Dreyfus Municipal Income, Inc.
SEMIANNUAL REPORT March 31, 2003
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
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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:
This semiannual report for Dreyfus Municipal Income, Inc. covers the six-month
period from October 1, 2002, through March 31, 2003. 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.
A number of economic and political factors continued to support higher municipal
bond prices during the reporting period. Faced with escalating tensions leading
to the start of the war in Iraq, many investors preferred fixed-income
securities over stocks. We believe that rising geopolitical tensions also
contributed to the ongoing sluggishness of the U.S. economy, as many
corporations apparently decided to wait until the situation in Iraq is resolved
before committing to new capital spending. For its part, the Federal Reserve
Board contributed to the municipal bond market's strength by further reducing
short-term interest rates in November 2002.
The result of these influences has been generally attractive total returns from
high-quality, tax-exempt bonds. While history suggests that bond prices should
moderate if the economy strengthens, we believe that the economy is unlikely to
make significant gains until current uncertainties are resolved.
In the meantime, we believe it is more important than ever to follow a
disciplined approach to investing. While it may be tempting to shift assets
between stocks and bonds in response to near-term economic and market forces,
adherence to your longstanding asset allocation strategy may be the most prudent
course for the long term. Your financial advisor can help you to ensure that
your portfolio reflects your investment needs, long-term goals and attitudes
toward risk.
Thank you for your continued confidence and support.
Sincerely,
Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
April 15, 2003
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, 2003, the fund achieved a total return
of 0.65%.(1) Over the same period, the fund provided income dividends of $0.3200
per share, which is equal to a distribution rate of 6.73%.(2)
During the reporting period, the fund's performance was positively influenced by
our focus on certain income-oriented bonds in an unsettled economic environment.
The fund benefited during the reporting period by locking in low prevailing
rates on some of its auction-rate preferred notes, the proceeds of which were
used to buy long-term, tax-exempt securities.
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
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
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 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?
During the reporting period, the fund benefited from its emphasis on
income-oriented municipal bonds with maturities between 25 and 30 years. These
bonds continued to generate what we regarded as competitive levels of income,
even as the Federal Reserve Board reduced short-term interest rates by 50 basis
points in November 2002. In addition, because the yield difference, or "spread,"
between 25-year and 30-year bonds was relatively wide when the reporting period
began, prices of bonds toward the long end of this range rose as they moved
closer to maturity.
In addition, the fund benefited from our efforts to improve its credit-quality
profile, including a reduction to less than 1% of total assets in bonds issued
on behalf of airlines. As a result, the fund avoided the brunt of further price
declines in airline bonds. Instead, we focused primarily on bonds rated in the
single-A range that we believed offered strong income characteristics. This
focus often led us to securities selling at premiums to their face values, which
historically have
held more of their value during market declines but may lag during rallies. We
also attempted to reduce credit risk through broad diversification across
issuers and securities.(3)
Finally, the fund's performance benefited from our leveraging strategy. Taking
advantage of the reporting period' s low interest rates, we locked in low
borrowing costs until 2005 on one of the fund's issues of auction-rate preferred
notes. We used the proceeds to invest in additional income-oriented municipal
bonds.
What is the fund's current strategy?
As the fund' s higher-yielding, seasoned bonds mature or are redeemed early by
their issuers, it has become increasingly difficult to replace the income they
provided. Nonetheless, we have found a number of then-current income
opportunities among bonds issued on behalf of health care facilities. In
addition, we have been watching the general obligation bonds of certain states,
many of which have been punished for their issuers' deteriorating fiscal
condition in the weak economy. If and when these bonds reach price levels we
consider oversold, we may add them to the fund.
April 15, 2003
(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, ANNUALIZED, DIVIDED BY THE
MARKET PRICE PER SHARE AT THE END OF THE PERIOD.
(3) DIVERSIFICATION DOES NOT INSURE A PROFIT OR GUARANTEE AGAINST A LOSS.
