Dreyfus
Municipal Income, Inc.
ANNUAL REPORT September 30, 2002
DREYFUS MUNICIPAL INCOME, INC.
PROTECTING YOUR PRIVACY
OUR PLEDGE TO YOU
THE FUND IS COMMITTED TO YOUR PRIVACY. On this page, you will find the Fund's
policies and practices for collecting, disclosing, and safeguarding "nonpublic
personal information," which may include financial or other customer
information. These policies apply to individuals who purchase Fund shares for
personal, family, or household purposes, or have done so in the past. This
notification replaces all previous statements of the Fund's consumer privacy
policy, and may be amended at any time. We'll keep you informed of changes as
required by law.
YOUR ACCOUNT IS PROVIDED IN A SECURE ENVIRONMENT. The Fund maintains physical,
electronic and procedural safeguards that comply with federal regulations to
guard nonpublic personal information. The Fund's agents and service providers
have limited access to customer information based on their role in servicing
your account.
THE FUND COLLECTS INFORMATION IN ORDER TO SERVICE AND ADMINISTER YOUR ACCOUNT.
The Fund collects a variety of nonpublic personal information, which may
include:
* Information we receive from you, such as your name, address, and social
security number.
* Information about your transactions with us, such as the purchase or sale
of Fund shares.
* Information we receive from agents and service providers, such as proxy
voting information.
THE FUND DOES NOT SHARE NONPUBLIC PERSONAL INFORMATION WITH ANYONE, EXCEPT AS
PERMITTED BY LAW.
THANK YOU FOR THIS OPPORTUNITY TO SERVE YOU.
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 Selected Information
7 Statement of Investments
14 Statement of Assets and Liabilities
15 Statement of Operations
16 Statement of Changes in Net Assets
17 Financial Highlights
18 Notes to Financial Statements
24 Report of Independent Auditors
25 Additional Information
28 Important Tax Information
29 Proxy Results
30 Board Members Information
32 Officers of the Fund
33 Officers and Directors
FOR MORE INFORMATION
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Back Cover
The Fund
Dreyfus
Municipal Income, Inc.
LETTER FROM THE CHAIRMAN
Dear Shareholder:
We present this annual report for Dreyfus Municipal Income, Inc., covering the
12-month period from October 1, 2001 through September 30, 2002. Inside, you'll
find valuable information about how the fund was managed during the reporting
period, including a discussion with the fund's portfolio manager, Joseph Darcy.
As a falling stock market dominated the financial headlines during the reporting
period, bonds generally produced relatively attractive returns. Prices of bonds
that are more interest-rate sensitive, such as high quality municipal
securities, rallied as investors revised their expectations of the direction and
timing of future interest-rate changes. On the other hand, the war on terrorism,
instability in the Middle East and new disclosures of questionable accounting
practices among U.S. corporations generally hurt securities that are more credit
sensitive, such as lower rated bonds.
Although negative investor sentiment has created a challenging market
environment over the near term, we believe that the most critical issue for
long-term performance is not investor psychology, but whether the economy and
corporate profits achieve a sustainable uptrend. We have recently seen a number
of positive fundamental factors suggesting that a moderate, if uneven, expansion
of economic activity is likely.
If you have questions or are worried about current market conditions, we
encourage you to talk with your financial advisor who can help you view current
events from the perspective of long-term market trends. In the meantime, we at
The Dreyfus Corporation intend to continue basing our investment decisions on an
objective, long-term view of the financial markets.
Thank you for your continued confidence and support.
Sincerely,
/s/ Stephen E. Canter
Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
October 15, 2002
2
DISCUSSION OF FUND PERFORMANCE
Joseph Darcy, Portfolio Manager
How did Dreyfus Municipal Income, Inc. perform during the period?
For the 12-month period ended September 30, 2002, the fund achieved a total
return of 7.73%.(1) Over the same period, the fund provided income dividends of
$0.5640 per share, which is equal to a distribution rate of 5.88%.(2)
We attribute the fund's generally strong performance during the reporting period
to declining interest rates, a weak economic recovery and surging investor
demand for high quality, tax-exempt bonds.
What is the fund's investment approach?
The fund seeks to maximize current income exempt from federal income tax to the
extent consistent with the preservation of capital from a portfolio that, under
normal market conditions, invests at least 80% of the value of its net assets in
municipal obligations. Under normal market conditions, the fund invests in
municipal obligations which, at the time of purchase, are rated investment grade
or the unrated equivalent as determined by Dreyfus in the case of bonds, and
rated in the two highest rating categories or the unrated equivalent as
determined by Dreyfus in the case of short-term obligations having, or deemed to
have, maturities of less than one year.
We generally employ two primary strategies. First, we attempt to add value by
evaluating interest-rate trends and supply-and-demand factors. Based on that
assessment, we look for bonds that we believe can potentially provide high
current levels of income. We look at such criteria as the bond's yield, price,
age, the creditworthiness of its issuer and any provisions for early redemption
Second, we actively manage the fund's average duration -- a measure of
sensitivity to changes in interest rates -- in anticipation of temporary
supply-and-demand changes. For example, if we expect the sup-
The Fund 3
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
ply of newly issued bonds to increase temporarily, we may reduce the fund's
average duration to make cash available for the purchase of what we believe can
potentially be higher yielding securities. Conversely, if we expect demand for
municipal bonds to surge at a time when we anticipate little issuance, we may
increase the fund's average duration to maintain then current yields for as long
as we deem appropriate.
When bonds held by the fund mature or are redeemed by their issuers, we
generally attempt to replace them with newly issued comparable securities. We
also may look to upgrade the portfolio investments, when we deem appropriate,
with newly issued bonds that, in our opinion, have better structural or income
characteristics than existing holdings.
What other factors influenced the fund's performance?
When the reporting period began, the 2001 recession had just been intensified by
the September 11 terrorist attacks. In an attempt to stimulate renewed economic
growth, the Federal Reserve Board continued to reduce short-term interest rates
aggressively. Although lower interest rates effectively spurred consumer
borrowing and spending, corporations continued to cancel or postpone their
capital spending plans, and the 2002 economic recovery proved to be weaker than
most investors expected.
In this declining interest-rate environment, municipal bonds posted highly
competitive returns. Tax-exempt bond prices were further supported by surging
demand from investors who flocked to municipal bonds as an alternative to a
volatile stock market.
The combination of a faltering U.S. economy and low interest rates caused the
national supply of newly issued municipal bonds to rise sharply compared to the
same period one year earlier. States and municipalities took advantage of
historically low borrowing costs, and tax-revenue shortfalls caused many to
issue securities in order to bridge budget gaps. While a rising supply of
securities usually leads to higher yields, robust investor demand easily
absorbed the additional issuance, and yields remained low.
