Dreyfus Municipal Income, Inc.
SEMIANNUAL REPORT March 31, 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 herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Contents
THE FUND
--------------------------------------------------
2 Letter from the Chairman
3 Discussion of Fund Performance
6 Statement of Investments
13 Statement of Assets and Liabilities
14 Statement of Operations
15 Statement of Changes in Net Assets
16 Financial Highlights
18 Notes to Financial Statements
25 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 semiannual report for Dreyfus Municipal Income, Inc., covering
the six-month period from October 1, 2001 through March 31, 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 of the reporting period's close, we have seen signs of economic recovery,
which may signal an end to the U.S. economic recession. As the economy has
gained strength, however, the municipal bond market has given back a portion of
the gains achieved during its 2001 rally.
Indeed, the municipal bond market's direction becomes clearer only when viewed
from a perspective measured in full economic cycles. Although you may become
excited about the tax-exempt income opportunities or worried about the
challenges presented under current market conditions, we encourage you to stop
and think of your long-term goals before you take action. And, as always, we
urge you to solicit the advice of a professional financial advisor who can help
you navigate a smoother course to financial security for yourself and your
family. For our part, and as we have for more than 50 years, we at The Dreyfus
Corporation are ready to serve you with a full range of investment alternatives
and our experienced teams of portfolio managers.
Thank you for your continued confidence and support.
Sincerely,
Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
April 15, 2002
DISCUSSION OF FUND PERFORMANCE
Joseph Darcy, Portfolio Manager
How did Dreyfus Municipal Income, Inc. perform during the period?
For the six-month period ended March 31, 2002, the fund achieved a total return
of -0.49%.(1) Over the same period, the fund provided income dividends of $0.264
per share, which is equal to an annualized distribution rate of 6.13%.(2)
We attribute the fund's performance to market weakness late in the reporting
period, which effectively offset earlier gains. Municipal bond prices declined
sharply in March when the Federal Reserve Board (the "Fed") suggested that its
aggressive interest-rate reduction campaign was probably finished.
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 primarily of
municipal bonds.
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 supply 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
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
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 think practical.
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?
For most of the reporting period, the fund benefited from lower interest rates.
In response to persistent economic weakness, which was intensified by the
September 11 terrorist attacks, the Fed continued to reduce short-term interest
rates during the fourth quarter of 2001, taking the benchmark federal funds rate
down to its lowest level in 40 years. As a result, yields on municipal bonds
continued to fall, and their prices rose.
In March, however, the Fed shifted from its accommodative monetary policy to a
neutral stance, primarily in response to evidence that the U.S. economy had
begun to recover. Many fixed-income investors interpreted this shift as a signal
that the Fed's next moves would be toward higher interest rates. While we do not
expect any rate hikes in the immediate future, these expectations were
nonetheless factored into long-term municipal bond prices, which erased earlier
gains.
In this environment, we maintained the fund's average duration within the
neutral range in our view, enabling the fund to avoid the brunt of the market's
March decline without unduly sacrificing income. As some of the fund's holdings
reached maturity or were redeemed early by their issuers, we looked for
opportunities to replace the income they had generated. Although this has
continued to prove difficult in the low interest-rate environment, we have found
a number of income-oriented bonds in market niches that, in our opinion,
represent attractive relative values.
In addition, the fund has continued to benefit from the leverage provided by its
issuance of preferred stock. Because the fund's borrowing costs fell along with
interest rates during the reporting period, this yield-enhancement strategy
proved particularly beneficial. What' s more, the fund avoided some of the
weakest areas of the market because it did not own bonds issued by airlines and
other corporate entities that were hurt in the aftermath of the September 11
terrorist attacks.
What is the fund's current strategy?
Consistent with the fund's investment objective, we have continued to emphasize
income-oriented bonds. However, we have also been careful to focus on issuers
that, in our opinion, enjoy good credit quality. Accordingly, we have generally
replaced mature or redeemed holdings with new bonds that have investment-grade
credit ratings or their equivalent.