The Fund
STATEMENT OF INVESTMENTS
March 31, 2003 (Unaudited)
STATEMENT OF INVESTMENTS
Principal
LONG-TERM MUNICIPAL INVESTMENTS--141.6% Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
ALABAMA--8.4%
Courtland Industrial Development Board, SWDR
(Champion International Corp. Project)
6.50%, 9/1/2025 2,500,000 2,585,825
Jefferson County, Sewer Revenue, Capital Improvement
5.75%, 2/1/2038 (Insured; FGIC)
(Prerefunded 2/1/2009) 7,500,000 (a) 8,737,350
The Board of Trustees of the University of Alabama, HR
(University of Alabama at Birmingham)
5.875%, 9/1/2031 (Insured; MBIA) 4,620,000 5,008,773
ALASKA--5.0%
Alaska Housing Finance Corp., General Mortgage Revenue
6.05%, 6/1/2039 (Insured; MBIA) 6,845,000 7,224,418
Valdez, Marine Terminal Revenue
(British Petroleum Pipeline Inc. Project)
5.50%, 10/1/2028 2,375,000 2,401,980
CALIFORNIA--9.0%
Abag Financial Authority For Nonprofit Corporations:
Insured Revenue, COP
(Odd Fellows Home of California) 6%, 8/15/2024 5,000,000 5,394,800
MFHR
(Civic Center Drive Apartments)
5.875%, 9/1/2032 (Insured; FSA) 3,750,000 3,941,700
California Health Facilities Financing Authority,
Revenue (Sutter Health)
6.25%, 8/15/2035 2,500,000 2,693,000
California Statewide Communties Development
Authority, COP (Catholic Healthcare West)
6.50%, 7/1/2020 5,000,000 5,353,600
COLORADO--3.5%
Colorado Springs, HR 6.375%, 12/15/2030 5,725,000 6,077,431
City and County of Denver, Airport Revenue
(Special Facilities-United Airlines Inc. Project)
6.875%, 10/1/2032 2,480,000 644,800
DISTRICT OF COLUMBIA--3.5%
District of Columbia, Revenue
(Catholic University America Project)
5.625%, 10/1/2029 (Insured; AMBAC) 2,080,000 2,209,875
District of Columbia Tobacco Settlement Financing Corp.,
Tobacco Settlement Asset-Backed Bonds
6.75%, 5/15/2040 5,000,000 4,511,950
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
FLORIDA--3.4%
Orange County Health Facilities Authority, Revenue
(Orlando Regional Healthcare System) 6%, 10/1/2026 1,500,000 1,552,950
Pinellas County Housing Finance Authority,
SFMR (Multi-County Program) 6.70%, 2/1/2028 2,840,000 2,948,488
South Lake County Hospital District, Revenue
(South Lake Hospital Inc.) 5.80%, 10/1/2034 2,095,000 2,126,132
GEORGIA--1.4%
Private Colleges and Universities Facilities Authority,
Revenue (Clark Atlanta University Project)
8.25%, 1/1/2015 (Prerefunded 7/1/2003) 2,630,000 (a) 2,781,225
ILLINOIS--11.2%
Chicago 6.125%, 1/1/2028 (Insured; FGIC) 4,000,000 4,547,120
Illinois Development Finance Authority, Revenue
(Community Rehabilitation Providers Facilities
Acquisition Program):
8.75%, 3/1/2010 85,000 85,785
5.50%, 7/1/2012 1,405,000 1,388,351
Illinois Health Facilities Authority, Revenue:
(Advocate Health Care Network) 6.125%, 11/15/2022 5,800,000 6,248,920
(OSF Healthcare System) 6.25%, 11/15/2029 7,000,000 7,346,360
(Swedish American Hospital) 6.875%, 11/15/2030 2,000,000 2,156,520
INDIANA--1.6%
Franklin Township School Building Corp.