In this market environment, we continued our efforts to seek investment
opportunities consistent with the fund's investment objective and man
4
agement policies. For example, many states have issued bonds backed by
litigation settlements with the nation's tobacco companies, and these so-called
"tobacco bonds" have featured relatively attractive yields.
Because the 2001 recession adversely affected tax revenues, we have attempted to
reduce the fund's holdings of tax-exempt bonds issued on behalf of corporations.
However, the fund's existing holdings of airline and airport bonds continued to
languish after being hard-hit by the September 11 terrorist attacks. In view of
the rapid decline in the value of these securities after these tragic events, it
has made little economic sense to us at this time to liquidate them. In the
meantime, these bonds have continued to pay what we view as competitive levels
of federally tax-exempt income.
Finally, despite the reporting period' s low interest rates, we were able to
increase the fund's dividend distribution rate during the reporting period.
That's because we locked in low rates on the fund's auction-rate preferred
shares, which were first issued several years ago to provide the leverage
required to enhance the fund's income stream. By extending the maturities of the
fund's auction-rate preferred shares to as much as one year, we have effectively
locked in today's historically low borrowing costs.
What is the fund's current strategy?
The fund has remained fully invested in tax-exempt bonds, using auction-rate
preferred shares to maintain a competitive income stream in today's low
interest-rate environment. At the same time, we have continued to maintain a
cautious posture, focusing on income and credit quality in an uncertain economic
and market climate.
October 15, 2002
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID,
BASED UPON NET ASSET VALUE PER SHARE. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. MARKET PRICE PER SHARE, NET ASSET VALUE PER SHARE AND
INVESTMENT RETURN 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. CAPITAL GAINS, IF ANY, ARE FULLY TAXABLE.
(2) DISTRIBUTION RATE PER SHARE IS BASED UPON DIVIDENDS PER SHARE PAID FROM NET
INVESTMENT INCOME DURING THE PERIOD, DIVIDED BY THE MARKET PRICE PER SHARE
AT THE END OF THE PERIOD.
The Fund 5
SELECTED INFORMATION
September 30, 2002 (Unaudited)
Market Price per share September 30, 2002 $ 9.60
Shares Outstanding September 30, 2002 20,382,927
American Stock Exchange Ticker Symbol DMF
MARKET PRICE (AMERICAN STOCK EXCHANGE)
Fiscal Year Ended September 30, 2002
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QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
DECEMBER 31, 2002 MARCH 31, 2002 JUNE 30, 2002 SEPTEMBER 30, 2002
-----------------------------------------------------------------------------------------------------------
High $9.03 $9.02 $9.25 $9.60
Low 8.35 8.41 8.48 8.85
Close 8.62 8.62 9.22 9.60
PERCENTAGE GAIN based on change in Market Price*
October 24, 1988 (commencement of operations)
through September 30, 2002 149.20%
October 1, 1992 through September 30, 2002 78.64
October 1, 1997 through September 30, 2002 26.80
October 1, 2001 through September 30, 2002 17.28
January 1, 2002 through September 30, 2002 16.74
April 1, 2002 through September 30, 2002 15.02
July 1, 2002 through September 30, 2002 5.79
NET ASSET VALUE PER SHARE
October 24, 1988 (commencement of operations) $ 9.26
September 30, 2001 9.66
December 31, 2001 9.39
March 31, 2002 9.33
June 30, 2002 9.52
September 30, 2002 9.78
PERCENTAGE GAIN based on change in Net Asset Value*
October 24, 1988 (commencement of operations)
through September 30, 2002 174.16%
October 1, 1992 through September 30, 2002 89.96
October 1, 1997 through September 30, 2002 40.34
October 1, 2001 through September 30, 2002 7.73
January 1, 2002 through September 30, 2002 9.18
April 1, 2002 through September 30, 2002 8.26
July 1, 2002 through September 30, 2002 4.38
* WITH DIVIDENDS REINVESTED.
6
STATEMENT OF INVESTMENTS
September 30, 2002
Principal
LONG-TERM MUNICIPAL INVESTMENTS--145.9% Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
ALABAMA--8.0%
Courtland Industrial Development Board, SWDR
(Champion International Corp. Project) 6.50%, 9/1/2025 2,500,000 2,612,900
Jefferson County, Sewer Revenue, Capital Improvement
5.75%, 2/1/2038 (Insured; FGIC) 7,500,000 8,301,675
The Board of Trustees of the University of Alabama, HR
(University of Alabama at Birmingham)
5.875%, 9/1/2031 (Insured; MBIA) 4,620,000 5,122,055
ALASKA--5.0%
Alaska Housing Finance Corp., General Mortgage Revenue
6.05%, 6/1/2039 (Insured; MBIA) 7,000,000 7,440,090
Valdez, Marine Terminal Revenue
(British Petroleum Pipeline Inc. Project)
5.50%, 10/1/2028 2,375,000 2,424,163
CALIFORNIA--8.8%
Abag Financial Authority For Nonprofit Corporations:
Insured Revenue, COP
(Odd Fellows Home of California) 6%, 8/15/2024 5,000,000 5,416,350
MFHR (Civic Center Drive Apartments)
5.875%, 9/1/2032 (Insured; FSA) 3,750,000 3,987,075
California Health Facilities Financing Authority,
Revenue (Sutter Health)
6.25%, 8/15/2035 2,500,000 2,795,150
California Statewide Communities Development
Authority, COP (Catholic Healthcare West)
6.50%, 7/1/2020 5,000,000 5,401,950
COLORADO--3.6%
Colorado Springs, HR 6.375%, 12/15/2030 5,725,000 6,161,131
City and County of Denver, Airport Revenue
(Special Facilities-United Airlines Inc. Project)
6.875%, 10/1/2032 2,480,000 1,041,575
DISTRICT OF COLUMBIA--3.7%
District of Columbia, Revenue
(Catholic University America Project)
5.625%, 10/1/2029 (Insured; AMBAC) 2,080,000 2,240,306
District of Columbia Tobacco Settlement
Financing Corp., Tobacco Settlement
Asset-Backed Bonds 6.75%, 5/15/2040 5,000,000 5,176,450
The Fund 7
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
FLORIDA--4.0%
Orange County Health Facilities Authority, Revenue
(Orlando Regional Healthcare System)
6%, 10/1/2026 1,500,000 1,574,295
Pinellas County Housing Finance Authority,
SFMR (Multi-County Program)
6.70%, 2/1/2028 3,635,000 3,818,458
South Lake County Hospital District, Revenue
(South Lake Hospital Inc.) 5.80%, 10/1/2034 2,500,000 2,563,800
GEORGIA--3.0%
Private Colleges and Universities Facilities Authority,
Revenue (Clark Atlanta University Project)
8.25%, 1/1/2015 (Prerefunded 1/1/2003) 5,660,000 (a) 6,037,182
ILLINOIS--11.3%
Chicago 6.125%, 1/1/2028 (Insured; FGIC) 4,000,000 4,659,320
Chicago-O'Hare International Airport, Special Facility
Revenue (American Airlines Inc. Project)
8.20%, 12/1/2024 1,000,000 450,810
Illinois Development Finance Authority, Revenue
(Community Rehabilitation Providers
Facilities Acquisition Program):
8.75%, 3/1/2010 95,000 95,948
5.50%, 7/1/2012 1,405,000 1,421,214
Illinois Health Facilities Authority, Revenue:
(Advocate Health Care Network) 6.125%, 11/15/2022 5,800,000 6,281,226
(OSF Healthcare System) 6.25%, 11/15/2029 7,000,000 7,410,340
(Swedish American Hospital) 6.875%, 11/15/2030 2,000,000 2,188,980
INDIANA--1.5%
Franklin Township School Building Corp.
