Manager's performance, and the services pro-

The Fund 27

INFORMATION ABOUT THE REVIEW AND APPROVAL OF T H E
F U N D 's M A N A G E M E N T A G R E E M E N T ( U n a u d i t e d ) (continued)

vided.The Board members considered the relevance of the fee information provided for the Similar Fund, to evaluate the appropriateness and reasonableness of the fund's management fee.The Board noted that the Similar Fund had the same contractual management fee rate as the fund.

The Board concluded that the nature, extent, and quality of the services provided by the Manager are adequate and appropriate.
The Board was satisfied with the fund's performance.
The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative performance and expense and advisory fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in connection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.

The Fund 29

BOARD MEMBERS INFORMATION (Unaudited)

Joseph S. DiMartino (62)

Chairman of the Board (1995)

Principal Occupation During Past 5 Years:

• Corporate Director and Trustee

Other Board Memberships and Affiliations:

• The Muscular Dystrophy Association, Director

• Levcor International, Inc., an apparel fabric processor, Director

• Century Business Services, Inc., a provider of outsourcing functions for small and medium size

companies, Director

• The Newark Group, a provider of a national market of paper recovery facilities, paperboard

mills and paperboard converting plants, Director

• Sunair Services Corporation, engaging in the design, manufacture and sale of high frequency

systems for long-range voice and data communications, as well as

providing certain outdoor-related services to homes and businesses, Director