April 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
STATEMENT OF INVESTMENTS
March 31, 2002 (Unaudited)
Principal
LONG-TERM MUNICIPAL INVESTMENTS--149.0% Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
ALABAMA--7.9%
Courtland Industrial Development Board, SWDR
(Champion International Corp. Project) 6.50%, 9/1/2025 2,500,000 2,552,375
Jefferson County, Sewer Revenue, Capital Improvement
5.75%, 2/1/2038 (Insured; FGIC) 7,500,000 7,727,175
The Board of Trustees of the University of Alabama, HR
(University of Alabama at Birmingham)
5.875%, 9/1/2031 (Insured; MBIA) 4,620,000 4,747,558
ALASKA--5.0%
Alaska Housing Finance Corp., General Mortgage Revenue
6.05%, 6/1/2039 (Insured; MBIA) 7,000,000 7,172,130
Valdez, Marine Terminal Revenue
(British Petroleum Pipeline Inc. Project) 5.50%, 10/1/2028 2,375,000 2,319,639
CALIFORNIA--8.8%
Abag Financial Authority For Nonprofit Corporations:
Insured Revenue, COP
(Odd Fellows Home of California) 6%, 8/15/2024 5,000,000 5,226,850
MFHR (Civic Center Drive Apartments)
5.875%, 9/1/2032 (Insured; FSA) 3,750,000 3,816,300
California Health Facilities Financing Authority,
Revenue (Sutter Health)
6.25%, 8/15/2035 2,500,000 2,577,575
California Statewide Communties Development
Authority, COP (Catholic Healthcare West)
6.50%, 7/1/2020 5,000,000 5,171,450
COLORADO--3.9%
Colorado Springs, HR 6.375%, 12/15/2030 5,725,000 5,908,314
City and County of Denver, Airport Revenue
(Special Facilities-United Airlines Inc. Project)
6.875%, 10/1/2032 2,480,000 1,612,074
DISTRICT OF COLUMBIA--3.9%
District of Columbia, Revenue
(Catholic University America Project)
5.625%, 10/1/2029 (Insured; AMBAC) 2,080,000 2,116,754
District of Columbia Tobacco Settlement
Financing Corp., Tobacco Settlement
Asset-Backed Bonds 6.75%, 5/15/2040 5,000,000 5,229,000
FLORIDA--4.3%
Orange County Health Facilities Authority, Revenue
(Orlando Regional Healthcare System)
6%, 10/1/2026 1,500,000 1,513,500
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
Pinellas County Housing Finance Authority,
SFMR (Multi-County Program)
6.70%, 2/1/2028 3,990,000 4,142,697
South Lake County Hospital District, Revenue
(South Lake Hospital Inc.) 5.80%, 10/1/2034 2,500,000 2,450,200
GEORGIA--3.3%
Private Colleges and Universities Facilities Authority,
Revenue (Clark Atlanta University Project)
8.25%, 1/1/2015 (Prerefunded 1/1/2003) 5,660,000 (a) 6,194,530
ILLINOIS--11.5%
Chicago 6.125%, 1/1/2028 (Insured; FGIC) 4,000,000 4,283,960
Chicago-O'Hare International Airport, Special Facility
Revenue (American Airlines Inc. Project)
8.20%, 12/1/2024 1,000,000 1,007,410
Illinois Development Finance Authority, Revenue
(Community Rehabilitation Providers Facilities
Acquisition Program):
8.75%, 3/1/2010 95,000 95,833
5.50%, 7/1/2012 1,405,000 1,375,270
Illinois Health Facilities Authority, Revenue:
(Advocate Health Care Network) 6.125%, 11/15/2022 5,800,000 5,959,790
(OSF Healthcare System) 6.25%, 11/15/2029 7,000,000 7,138,810
(Swedish American Hospital) 6.875%, 11/15/2030 2,000,000 2,112,820
INDIANA--1.5%
Franklin Township School Building Corp.