(Marion County) First Mortgage
6.125%, 1/15/2022 (Prerefunded 7/15/2010) 2,500,000 (a) 3,016,675
KENTUCKY--1.9%
Perry County, SWDR (TJ International Project)
7%, 6/1/2024 3,500,000 3,635,205
MARYLAND--4.3%
Maryland Health and Higher Educational Facilities
Authority, Revenue (The John Hopkins University Issue)
6%, 7/1/2039 (Prerefunded 7/1/2009) 7,000,000 (a) 8,316,910
MASSACHUSETTS--4.3%
Massachusetts Health and Educational Facilities Authority,
Revenue Healthcare System (Covenant Health)
6%, 7/1/2031 2,500,000 2,582,750
Massachusetts Industrial Finance Agency, Revenue
(Water Treatment-American Hingham)
6.95%, 12/1/2035 5,640,000 5,802,770
The Fund
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
MICHIGAN--8.3%
Hancock Hospital Finance Authority, Mortgage Revenue
(Portgage Health) 5.45%, 8/1/2047 (Insured; MBIA) 2,200,000 2,256,540
Michigan Hospital Finance Authority, HR
(Genesys Health System Obligated Group)
8.125%, 10/1/2021 (Prerefunded 10/1/2005) 7,670,000 (a) 9,070,542
Michigan Strategic Fund, SWDR
(Genesee Power Station Project)
7.50%, 1/1/2021 4,900,000 4,685,870
MINNESOTA--1.4%
Minnesota Agricultural and Economic Development
Board, Health Care System Revenue
(Fairview Health Services) 6.375%, 11/15/2029 2,500,000 2,670,525
MISSISSIPPI--3.0%
Mississippi Business Finance Corp., PCR
(System Energy Resource Inc. Project)
5.875%, 4/1/2022 6,000,000 5,889,000
MISSOURI--4.3%
Health and Educational Facilities
Authority of the State of Missouri, Health Facilities
Revenue (Saint Anthony's Medical Center)
6.25%, 12/1/2030 2,500,000 2,614,500
The Industrial Development Authority of the
City of Saint Louis, Senior Lien Revenue
(Saint Louis Convention Center
Headquarters Hotel Project):
7.20%, 12/15/2028 1,500,000 1,480,590
7.25%, 12/15/2035 3,000,000 2,966,580
Missouri Housing Development Commission, Mortgage
Revenue (Single Family-Homeownersip Loan)
6.30%, 9/1/2025 1,235,000 1,307,840
NEVADA--6.7%
Clark County, IDR (Southwest Gas Corp.):
7.50%, 9/1/2032(Prerefunded 4/21/2003) 3,000,000 (a) 3,069,780
6.50%, 12/1/2033 5,300,000 5,376,850
6.10%, 12/1/2038 (Insured; AMBAC) 4,000,000 4,480,160
NEW MEXICO--1.6%
Farmington, PCR (Public Service Co. San Juan)
6.30%, 12/1/2016 3,000,000 3,061,860
NORTH CAROLINA--1.3%
North Carolina Housing Finance Agency (Home Ownership)
6.25%, 1/1/2029 2,485,000 2,626,546
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
OHIO--5.1%
Cuyahoga County, Hospital Improvement Revenue
(The Metrohealth System Project)
6.125%, 2/15/2024 5,000,000 5,191,000
Ohio Housing Finance Agency, Residential Mortgage
Revenue 5.75%, 9/1/2030 995,000 1,032,929
Rickenbacker Port Authority, Capital Funding Revenue
(OASBO Expanded Asset Pooled) 5.375%, 1/1/2032 3,590,000 3,765,659
OKLAHOMA--1.4%
Oklahoma Development Finance Authority, Revenue
(Saint John Health System) 6%, 2/15/2029 2,500,000 2,713,975
PENNSYLVANIA--5.9%
Pennsylvania Economic Development Financing Authority,
RRR (Northampton Generating Project)
6.60%, 1/1/2019 3,500,000 3,502,485
Sayre Health Care Facilities Authority, Revenue
(Guthrie Health) 5.875%, 12/1/2031 7,750,000 7,994,280
SOUTH CAROLINA--6.7%
Medical University, Hospital Facilities Revenue
6%, 7/1/2019 (Prerefunded 7/1/2009) 2,500,000 (a) 2,954,575
Piedmont Municipal Power Agency, Electric Revenue:
6.55%, 1/1/2016 880,000 880,898
5.25%, 1/1/2021 3,500,000 3,397,485
Tobacco Settlement Revenue Management Authority,
Tobacco Settlement Asset--Backed Bonds:
6.375%, 5/15/2028 2,900,000 2,522,855
6.375%, 5/15/2030 3,750,000 3,249,938
TEXAS--11.4%
Austin Convention Enterprises Inc., Convention Center
Hotel First Tier Revenue
6.70%, 1/1/2032 2,000,000 2,076,740
Brazos River Authority, PCR (TXU Electric Co. Project)
5.75%, 11/1/2011 2,000,000 1,947,780