(Marion County) First Mortgage
6.125%, 1/15/2022 (Prerefunded 7/15/2010) 2,500,000 (a) 3,058,150
KENTUCKY--1.8%
Perry County, SWDR (TJ International Project)
7%, 6/1/2024 3,500,000 3,672,305
MARYLAND--4.2%
Maryland Health and Higher Educational Facilities
Authority, Revenue (The John Hopkins University Issue)
6%, 7/1/2039 (Prerefunded 7/1/2009) 7,000,000 (a) 8,391,320
MASSACHUSETTS--4.3%
Massachusetts Health and Educational Facilities Authority,
Revenue Healthcare System (Covenant Health)
6%, 7/1/2031 2,500,000 2,608,925
8
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS (CONTINUED)
Massachusetts Industrial Finance Agency, Revenue
(Water Treatment-American Hingham)
6.95%, 12/1/2035 5,640,000 5,875,752
MICHIGAN--8.3%
Hancock Hospital Finance Authority, Mortgage Revenue
(Portgage Health) 5.45%, 8/1/2047 (Insured; MBIA) 2,200,000 2,289,716
Michigan Hospital Finance Authority, HR
(Genesys Health System Obligated Group)
8.125%, 10/1/2021 (Prerefunded 10/1/2005) 7,670,000 (a) 9,230,998
Michigan Strategic Fund, SWDR
(Genesee Power Station Project)
7.50%, 1/1/2021 5,000,000 4,954,100
MINNESOTA--1.4%
Minnesota Agricultural and Economic Development
Board, Health Care System Revenue
(Fairview Health Services) 6.375%, 11/15/2029 2,500,000 2,718,475
MISSISSIPPI--2.8%
Mississippi Business Finance Corp., PCR
(System Energy Resource Inc. Project)
5.875%, 4/1/2022 6,000,000 5,611,380
MISSOURI--4.4%
Health and Educational Facilities
Authority of the State of Missouri,
Health Facilities Revenue
(Saint Anthony's Medical Center)
6.25%, 12/1/2030 2,500,000 2,684,600
The Industrial Development Authority of the
City of Saint Louis, Senior Lien Revenue
(Saint Louis Convention Center
Headquarters Hotel Project):
7.20%, 12/15/2028 1,500,000 1,508,805
7.25%, 12/15/2035 3,000,000 3,022,320
Missouri Housing Development Commission,
Mortgage Revenue
(Single Family--Homeownersip Loan)
6.30%, 9/1/2025 1,540,000 1,637,682
NEVADA--6.5%
Clark County, IDR (Southwest Gas Corp.):
7.50%, 9/1/2032 3,000,000 3,063,240
6.50%, 12/1/2033 5,300,000 5,349,078
6.10%, 12/1/2038 (Insured; AMBAC) 4,000,000 4,626,080
The Fund 9
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
NEW MEXICO--1.6%
Farmington, PCR (Public Service Co. San Juan)
6.30%, 12/1/2016 3,000,000 3,094,590
NORTH CAROLINA--1.3%
North Carolina Housing Finance Agency
(Home Ownership)
6.25%, 1/1/2029 2,485,000 2,634,647
OHIO--4.5%
Cuyahoga County, Hospital Improvement Revenue
(The Metrohealth System Project)
6.125%, 2/15/2024 5,000,000 5,258,650
Ohio Housing Finance Agency,
Residential Mortgage Revenue
5.75%, 9/1/2030 995,000 1,037,815
Rickenbacker Port Authority, Capital Funding Revenue
(OASBO Expanded Asset Pooled)
5.375%, 1/1/2032 2,500,000 2,651,050
OKLAHOMA--1.4%
Oklahoma Development Finance Authority, Revenue
(Saint John Health System) 6%, 2/15/2029 2,500,000 2,761,800
PENNSYLVANIA--5.8%
Pennsylvania Economic Development Financing Authority,
RRR (Northampton Generating Project)
6.60%, 1/1/2019 3,500,000 3,572,695
Sayre Health Care Facilities Authority, Revenue
(Guthrie Health) 5.875%, 12/1/2031 7,750,000 8,022,258
SOUTH CAROLINA--7.7%
Medical University, Hospital Facilities Revenue
6%, 7/1/2019 (Prerefunded 7/1/2009) 2,500,000 (a) 2,978,225
Piedmont Municipal Power Agency, Electric Revenue:
6.55%, 1/1/2016 880,000 881,030
5.25%, 1/1/2021 3,000,000 2,971,950
Tobacco Settlement Revenue Management Authority,
Tobacco Settlement Asset--Backed Bonds:
6.375%, 5/15/2028 2,900,000 2,937,149
6.375%, 5/15/2030 5,500,000 5,593,060
TEXAS--12.3%
Alliance Airport Authority Inc., Special Facilities Revenue
(American Airlines Inc. Project)
7.50%, 12/1/2029 2,375,000 987,383
10
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
Austin Convention Enterprises Inc., Convention Center
Hotel First Tier Revenue
6.70%, 1/1/2032 2,000,000 2,058,380
Brazos River Authority, PCR (TXU Electric Co. Project)
5.75%, 11/1/2011 2,000,000 2,061,220
Dallas-Fort Worth International Airport Facility
Improvement Corp., Revenue
(American Airlines, Inc.) 6.375%, 5/1/2035 2,500,000 1,014,525
Gregg County Health Facilities Development Corp., HR
(Good Shepherd Medical Center Project)
6.375%, 10/1/2025 2,500,000 2,844,975
Harris County Health Facilities Development Corp., HR
(Memorial Hermann Healthcare) 6.375%, 6/1/2029 3,565,000 3,836,332
Port of Corpus Christi Authority, Nueces County,
General Revenue (Union Pacific) 5.65%, 12/1/2022 4,000,000 4,050,760
Texas, Veterans Housing Assistance Program
6.10%, 6/1/2031 7,000,000 7,635,880
UTAH--2.9%
Carbon County, SWDR (Sunnyside Cogeneration)
7.10%, 8/15/2023 3,174,000 3,220,086
Utah Housing Finance Agency, Single Family Mortgage
6%, 1/1/2031 2,370,000 2,517,035
VERMONT--1.6%
Vermont Housing Finance Agency, Single Family Housing
6.40%, 11/1/2030 (Insured; FSA) 2,965,000 3,164,811
WASHINGTON--3.8%
Public Utility District Number 1 of Pend Orielle County,
Electric Revenue 6.375%, 1/1/2015 2,000,000 2,155,260
Washington Higher Education Facilities Authority, Revenue
(Whitman College Project) 5.875%, 10/1/2029 5,000,000 5,454,500
WEST VIRGINIA--6.5%
Braxton County, SWDR (Weyerhaeuser Co. Project):