(Marion County) First Mortgage
6.125%, 1/15/2022 (Prerefunded 7/15/2010) 2,500,000 (a) 2,838,275
KENTUCKY--1.9%
Perry County, SWDR (TJ International Project)
7%, 6/1/2024 3,500,000 3,678,395
MARYLAND--4.1%
Maryland Health and Higher Educational Facilities
Authority, Revenue (The John Hopkins University Issue)
6%, 7/1/2039 (Prerefunded 7/1/2009) 7,000,000 (a) 7,788,410
MASSACHUSETTS--4.3%
Massachusetts Health and Educational Facilities Authority,
Revenue Healthcare System (Covenant Health)
6%, 7/1/2031 2,500,000 2,388,825
The Fund
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS (CONTINUED)
Massachusetts Industrial Finance Agency, Revenue
(Water Treatment-American Hingham)
6.95%, 12/1/2035 5,640,000 5,811,964
MICHIGAN--8.4%
Hancock Hospital Finance Authority, Mortgage Revenue
(Portgage Health) 5.45%, 8/1/2047 (Insured; MBIA) 2,200,000 2,148,542
Michigan Hospital Finance Authority, HR
(Genesys Health System Obligated Group)
8.125%, 10/1/2021 (Prerefunded 10/1/2005) 7,670,000 (a) 8,953,498
Michigan Strategic Fund, SWDR
(Genesee Power Station Project)
7.50%, 1/1/2021 5,000,000 4,815,000
MINNESOTA--1.3%
Minnesota Agricultural and Economic Development
Board, Health Care System Revenue
(Fairview Health Services) 6.375%, 11/15/2029 2,500,000 2,575,900
MISSISSIPPI--3.1%
Mississippi Business Finance Corp., PCR
(System Energy Resource Inc. Project)
5.875%, 4/1/2022 6,000,000 5,751,660
MISSOURI--4.8%
Health and Educational Facilities
Authority of the State of Missouri,
Health Facilities Revenue
(Saint Anthony's Medical Center)
6.25%, 12/1/2030 2,500,000 2,557,075
The Industrial Development Authority of the
City of Saint Louis, Senior Lien Revenue
(Saint Louis Convention Center
Headquarters Hotel Project):
7.20%, 12/15/2028 1,500,000 1,555,305
7.25%, 12/15/2035 3,000,000 3,110,340
Missouri Housing Development Commission,
Mortgage Revenue
(Single Family-Homeownersip Loan)
6.30%, 9/1/2025 1,750,000 1,812,108
NEVADA--8.5%
Clark County, IDR:
(Nevada Power Co. Project) 5.90%, 10/1/2030 4,000,000 3,666,240
(Southwest Gas Corp.):
7.50%, 9/1/2032 3,000,000 3,074,190
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
NEVADA (CONTINUED)
(Southwest Gas Corp.) (continued):
6.50%, 12/1/2033 5,300,000 5,303,657
6.10%, 12/1/2038 (Insured; AMBAC) 4,000,000 4,194,680
NEW MEXICO--1.6%
Farmington, PCR (Public Service Co. San Juan)
6.30%, 12/1/2016 3,000,000 3,053,550
NORTH CAROLINA--1.4%
North Carolina Housing Finance Agency
(Home Ownership)
6.25%, 1/1/2029 2,500,000 2,580,525
OHIO--3.2%
Cuyahoga County, Hospital Improvement Revenue
(The Metrohealth System Project)
6.125%, 2/15/2024 5,000,000 5,069,600
Ohio Housing Finance Agency,
Residential Mortgage Revenue
5.75%, 9/1/2030 1,000,000 1,005,790
OKLAHOMA--1.3%
Oklahoma Development Finance Authority, Revenue
(Saint John Health System) 6%, 2/15/2029 2,500,000 2,578,075
PENNSYLVANIA--5.9%
Pennsylvania Economic Development Financing Authority,
RRR (Northampton Generating Project)
6.60%, 1/1/2019 3,500,000 3,547,040
Sayre Health Care Facilities Authority, Revenue
(Guthrie Health) 5.875%, 12/1/2031 7,750,000 7,636,850
SOUTH CAROLINA--7.7%
Medical University, Hospital Facilities Revenue
6%, 7/1/2019 2,500,000 2,575,975
Piedmont Municipal Power Agency, Electric Revenue:
6.55%, 1/1/2016 880,000 880,132
5.25%, 1/1/2021 3,000,000 2,709,960
Tobacco Settlement Revenue Management Authority,
Tobacco Settlement Asset--Backed Bonds:
6.375%, 5/15/2028 2,900,000 2,932,045
6.375%, 5/15/2030 5,500,000 5,571,720
TEXAS--13.5%