Gregg County Health Facilities Development Corp., HR
(Good Shepherd Medical Center Project)
6.375%, 10/1/2025 2,500,000 2,801,125
Harris County Health Facilities Development Corp., HR
(Memorial Hermann Healthcare) 6.375%, 6/1/2029 3,565,000 3,809,416
Port of Corpus Christi Authority, Nueces County,
General Revenue (Union Pacific)
5.65%, 12/1/2022 4,000,000 3,985,560
The Fund
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
Texas, Veterans Housing Assistance Program
6.10%, 6/1/2031 7,000,000 7,498,120
UTAH--2.7%
Carbon County, SWDR (Sunnyside Cogeneration)
7.10%, 8/15/2023 3,174,000 3,101,601
Utah Housing Finance Agency, Single Family Mortgage
6%, 1/1/2031 1,955,000 2,059,710
VERMONT--1.5%
Vermont Housing Finance Agency, Single Family Housing
6.40%, 11/1/2030 (Insured; FSA) 2,655,000 2,824,787
WASHINGTON--3.8%
Public Utility District Number 1 of Pend Orielle County,
Electric Revenue 6.375%, 1/1/2015 2,000,000 2,128,780
Washington Higher Education Facilities Authority, Revenue
(Whitman College Project) 5.875%, 10/1/2029 5,000,000 5,341,650
WEST VIRGINIA--6.5%
Braxton County, SWDR (Weyerhaeuser Co. Project):
6.50%, 4/1/2025 5,000,000 5,146,700
5.80%, 6/1/2027 7,450,000 7,382,428
WISCONSIN--4.4%
Badger Tobacco Asset Securitization Corp.,
Tobacco Settlement Asset-Backed Bonds
7%, 6/1/2028 2,500,000 2,376,675
Wisconsin Health and Educational Facilities Authority,
Revenue (Aurora Health Care, Inc.)
5.60%, 2/15/2029 4,750,000 4,558,718
Wisconsin Housing and Economic Development Authority,
Home Ownership Revenue 5.75%, 9/1/2028 1,650,000 1,697,075
WYOMING--.9%
Sweetwater County, SWDR (FMC Corp. Project)
7%, 6/1/2024 2,000,000 1,790,680
U.S. RELATED--7.2%
Puerto Rico Highway and Transportation Authority,
Transportation Revenue:
8.74%, 7/1/2038 (Insured; MBIA) 4,000,000 (b,c) 4,147,880
8.74%, 7/1/2038 5,000,000 (b,c) 5,184,850
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
U.S. RELATED (CONTINUED)
Puerto Rico Infrastructure Financing Authority,
Special Tax Revenue, Residual Certficates
8.585%, 7/1/2015 4,000,000 (b,c) 4,638,720
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(cost $261,345,469) 274,583,920
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS--7.4%
------------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--4.2%
Geisinger Authority Health System, Revenue, VRDN
(Geisinger Health Systems) 1.20% 6,000,000 (d) 6,000,000
Philadelphia Authority for Industrial Development, Revenue
VRDN (Fox Chase Cancer Center Project)
1.20% (LOC; Morgan Guaranty Trust) 2,100,000 (d) 2,100,000
TEXAS--3.2%
Harris County Health Facilities Development Corp.,
Revenue, VRDN:
(Methodist Hospital) 1.20% 5,100,000 (d) 5,100,000
(Saint Lukes Episcopal Hospital) 1.20% 1,200,000 (d) 1,200,000
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $14,400,000) 14,400,000
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TOTAL INVESTMENTS (cost $275,745,469) 149.0% 288,983,920
CASH AND RECEIVABLES (NET) 2.6% 4,973,300
PREFERRED STOCK, AT REDEMPTION VALUE (51.6%) (100,000,000)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 100.0% 193,957,220
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
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 24.8
AA Aa AA 15.2
A A A 27.1
BBB Baa BBB 24.8
BB Ba BB .6
CCC Ccc CCC .2
F1 MIG1/P1 SP1/A1 4.6
Not Rated (e) Not Rated (e) Not Rated (e) 2.7
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,
2003, THESE SECURITIES AMOUNTED TO $13,971,450 OR 7.2% 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 MARCH 31, 2003, THE FUND HAD $106,950,567 OR 55.1% OF NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS INVESTED IN SECURITIES WHOSE PAYMENT
OF PRINCIPAL AND INTEREST IS DEPENDENT UPON REVENUES GENERATED FROM
HEALTH CARE PROJECTS.