6.50%, 4/1/2025 5,000,000 5,154,900
5.80%, 6/1/2027 7,450,000 7,810,580
WISCONSIN--5.8%
Badger Tobacco Asset Securitization Corp.,
Tobacco Settlement Asset-Backed Bonds 7%, 6/1/2028 2,500,000 2,665,075
The Fund 11
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
WISCONSIN (CONTINUED)
Wisconsin Health and Educational Facilities Authority,
Revenue (Aurora Health Care, Inc.) 5.60%, 2/15/2029 5,250,000 5,084,572
Wisconsin Housing and Economic Development Authority,
Home Ownership Revenue 5.75%, 9/1/2028 3,590,000 3,707,572
WYOMING--1.0%
Sweetwater County, SWDR (FMC Corp. Project)
7%, 6/1/2024 2,000,000 1,886,300
U.S. RELATED--7.1%
Puerto Rico Highway and Transportation Authority,
Transportation Revenue:
8.22%, 7/1/2038 (Insured; MBIA) 4,000,000 (b,c) 4,284,800
8.22%, 7/1/2038 5,000,000 (b,c) 5,356,000
Puerto Rico Infrastructure Financing Authority,
Special Tax Revenue, Residual Certificates
8.115%, 7/1/2015 4,000,000 (b,c) 4,591,640
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(cost $274,899,336) 290,862,874
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS--1.7%
------------------------------------------------------------------------------------------------------------------------------------
NEW YORK--.2%
New York City, VRDN 1.95% (LOC; Morgan Guaranty Trust) 300,000 (d) 300,000
PENNSYLVANIA--1.5%
Philadelphia Authority for Industrial Development, Revenue
VRDN (Fox Chase Cancer Center Project)
2% (LOC; Morgan Guaranty Trust) 2,200,000 (d) 2,200,000
Philadelphia Hospitals and Higher
Education Facilities Authority,
Revenue, VRDN (Childrens Hospital Project) 2% 800,000 (d) 800,000
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $3,300,000) 3,300,000
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $278,199,336) 147.6% 294,162,874
CASH AND RECEIVABLES (NET) 2.6% 5,197,805
PREFERRED STOCK, AT REDEMPTION VALUE (50.2%) (100,000,000)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 100.0% 199,360,679
12
Summary of Abbreviations
AMBAC American Municipal Bond Assurance
Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance
Company
FSA Financial Security Assurance
HR Hospital Revenue
IDR Industrial Development Revenue
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance
Insurance Corporation
MFHR Multi-Family Housing Revenue
PCR Pollution Control Revenue
RRR Resources Recovery Revenue
SFMR Single Family Mortgage Revenue
SWDR Solid Waste Disposal Revenue
VRDN Variable Rate Demand Notes
Summary of Combined Ratings (Unaudited)
Fitch or Moody's or Standard & Poor's Value (%)
------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa AAA 25.3
AA Aa AA 15.6
A A A 28.0
BBB Baa BBB 26.2
BB Ba BB .8
CCC Ccc CCC .4
F1 MIG1/P1 SP1/A1 .9
Not Rated (e) Not Rated (e) Not Rated (e) 2.8
100.0
(A) 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.
(B) SECURITIES 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 SEPTEMBER 30,
2002, THESE SECURITIES AMOUNTED TO $14,232,440 OR 7.1% OF NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS.
(C) INVERSE FLOATER SECURITY--THE INTEREST RATE IS SUBJECT TO CHANGE
PERIODICALLY.
(D) SECURITIES PAYABLE ON DEMAND. VARIABLE INTEREST RATE--SUBJECT TO PERIODIC
CHANGE.
(E) SECURITIES WHICH, WHILE NOT RATED BY FITCH, MOODY'S AND STANDARD & POOR'S,
HAVE BEEN DETERMINED BY THE MANAGER TO BE OF COMPARABLE QUALITY TO THOSE
RATED SECURITIES IN WHICH THE FUND MAY INVEST.
(F) AT SEPTEMBER 30, 2002, THE FUND HAD $97,551,965 OR 48.9% OF NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS INVESTED IN SECURITIES WHOSE PAYMENT OF
PRINCIPAL AND INTEREST IS DEPENDENT UPON REVENUES GENERATED FROM HEALTH
CARE PROJECTS.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 13
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2002
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 278,199,336 294,162,874
Cash 51,488
Interest receivable 5,528,494
Prepaid expenses 54,747
299,797,603
--------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 188,887
Dividend payable to Preferred Shareholders 86,989
Commssions payable 26,091
Accrued expenses 134,957
436,924
--------------------------------------------------------------------------------
AUCTION PREFERRED STOCK, Series A and B,
par value $.001 per share (4,000 shares issued
and outstanding at $25,000 per share
liquidation preference)--Note 1 100,000,000
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ($) 199,360,679
--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Common Stock, par value $.001 per share
(20,382,927 shares issued and outstanding) 20,383
Paid-in capital 188,663,005
Accumulated undistributed investment income--net 3,342,621
Accumulated net realized gain (loss) on investments (8,628,868)
Accumulated net unrealized appreciation
(depreciation) on investments 15,963,538
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 199,360,679
--------------------------------------------------------------------------------
SHARES OUTSTANDING
(110 million shares of $.001 par value Common Stock authorized) 20,382,927
NET ASSET VALUE, per share of Common Stock ($) 9.78
SEE NOTES TO FINANCIAL STATEMENTS.