Alliance Airport Authority Inc., Special Facilities Revenue
(American Airlines Inc. Project)
7.50%, 12/1/2029 2,375,000 2,250,645
The Fund
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
Austin Convention Enterprises Inc., Convention Center
Hotel First Tier Revenue
6.70%, 1/1/2032 2,000,000 2,011,560
Brazos River Authority, PCR (TXU Electric Co. Project)
5.75%, 11/1/2011 2,000,000 1,999,440
Dallas-Fort Worth International Airport Facility
Improvement Corp., Revenue
(American Airlines, Inc.) 6.375%, 5/1/2035 2,500,000 2,032,250
Gregg County Health Facilities Development Corp., HR
(Good Shepherd Medical Center Project)
6.375%, 10/1/2025 2,500,000 2,649,675
Harris County Health Facilities Development Corp., HR
(Memorial Hermann Healthcare) 6.375%, 6/1/2029 3,565,000 3,672,164
Port of Corpus Christi Authority, Nueces County,
General Revenue (Union Pacific) 5.65%, 12/1/2022 4,000,000 3,825,880
Texas, Veterans Housing Assistance Program
6.10%, 6/1/2031 7,000,000 7,204,260
UTAH--3.2%
Carbon County, SWDR (Sunnyside Cogeneration):
7.10%, 8/15/2023 3,345,000 3,392,599
Zero Coupon, 8/15/2024 1,080,000 272,182
Utah Housing Finance Agency, Single Family Mortgage
6%, 1/1/2031 2,440,000 2,497,120
VERMONT--1.6%
Vermont Housing Finance Agency, Single Family Housing
6.40%, 11/1/2030 (Insured; FSA) 3,000,000 3,118,770
WASHINGTON--3.8%
Public Utility District Number 1 of Pend Orielle County,
Electric Revenue 6.375%, 1/1/2015 2,000,000 2,082,660
Washington Higher Education Facilities Authority, Revenue
(Whitman College Project) 5.875%, 10/1/2029 5,000,000 5,115,600
WEST VIRGINIA--6.5%
Braxton County, SWDR (Weyerhaeuser Co. Project):
6.50%, 4/1/2025 5,000,000 5,108,900
5.80%, 6/1/2027 7,450,000 7,226,947
WISCONSIN--4.7%
Wisconsin Health and Educational Facilities Authority, Revenue
(Aurora Health Care, Inc.) 5.60%, 2/15/2029 5,750,000 5,210,593
Wisconsin Housing and Economic Development Authority,
Home Ownership Revenue 5.75%, 9/1/2028 3,770,000 3,769,812
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
WYOMING--1.6%
Sweetwater County, SWDR (FMC Corp. Project)
7%, 6/1/2024 3,000,000 3,017,850
U.S. RELATED--6.5%
Puerto Rico Highway and Transportation Authority,
Transportation Revenue:
8.42%, 7/1/2038 (Insured; MBIA) 4,000,000 (b,c) 3,633,080
8.42%, 7/1/2038 5,000,000 (b,c) 4,541,350
Puerto Rico Infrastructure Financing Authority,
Special Tax Revenue, Residual Certficates
8.265%, 7/1/2015 4,000,000 (b,c) 4,146,120
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(cost $276,425,424) 283,396,797
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENT--.9%
------------------------------------------------------------------------------------------------------------------------------------
OHIO;
Cuyahoga County, HR, VRDN (The Cleveland Clinic) 1.50%
(cost $1,700,000) 1,700,000 (d) 1,700,000
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $278,125,424) 149.9% 285,096,797
CASH AND RECEIVABLES (NET) 2.7% 5,109,968
PREFERRED STOCK, AT REDEMPTION VALUE (52.6) (100,000,000)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 100.0% 190,206,765
The Fund
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
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
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 24.6
AA Aa AA 15.0
A A A 26.1
BBB Baa BBB 28.3
BB Ba BB 1.8
B B B .6
F1 MIG1/P1 SP1/A1 .6
Not Rated (e) Not Rated (e) Not Rated (e) 3.0
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 MARCH 31,
2002, THESE SECURITIES AMOUNTED TO $12,320,550 OR 4.2% OF NET ASSETS.