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2003 (Unaudited)
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 275,745,469 288,983,920
Cash 60,084
Interest receivable 5,080,479
Prepaid expenses 255,740
294,380,223
--------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 193,494
Dividend payable to Preferred Shareholders 71,851
Commssions payable 8,091
Accrued expenses 149,567
423,003
--------------------------------------------------------------------------------
AUCTION PREFERRED STOCK, Series A and B,
par value $.001 per share (4,000 shares issued
and outstanding at $25,000 per share
liquidation preference)--Note 1 100,000,000
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ($) 193,957,220
--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Common Stock, par value, $.001 per share
(20,393,571 shares issued and outstanding) 20,394
Paid-in capital 188,714,556
Accumulated undistributed investment income--net 3,588,446
Accumulated net realized gain (loss) on investments (11,604,627)
Accumulated net unrealized appreciation
(depreciation) on investments 13,238,451
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 193,957,220
--------------------------------------------------------------------------------
SHARES OUTSTANDING
(110 million shares of $.001 par value Common Stock authorized) 20,393,571
NET ASSET VALUE, per share of Common Stock ($) 9.51
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF OPERATIONS
Six Months Ended March 31, 2003 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 8,770,821
EXPENSES:
Management fee--Note 3(a) 1,026,787
Commission fees--Note 1 132,616
Professional fees 38,489
Shareholders' reports 26,247
Shareholder servicing costs--Note 3(b) 24,719
Custodian fees--Note 3(b) 10,731
Registration fees 9,296
Directors' fees and expenses--Note 3(c) 6,822
Miscellaneous 12,047
TOTAL EXPENSES 1,287,754
INVESTMENT INCOME--NET 7,483,067
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (2,973,244)
Net unrealized appreciation (depreciation) on investments (2,725,087)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (5,698,331)
DIVEDENDS ON PREFERRED STOCK (766,243)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 1,018,493
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
March 31, 2003 Year Ended
(Unaudited) September 30, 2002
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 7,483,067 15,394,701
Net realized gain (loss) on investments (2,973,244) (446,764)
Net unrealized appreciation
(depreciation) on investments (2,725,087) 600,180
Dividends on Preferred Stock (766,243) (1,643,057)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 1,018,493 13,905,060
--------------------------------------------------------------------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (6,523,175) (11,495,971)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
DIVIDENDS REINVESTED 101,223 --
TOTAL INCREASE (DECREASE) IN NET ASSETS (5,403,459) 2,409,089
--------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 199,360,679 196,951,590
END OF PERIOD 193,957,220 199,360,679
Undistributed investment income--net 3,588,446 3,342,621
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
INCREASE IN SHARES OUTSTANDING AS A
RESULT OF DIVIDENDS REINVESTED 10,644 --
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, 2003 Year Ended September 30,
--------------------------------------------------------------------
(Unaudited) 2002(a) 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value,
beginning of period 9.78 9.66 8.82 8.90 9.71 9.55
Investment Operations:
Investment income--net .37(b) .76(b) .74 .74 .53 .55
Net realized and unrealized
gain (loss) on investments (.28) .00(c) .79 (.08) (.73) .21
Dividends on Preferred Stock
from investment income--net (.04) (.08) (.16) (.20) (.01) --
Total from Investment Operations .05 .68 1.37 .46 (.21) .76
Distributions to
Common Shareholders:
Dividends from
investment income--net (.32) (.56) (.53) (.53) (.54) (.60)
Capital Stock transaction--net
effect of Preferred
Stock offering -- -- .00(c) (.01) (.06) --
Net asset value, end of period 9.51 9.78 9.66 8.82 8.90 9.71
Market value, end of period 9.51 9.60 8.71 7 7/8 7 5/8 9 11/16
--------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(D) 2.54(e) 17.28 17.55 10.71 (16.35) (.69)
Six Months Ended
March 31, 2003 Year Ended September 30,