14
STATEMENT OF OPERATIONS
Year Ended September 30, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 17,967,159
EXPENSES:
Management fee--Note 3(a) 2,058,549
Commission fees--Note 1 263,710
Professional fees 63,520
Shareholder servicing costs--Note 3(b) 57,379
Shareholders' reports 52,518
Custodian fees--Note 3(b) 21,941
Registration fees 15,338
Directors' fees and expenses--Note 3(c) 13,440
Miscellaneous 26,063
TOTAL EXPENSES 2,572,458
INVESTMENT INCOME--NET 15,394,701
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (446,764)
Net unrealized appreciation (depreciation) on investments 600,180
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 153,416
DIVIDENDS ON PREFERRED STOCK (1,643,057)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 13,905,060
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 15
STATEMENT OF CHANGES IN NET ASSETS
Year Ended September 30,
-----------------------------------
2002 2001(a)
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 15,394,701 15,068,211
Net realized gain (loss) on investments (446,764) (1,403,724)
Net unrealized appreciation (depreciation)
on investments 600,180 17,581,781
Dividends on Preferred Stock (1,643,057) (3,354,280)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 13,905,060 27,891,988
--------------------------------------------------------------------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (11,495,971) (10,762,186)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Adjustment to offering costs charged
to paid-in capital resulting from
the issuance of Preferred Stock -- 30,000
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS -- 30,000
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,409,089 17,159,802
--------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 196,951,590 179,791,788
END OF PERIOD 199,360,679 196,951,590
Undistributed investment income--net 3,342,621 1,098,157
(A) RESTATED TO CONFORM TO CURRENT YEAR'S PRESENTATION.
SEE NOTES TO FINANCIAL STATEMENTS.
16
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, and with respect to common stock, market price data for the fund's
common shares.
Year Ended September 30,
----------------------------------------------------------------------------
2002(a) 2001(b) 2000(b) 1999(b) 1998(b)
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 9.66 8.82 8.90 9.71 9.55
Investment Operations:
Investment income--net .76(c) .74 .74 .53 .55
Net realized and unrealized
gain (loss) on investments .00(d) .79 (.08) (.73) .21
Dividends on Preferred Stock
from investment income--net (.08) (.16) (.20) (.01) --
Total from Investment Operations .68 1.37 .46 (.21) .76
Distributions to Common Shareholders:
Dividends from investment income--net (.56) (.53) (.53) (.54) (.60)
Capital Stock transaction--net
effect of Preferred Stock offering -- .00(d) (.01) (.06) --
Net asset value, end of period 9.78 9.66 8.82 8.90 9.71
Market value, end of period 9.60 8.71 7 7_8 7 5_8 9 11_16
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(E) 17.28 17.55 10.71 (16.35) (.69)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets
applicable to Common Stock 1.33(f,g) 1.39(f,g) 1.48(f,g) .85(f,g) .82
Ratio of net investment income to average
net assets applicable to Common Stock 7.93(f,g) 7.97(f,g) 8.64(f,g) 5.72(f,g) 5.75
Portfolio Turnover Rate 5.32 15.27 22.47 35.55 8.84
Asset coverage of Preferred Stock,
end of period 299 297 280 281 --
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, net of Preferred stock,
end of period ($ x 1,000) 199,361 196,952 179,792 181,315 197,505
Preferred Stock outstanding,
end of period ($ x 1,000) 100,000 100,000 100,000 100,000 --
(A) AS REQUIRED, EFFECTIVE OCTOBER 1, 2001, THE FUND HAS ADOPTED THE PROVISIONS
OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES AND BEGAN
AMORTIZING DISCOUNT OR PREMIUM ON A SCIENTIFIC BASIS FOR DEBT SECURITIES ON
A DAILY BASIS. THE EFFECT OF THIS CHANGE FOR THE PERIOD ENDED SEPTEMBER 30,
2002 WAS TO INCREASE NET INVESTMENT INCOME PER SHARE AND DECREASE NET
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS PER SHARE BY LESS THAN
$.01 AND INCREASE THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
BY LESS THAN .01%. PER SHARE DATA AND RATIOS/SUPPLEMENTAL DATA PRIOR TO
OCTOBER 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN
PRESENTATION.
(B) RESTATED TO CONFORM TO CURRENT YEAR'S PRESENTATION.(
(C) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(D) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(E) CALCULATED BASED ON MARKET VALUE.
(F) DOES NOT REFLECT THE EFFECT OF DIVIDENDS TO PREFERRED STOCK SHAREHOLDERS.
(G) THE RATIO OF EXPENSES TO TOTAL AVERAGE NET ASSETS AND THE RATIO OF NET
INVESTMENT INCOME TO TOTAL AVERAGE NET ASSETS WERE .87% AND 5.23%,
RESPECTIVELY, FOR THE YEAR ENDED SEPTEMBER 30, 2002, .91% AND 5.21%,
RESPECTIVELY, FOR THE YEAR ENDED SEPTEMBER 30, 2001, .94% AND 5.49%,
RESPECTIVELY, FOR THE YEAR ENDED SEPTEMBER 30, 2000 AND .84% AND 5.63%,
RESPECTIVELY, FOR THE YEAR ENDED SEPTEMBER 30, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
17
The Fund
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Municipal Income, Inc. (the "fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified closed-end
management investment company. The fund's investment objective is to maximize
current income exempt from Federal income tax to the extent consistent with the
preservation of capital. The Dreyfus Corporation (the "Manager") serves as the
fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank,
N.A. ("Mellon"), which is a wholly-owned subsidiary of Mellon Financial
Corporation. The fund's Common Stock trades on the New York Stock Exchange under
the ticker symbol DMF.
The fund has issued and outstanding 2,000 shares of Series A and 2,000 shares of
Series B Auction Preferred Stock ("APS"), with a liquidation preference of
$25,000 per share (plus an amount equal to accumulated but unpaid dividends upon
liquidation) . APS dividend rates are determined pursuant to periodic auctions.
Bankers Trust, as Auction Agent, receives a fee from the fund for its services
in connection with such auctions. The fund also compensates broker-dealers
generally at an annual rate of .25% of the purchase price of the shares of APS
placed by the broker-dealer in an auction.
The fund is subject to certain restrictions relating to the APS. Failure to
comply with these restrictions could preclude the fund from declaring any
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of APS at liquidation value.
The holders of the APS, voting as a separate class, have the right to elect at
least two directors. The holders of the APS will vote as a separate class on
certain other matters, as required by law. The fund has designated Whitney I.
Gerard and George L. Perry to represent holders of APS on the fund's Board of
Directors.
The fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which
18
may require the use of management estimates and assumptions. Actual results
could differ from those estimates.