(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 MARCH 31, 2002, THE FUND HAD $93,994,742 OR 32.4% OF NET ASSETS INVESTED
IN SECURITIES WHOSE PAYMENT OF PRINCIPAL AND INTEREST IS DEPENDENT UPON
REVENUES GENERATED FROM HEALTH CARE PROJECTS.
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2002 (Unaudited)
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 278,125,424 285,096,797
Cash 86,905
Interest receivable 5,321,786
Prepaid expenses 127,282
290,632,770
--------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 186,818
Dividend payable to Preferred Shareholders 94,869
Commssions payable 19,743
Accrued expenses 124,575
426,005
--------------------------------------------------------------------------------
AUCTION PREFERRED STOCK, Series A and B,
par value $.001 per share (4,000 shares issued
and outstanding at $25,000 per share
liquidation preference)--Note 1 100,000,000
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ($) 190,206,765
--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Common Stock, par value, $.001 per share
(20,382,927 shares issued and outstanding) 20,383
Paid-in capital 188,610,337
Accumulated undistributed investment income--net 2,646,966
Accumulated net realized gain (loss) on investments (8,042,294)
Accumulated net unrealized appreciation
(depreciation) on investments 6,971,373
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 190,206,765
--------------------------------------------------------------------------------
SHARES OUTSTANDING
(110 million shares of $.001 par value Common Stock authorized) 20,382,927
NET ASSET VALUE, per share of Common Stock 9.33
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF OPERATIONS
Six Months Ended March 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 8,975,711
EXPENSES:
Management fee--Note 3(a) 1,026,684
Commission fees--Note 1 130,380
Shareholder servicing costs--Note 3(b) 30,315
Professional fees 27,346
Shareholders' reports 26,908
Custodian fees--Note 3(b) 11,265
Registration fees 7,370
Directors' fees and expenses--Note 3(c) 6,537
Miscellaneous 13,114
TOTAL EXPENSES 1,279,919
INVESTMENT INCOME--NET 7,695,792
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments 139,318
Net unrealized appreciation (depreciation) on investments (8,391,985)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (8,252,667)
DIVIDENDS ON PREFERRED STOCK (806,857)
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (1,363,732)
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
March 31, 2002 Year Ended
(Unaudited) September 30, 2001(a
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 7,695,792 15,068,211
Net realized gain (loss) on investments 139,318 (1,403,724)
Net unrealized appreciation
(depreciation) on investments (8,391,985) 17,581,781
Dividends on Preferred Stock (806,857) (3,354,280)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (1,363,732) 27,891,988
-------------------------------------------------------------------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (5,381,093) (10,762,186)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
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 (6,744,825) 17,159,802
--------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 196,951,590 179,791,788
END OF PERIOD 190,206,765 196,951,590
Undistributed investment income--net 2,646,966 1,098,157
A RESTATED TO CONFORM TO CURRRENT YEAR'S PRESENTATION.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements and, with respect to common stock, market price data for the fund's
common shares.
Six Months Ended
March 31, 2002(a) Year Ended September 30,
---------------------------------------------------------------
(Unaudited) 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value,
beginning of period 9.66 8.82 8.90 9.71 9.55 9.60
Investment Operations:
Investment income--net .38(b) .74 .74 .53 .55 .61
Net realized and unrealized
gain (loss) on investments (.41) .79 (.08) (.73) .21 (.02)
Dividends on Preferred Stock
from net investment income (.04) (.16) (.20) (.01) -- --
Total from Investment Operations (.07) 1.37 .46 (.21) .76 .59
Distributions to
Common Shareholders:
Dividends from
investment income--net (.26) (.53) (.53) (.54) (.60) (.64)
Capital Stock transaction--net
effect of Preferred Stock offering -- .00(c) (.01) (.06) -- --
Net asset value, end of period 9.33 9.66 8.82 8.90 9.71 9.55
Market value, end of period 8.62 8.71 7 7/8 7 5/8 9 11/16 10 3/8
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(D) 1.96(e) 17.55 10.71 (16.35) (.69) 15.90
Six Months Ended
March 31, 2002(a) Year Ended September 30,
--------------------------------------------------------------
(Unaudited) 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average
net assets applicable to
Common Stock 1.32(f,g,h) 1.39(g,h) 1.48(g,h) .85(g,h) .82 .82
Ratio of net investment
income to average
net assets applicable to
Common Stock 7.95(f,g,h) 7.97(g,h) 8.64(g,h) 5.72(g,h) 5.75 6.36
Portfolio Turnover Rate 3.21(e) 15.27 22.47 35.55 8.84 10.67
Asset coverage of Preferred Stock,
end of period 290 297 280 281 -- --
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, net of Preferred stock,
end of period ($ x 1,000) 190,207 196,952 179,792 181,315 197,505 193,578
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 MARCH 31,
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 INCREASED THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
FROM 7.94% TO 7.95%. PER SHARE DATA AND RATIOS/SUPPLEMENTAL DATA FOR
PERIODS PRIOR TO OCTOBER 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS
CHANGE IN PRESENTATION.