--------------------------------------------------------------------
(Unaudited) 2002(a) 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average
net assets applicable
to Common Stock 1.33(f,g,h,) 1.33(g,h) 1.39(g,h) 1.48(g,h) .85(g,h) .82
Ratio of net investment
income to average
net assets applicable
to Common Stock 7.73(f,g,h,) 7.93(g,h) 7.97(g,h) 8.64(g,h) 5.72(g,h) 5.75
Portfolio Turnover Rate .56(e) 5.32 15.27 22.47 35.55 8.84
Asset coverage of
Preferred Stock,
end of period 294 299 297 280 281 --
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, net of Preferred
stock, end of period
($ x 1,000) 193,957 199,361 196,952 179,792 181,315 197,505
Preferred Stock outstanding,
end of period ($ x 1,000) 100,000 100,000 100,000 100,000 100,000 --
(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 REALIZED 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) 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 .88% AND 5.10%,
RESPECTIVELY, FOR THE SIX MONTHS ENDED MARCH 31, 2003, .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.
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 has 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 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 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.
The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
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 31, 2003, the Board of Directors declared a cash dividend to Common
Shareholders of $.06 per share from investment income-net, payable on April 28,
2003 to Common Shareholders of record as of the close of business on April 14,
2003.
(d) Dividends to shareholders of APS: For APS, dividends are currently reset
every 7 days for Series A. The dividend rate for Series B will be in effect
until February 17, 2005. The dividend rates in effect at March 31, 2003 were as
follows: Series A 1.00% and Series B 1.58%.
(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 $8,181,604 available for
federal income tax purposes 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.
The tax character of distributions paid to shareholder during the fiscal year
ended September 30, 2002, was as follows: tax exempt income $13,139,028. The tax
character of current year distributions will be determined at the end of the
current fiscal year.
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, 2003, 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 March 31, 2003, 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 March 31, 2003, the fund was charged $24,290 pursuant to
the transfer agency agreement.
The fund compensates Mellon under a custody agreement for providing custodial
services for the fund. During the period ended March 31, 2003, the fund was
charged $10,731 pursuant to the custody agreement.
The Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
(c) Each Board member also serves as a Board member of other funds within the
Dreyfus complex (collectively, the "Fund Group"). Through December 31, 2002,
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. Effective January 1, 2003, the
number of funds in the Fund Group, comprising the fund increased and the annual
fee was increased to $60,000 while the attendance fee was increased to $7,500
for each in person meeting. These fees are allocated among the funds in that
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, 2003, amounted to
$1,574,140 and $12,163,518, respectively.
At March 31, 2003, accumulated net unrealized appreciation on investments was
$13,238,451 consisting of $17,330,283 gross unrealized appreciation and
$4,091,832 gross unrealized depreciation.
At March 31, 2003, 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).
NOTES
OFFICERS AND DIRECTORS
Dreyfus Municipal Income, Inc.
200 Park Avenue
New York, NY 10166
DIRECTORS
Joseph S. DiMartino, Chairman
Clifford L. Alexander, Jr.
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 Presidents
Stephen R. Byers
Joseph P. Darcy
Secretary
Michael A. Rosenberg
Assistant Secretaries
Steven F. Newman
Robert R. Mullery
Jeff Prusnofsky
Treasurer
James Windels
Assistant Treasurers
Gregory S. Gruber
Kenneth J. Sandgren
Anti-Money Laundering Compliance Officer
William Germenis
PORTFOLIO MANAGERS
Joseph P. Darcy
A. Paul Disdier
PORTFOLIO MANAGERS (CONTINUED)
Douglas J. Gaylor
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) 2003 Dreyfus Service Corporation 424SA0303