(a) Portfolio valuation: Investments in municipal debt securities (excluding
options and financial futures on municipal and U.S. Treasury securities) are
valued daily by an independent pricing service (the "Service") approved by the
Board of Directors. Investments for which quoted bid prices are readily
available and are representative of the bid side of the market in the judgment
of the Service are valued at the mean between the quoted bid prices (as obtained
by the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of municipal securities of comparable
quality, coupon, maturity and type; indications as to values from dealers; and
general market conditions. Options and financial futures on municipal and U.S.
Treasury securities are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last sales
price on the national securities market on each business day.
(b) Securities transactions and investment income: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Interest income,
adjusted for amortization of premiums and discounts on investments, is earned
from settlement date and recognized on the accrual basis. Securities purchased
or sold on a when-issued or delayed-delivery basis may be settled a month or
more after the trade date.
(c) Dividends to shareholders of Common Stock (" Common Shareholder(s)"):
Dividends are recorded on the ex-dividend date. Dividends from investment
income-net are declared and 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 Fund 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
For Common Shareholders who elect to receive their distributions in additional
shares of the fund, in lieu of cash, such distributions will be reinvested at
the lower of the market price or net asset value per share (but not less than
95% of the market price) as defined in the dividend reinvestment plan
On September 27, 2002, the Board of Directors declared a cash dividend to Common
Shareholders of $.05 per share from investment income-net, payable on October
25, 2002 to Common Shareholders of record as of the close of business on October
11, 2002.
(d) Dividends to shareholders of APS: For APS, dividends are currently reset
every 7 days for Series A and annually for Series B. The dividend rates in
effect at September 30, 2002 were as follows: Series A 1.25% and Series B 2.00%
(e) Federal income taxes: It is the policy of the fund to continue to qualify as
a regulated investment company, which can distribute tax exempt dividends, by
complying with the applicable provisions of the Code, and to make distributions
of income and net realized capital gain sufficient to relieve it from
substantially all federal income and excise taxes.
At September 30, 2002, the components of accumulated earnings on a tax basis
were as follows: undistributed tax exempt income $3,342,621, accumulated capital
losses $8,181,604 and unrealized appreciation $16,013,200. In addition, the fund
had $447,255 of capital losses realized after October 31, 2001, which were
deferred for tax purposes to the first day of the following fiscal year.
The accumulated capital loss carryover is available to be applied against future
net securities profits, if any, realized subsequent to September 30, 2002. If
not applied, $4,999,899 of the carryover expires in fiscal 2004, $1,148,413
expires in fiscal 2008, $619,742 expires in fiscal 2009 and $1,413,550 expires
in fiscal 2010.
20
The tax character of distributions paid to shareholders during the fiscal
periods ended September 30, 2002 and September 30, 2001, respectively, were as
follows: tax exempt income $13,139,028 and $14,116,466.
During the period ended September 30, 2002, as a result of permanent book to tax
differences, the fund decreased accumulated undistributed investment income-net
by $52,176, decreased accumulated net realized gain (loss) on investments by
$491 and increased paid-in capital by $52,667. Net assets were not affected by
this reclassification.
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $100 million
unsecured line of credit primarily to be utilized for temporary or emergency
purposes. Interest is charged to the fund based on prevailing market rates in
effect at the time of borrowings. During the period ended September 30, 2002,
the fund did not borrow under the line of credit.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement ("Agreement") with the Manager, the
management fee is computed at the annual rate of .70 of 1% of the value of the
fund's average daily net assets and is payable monthly. The Agreement provides
that if in any full fiscal year the aggregate expenses of the fund, exclusive of
taxes, interest on borrowings, brokerage fees and extraordinary expenses, exceed
the expense limitation of any state having jurisdiction over the fund, the fund
may deduct from payments to be made to the Manager, or the Manager will bear the
amount of such excess to the extent required by state law. During the period
ended September 30, 2002, there was no expense reimbursement pursuant to the
Agreement.
(b) The fund compensates Mellon under a transfer agency agreement for providing
personnel and facilities to perform transfer agency services for the fund.
During the period ended September 30, 2002, the fund was charged $57,379
pursuant to the transfer agency agreement.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The fund compensates Mellon under a custody agreement for providing custodial
services for the fund. During the period ended September 30, 2002, the fund was
charged $21,941 pursuant to the custody agreement.
(c) Each Board member also serves as a Board member of other funds within the
Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not
an "affiliated person" as defined in the Act receives an annual fee of $45,000
and an attendance fee of $5,000 for each in person meeting and $500 for
telephone meetings. These fees are allocated among the funds in the Fund Group.
The Chairman of the Board receives an additional 25% of such compensation.
Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if
any, receive 50% of the annual retainer fee and per meeting fee paid at the time
the Board member achieves emeritus status.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding
short-term securities, during the period ended September 30, 2002, amounted to
$17,177,288 and $15,206,538, respectively.
At September 30, 2002, the cost of investments for federal income tax purposes
was $278,149,674; accordingly, accumulated net unrealized appreciation on
investments was $16,013,200, consisting of $21,047,677 gross unrealized
appreciation and $5,034,477 gross unrealized depreciation.
NOTE 5--Change in Accounting Principle:
(a) As required, effective October 1, 2001, the fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing discount or premium on a scientific basis for debt securities on a
daily basis. Prior to October 1, 2001, the fund amortized premiums on a
scientific basis but recognized market discount upon disposition. The cumulative
effect of this accounting change had no impact on total net assets of the fund,
but resulted in a
22
$40,967 increase in accumulated undistributed investment income-net and a
corresponding $40,967 decrease in accumulated net unrealized appreciation
(depreciation) , based on securities held by the fund on September 30, 2001
The effect of this change for the period ended September 30, 2002 was to
increase net investment income by $11,209, decrease net unrealized appreciation
(depreciation) by $8,695 and decrease net realized gains (losses) by $2,514. The
statement of changes in net assets and financial highlights for prior periods
have not been restated to reflect this change in presentation.
(b) Effective October 1, 2000, the fund adopted the classification requirement
of EITF D-98, Classification and Measurement of Redeemable Securities. EITF D-98
requires that preferred stock for which its redemption is outside of the fund's
control should be presented outside of net assets in the statement of assets and
liabilities. The redemption of the fund's preferred stock is outside of the
control of the fund because of provisions in the fund's Articles Supplementary
Creating Two Series of Auction Preferred Stock relating to compliance with
rating agency guidelines. In adopting EITF D-98, the fund's net assets as of
October 1, 2000 in the statement of changes in net assets is restated by
excluding preferred stock valued at $100,000,000 at that date. The adoption also
resulted in dividends on preferred stock being reclassified from distributions
on the statement of changes in net assets to a separate line item within the
statement of operations. This resulted in a decrease of $1,643,057 and
$3,354,280 to net assets from operations for the periods ended September 30,
2002 and September 30, 2001, respectively. As part of the adoption, per share
distributions of dividends on preferred stock were reclassified from
distributions to amounts from investment operations for each period presented in
the financial highlights.