(B) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(C) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(D) CALCULATED BASED ON MARKET VALUE.
(E) NOT ANNUALIZED.
(F) ANNUALIZED.
(G) DOES NOT REFLECT THE EFFECT OF DIVIDENDS TO PREFERRED STOCK SHAREHOLDERS.
(H) THE RATIO OF EXPENSES TO TOTAL AVERAGE NET ASSETS AND THE RATIO OF NET
INVESTMENT INCOME TO TOTAL AVERAGE NET ASSETS WERE .87% AND 5.25%,
RESPECTIVELY, FOR THE SIX MONTHS ENDED MARCH 31, 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.
The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 issued 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
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 ("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 fre-
The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
quent 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.
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) based on the record date's respective prices. If the
net asset value per share on the record date is lower than the market price per
share, shares will be issued by the fund at the record date's net asset value on
the payable date of the distribution. If the net asset value per share is less
than 95% of the market value, shares will be issued by the fund at 95% of the
market value. If the market price is lower than the net asset value per share on
the record date, Mellon will purchase fund shares in the open market commencing
on the payable date and reinvest those shares accordingly. As a result of
purchasing fund shares in the open market, fund shares outstanding will not be
affected by this form of reinvestment.
On March 14, 2002, the Board of Directors declared a cash dividend to Common
Shareholders of $.05 per share from investment income-net, payable on April 25,
2002 to Common Shareholders of record as of the close of business on April 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 March 31, 2002 were as follows: Series A 1.45% and Series B 2.25%.
(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.
The fund has an unused capital loss carryover of approximately $6,768,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to September 30, 2001. The
amount is calculated based on Federal income tax regulations which may differ
from financial reporting in accordance with accounting principles generally
accepted in the United States. If not applied, $5,000,000 of the carryover
expires in fiscal 2004, $1,148,000 expires in fiscal 2008 and $620, 000 expires
in fiscal 2009.
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 March 31, 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. There was no expense
reimbursement for the period ended March 31, 2002, 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 March 31, 2002, the fund was charged $30,315 pursuant to
the transfer agency agreement.
The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
The fund compensates Mellon under a custody agreement for providing custodial
services for the fund. During the period ended March 31, 2002, the fund was
charged $11,265 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 March 31, 2002, amounted to
$12,078,863 and $9,154,400, respectively.
At March 31, 2002, accumulated net unrealized appreciation on investments was
$6,971,373, consisting of $10,483,971 gross unrealized appreciation and
$3,512,598 gross unrealized depreciation.
At March 31, 2002, 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 5--Change in Accounting Principles:
(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 debt
securities 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 $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 March 31, 2002 was to increase
net investment income by $5,335, decrease net unrealized appreciation
(depreciation) by $5,308 and decrease net realized gains (losses) by $27. The
statement of changes in net assets and financial highlights for the 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 $806,857 and $3,354,280
to net assets from operations for the periods ended March 31, 2002 and
September 30, 2001, respectively. As part of the adoption, per share
distributions of dividends on preferred stock was reclassified from
distributions to amounts from investment operations for each period presented in
the financial highlights.
The Fund
NOTES
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
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 424SA0302