The Fund 23
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Dreyfus Municipal Income, Inc.
We have audited the accompanying statement of assets and liabilities of Dreyfus
Municipal Income, Inc., including the statement of investments, as of September
30, 2002, 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 auditing standards generally accepted
in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
verification by examination of securities held by the custodian as of September
30, 2002 and confirmation of securities not held by the custodian by
correspondence with others. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus Municipal Income, Inc. at September 30, 2002, 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 accounting principles generally accepted
in the United States.
/s/Ernst & Young LLP
New York, New York
November 7, 2002
24
ADDITIONAL INFORMATION (Unaudited)
Dividend Reinvestment Plan
Under the fund's Dividend Reinvestment Plan (the "Plan"), a Common Shareholder
who has fund shares registered in his name will have all dividends and
distributions reinvested automatically by Mellon, as Plan agent (the "Agent"),
in additional shares of the fund at the lower of prevailing market price or net
asset value (but not less than 95% of market value at the time of valuation)
unless such Common Shareholder elects to receive cash as provided below. If
market price is equal to or exceeds net asset value, shares will be issued at
net asset value. If net asset value exceeds market price or if a cash dividend
only is declared, the Agent, as agent for the Plan participants, will buy fund
shares in the open market. A Plan participant is not relieved of any income tax
that may be payable on such dividends or distributions.
A Common Shareholder who owns fund shares registered in nominee name through his
broker/dealer (i.e., in "street name") may not participate in the Plan, but may
elect to have cash dividends and distributions reinvested by his broker/dealer
in additional shares of the fund if such service is provided by the
broker/dealer; otherwise such dividends and distributions will be treated like
any other cash dividend or distribution.
A Common Shareholder who has fund shares registered in his name may elect to
withdraw from the Plan at any time for a $5.00 fee and thereby elect to receive
cash in lieu of shares of the fund. Changes in elections must be in writing,
sent to Mellon Bank, c/o ChaseMellon Shareholder Services, Shareholder
Investment Plan, P.O. Box 3338, South Hackensack, New Jersey 07606, should
include the shareholder's name and address as they appear on the Agent's records
and will be effective only if received more than ten business days prior to the
record date for any distribution.
The Agent maintains all Common Shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account. Shares in the account
of each Plan participant will be held by the
The Fund 25
ADDITIONAL INFORMATION (Unaudited) (CONTINUED)
Agent in non-certificated form in the name of the participant, and each such
participant's proxy will include those shares purchased pursuant to the Plan.
The fund pays the Agent's fee for reinvestment of dividends and distributions.
Plan participants pay a pro rata share of brokerage commissions incurred with
respect to the Agent's open market purchases in connection with the reinvestment
of dividends or distributions.
The fund reserves the right to amend or terminate the Plan as applied to any
dividend or distribution paid subsequent to notice of the change sent to Plan
participants at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by the Agent on at
least 90 days' written notice to Plan participants.
Managed Dividend Policy
The fund' s dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. In order to provide
shareholders with a more consistent yield to the current trading price of shares
of Common Stock of the fund, the fund may at times pay out less than the entire
amount of net investment income earned in any particular month and may at times
in any month pay out such accumulated but undistributed income in addition to
net investment income earned in that month. As a result, the dividends paid by
the fund for any particular month may be more or less than the amount of net
investment income earned by the fund during such month. The fund's current
accumulated but undistributed net investment income, if any, is disclosed in the
Statement of Assets and Liabilities, which comprises part of the Financial
Information included in this report.
Benefits and Risks of Leveraging
The fund utilizes leverage to seek to enhance the yield and net asset value of
its Common Stock. These objectives cannot be achieved in all interest rate
environments. To leverage, the fund issues Preferred Stock, which pays dividends
at prevailing short-term interest rates, and invests
26
the proceeds in long-term municipal bonds. The interest earned on these
investments is paid to Common Shareholders in the form of dividends, and the
value of these portfolio holdings is reflected in the per share net asset value
of the fund's Common Stock. In order to benefit Common Shareholders, the yield
curve must be positively sloped: that is, short-term interest rates must be
lower than long-term interest rates. At the same time, a period of generally
declining interest rates will benefit Common Shareholders. If either of these
conditions change, then the risk of leveraging will begin to outweigh the
benefits.
Supplemental Information
For the period ended September 30, 2002, there were: (i) no material changes in
the fund' s investment objectives or policies, (ii) no changes in the fund's
charter or by-laws that would delay or prevent a change of control of the fund,
(iii) no material changes in the principal risk factors associated with
investment in the fund, and (iv) no changes in the person primarily responsible
for the day-to-day management of the fund's portfolio.
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 September 30, 2002
as "exempt-interest dividends" (not generally subject to regular federal income
tax) .
As required by federal tax law rules, shareholders will receive notification of
their portion of the fund's taxable ordinary dividends (if any) and capital gain
distributions (if any) paid for the 2002 calendar year on Form 1099-DIV which
will be mailed by January 31, 2003.
28
PROXY RESULTS (Unaudited)
Holders of Common Stock and holders of Auction Preferred Stock ("APS") voted
together as a single class (except as noted below) on a proposal presented at
the annual shareholders' meeting held on May 17, 2002 as follows:
Shares
----------------------------------
For Authority Withheld
----------------------------------
To elect two Class III Directors: ((+))
Joseph S. DiMartino 18,595,350 303,779
George L. Perry((+)(+)) 3,459 1
((+)) THE TERMS OF THESE CLASS III DIRECTORS EXPIRE IN 2005.
((+)(+)) ELECTED SOLELY BY APS HOLDERS. COMMON STOCKHOLDERS WERE NOT ENTITLED
TO VOTE.
The Fund 29
BOARD MEMBERS INFORMATION (Unaudited)
JOSEPH S. DIMARTINO (58)
CHAIRMAN OF THE BOARD (1995)
CURRENT TERM EXPIRES IN 2005
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Corporate Director and Trustee
OTHER DIRECTORSHIPS AND AFFILIATIONS:
* The Muscular Dystrophy Association, Director
* Carlyle Industries, Inc., a button packager and distributor, 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
* QuikCAT.com, a developer of high speed movement, routing, storage and
encryption of data, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 190
--------------
LUCY WILSON BENSON (75)
BOARD MEMBER (1988)
CURRENT TERM EXPIRES IN 2003
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* President of Benson and Associates, consultants to business and government
(1980-Present)
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* The International Executive Services Corps., Director
* Citizens Network for Foreign Affairs, Vice Chairman
* Council of Foreign Relations, Member
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 34
--------------
DAVID W. BURKE (66)
BOARD MEMBER (1994)
CURRENT TERM EXPIRES IN 2003
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Corporate Director and Trustee
OTHER DIRECTORSHIPS AND AFFILIATIONS:
* John F. Kennedy Library Foundation, Director
* U.S.S. Constitution Museum, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 59
30
WHITNEY I. GERARD (67)
BOARD MEMBER (1988)
CURRENT TERM EXPIRES IN 2004
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Chadbourne & Parke LLP, Partner
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 15
--------------
ARTHUR A. HARTMAN (76)
BOARD MEMBER (1989)
CURRENT TERM EXPIRES IN 2004
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* First NIS Regional Fund (ING/Barrings Management) and New Russia Fund,
Chairman
* Advisory Council to Barrings-Vostok
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* Ford Meter Box Corporation, Board Member
* APCO Associates, Inc., Senior Consultant
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 15
--------------
GEORGE L. PERRY (68)
BOARD MEMBER (1989)
CURRENT TERM EXPIRES IN 2005
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Brookings Institution, Economist and Senior Fellow
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* State Farm Mutual Automobile Association, Director
* State Farm Life Insurance Company, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 15
--------------
THE ADDRESS OF EACH BOARD MEMBER IS C/O THE DREYFUS CORPORATION, 200 PARK
AVENUE, NEW YORK NEW YORK 10166.
The Fund 31
OFFICERS OF THE FUND (Unaudited)
STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000.
Chairman of the Board, Chief Executive Officer and Chief Operating Officer
of the Manager, and an officer of 94 investment companies (comprised of 188
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 57 years old, and has been an employee of the Manager since
May 1995.
MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000.
Executive Vice President, Secretary and General Counsel of the Manager, and
an officer of 95 investment companies (comprised of 202 portfolios) managed by
the Manager. He is 56 years old, and has been an employee of the Manager since
June 1977.
JOSEPH P. DARCY, EXECUTIVE VICE PRESIDENT SINCE MARCH 2000.
Executive Vice President of the Fund, Senior Portfolio Manager - Dreyfus
Municipal Securities, and an officer of 1 investment company (comprised of 1
portfolio) managed by the Manager. He is 45 years old, and has been an employee
of the Manager since May 1994.
MICHAEL A. ROSENBERG, SECRETARY SINCE MARCH 2000.
Associate General Counsel of the Manager, and an officer of 93 investment
companies (comprised of 198 portfolios) managed by the Manager. He is 42 years
old, and has been an employee of the Manager since October 1991.
STEVEN F. NEWMAN, ASSISTANT SECRETARY SINCE MARCH 2000.
Associate General Counsel and Assistant Secretary of the Manager, and an
officer of 95 investment companies (comprised of 202 portfolios) managed by the
Manager. He is 53 years old, and has been an employee of the Manager since July
1980.
ROBERT R. MULLERY, ASSISTANT SECRETARY SINCE MARCH 2000.
Associate General Counsel and Assistant Secretary of the Manager, and an
officer of 19 investment companies (comprised of 39 portfolios) managed by the
Manager. He is 50 years old, and has been an employee of the Manager since May
1986.
JAMES WINDELS, TREASURER SINCE NOVEMBER 2001.
Director - Mutual Fund Accounting of the Manager, and an officer of 95
investment companies (comprised of 202 portfolios) managed by the Manager. He is
44 years old, and has been an employee of the Manager since April 1985.
GREGORY S. GRUBER, ASSISTANT TREASURER SINCE MARCH 2000.
Senior Accounting Manager - Municipal Bond Funds of the Manager, and an
officer of 29 investment companies (comprised of 55 portfolios) managed by the
Manager. He is 43 years old, and has been an employee of the Manager since
August 1981.
KENNETH SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001.
Mutual Funds Tax Director of the Manager, and an officer of 95 investment
companies (comprised of 202 portfolios) managed by the Manager. He is 48 years
old, and has been an employee of the Manager since June 1993.
32
OFFICERS AND DIRECTORS
Dreyfus Municipal Income, Inc.
200 Park Avenue
New York, NY 10166
DIRECTORS
Joseph S. DiMartino, Chairman
Lucy Wilson Benson
David W. Burke
Whitney I. Gerard*
Arthur A. Hartman
George L. Perry*
* AUCTION PREFERRED STOCK DIRECTORS
OFFICERS
President
Stephen E. Canter
Vice President
Mark N. Jacobs
Executive Vice President
Joseph P. Darcy
Secretary
Michael A. Rosenberg
Assistant Secretaries
Steven F. Newman
Robert R. Mullery
Treasurer
James Windels
Assistant Treasurers
Gregory S. Gruber
Kenneth J. Sandgren
PORTFOLIO MANAGERS
Joseph P. Darcy
A. Paul Disdier
Douglas J. Gaylor
PORTFOLIO MANAGERS (CONTINUED)
Joseph A. Irace
Colleen A. Meehan
W. Michael Petty
Scott Sprauer
James Welch
Monica S. Wieboldt
INVESTMENT ADVISER
The Dreyfus Corporation
CUSTODIAN
Mellon Bank, N.A.
COUNSEL
Stroock & Stroock & Lavan LLP
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
Mellon Bank N.A. (Common Stock)
Bankers Trust (Auction Preferred Stock)
AUCTION AGENT
Bankers Trust (Auction Preferred Stock)
STOCK EXCHANGE LISTING
NYSE Symbol: DMF
INITIAL SEC EFFECTIVE DATE
10/21/88
THE NET ASSET VALUE APPEARS IN THE FOLLOWING PUBLICATIONS: BARRON'S, CLOSED-END
BOND FUNDS SECTION UNDER THE HEADING "MUNICIPAL BOND FUNDS" EVERY MONDAY; WALL
STREET JOURNAL, MUTUAL FUNDS SECTION UNDER THE HEADING "CLOSED-END FUNDS" EVERY
MONDAY; NEW YORK TIMES, BUSINESS SECTION UNDER THE HEADING "CLOSED-END BOND
FUNDS--NATIONAL MUNICIPAL BOND FUNDS" EVERY SUNDAY.
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT THE FUND MAY PURCHASE SHARES OF ITS COMMON
STOCK IN THE OPEN MARKET WHEN IT CAN DO SO AT PRICES BELOW THE THEN CURRENT NET
ASSET VALUE PER SHARE.
The Fund 33
For More Information
Dreyfus Municipal Income, Inc.
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Transfer Agent &
Dividend Disbursing Agent
and Registrar
(Common Stock)
Mellon Bank, N.A.
85 Challenger Road
Ridgefield Park, NJ 07660
(c) 2002 Dreyfus Service Corporation 424AR0902