<PAGE>
Dreyfus
Municipal
Income, Inc.
Annual Report
September 30, 1997
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
Letter to Shareholders
Dear Shareholder:
We are pleased to provide you with this report on Dreyfus Municipal Income,
Inc. for its fiscal year ended September 30, 1997. Your Fund produced a total
return, including bond price changes and interest income, of 6.27%.* During the
reporting period, the Fund produced income dividends exempt from Federal
personal income taxes of $.642 per share.** This is equivalent to a Federally
tax-free distribution rate per share of 6.19%.***
THE ECONOMY
Virtually ideal economic conditions prevailed over the reporting period.
Robust growth in the first half of 1997, the lowest unemployment rate since the
early 1970s and measures of inflation at 30-year lows combined to spur consumer
confidence to record high ground. Businesses were similarly optimistic:
government reports show that business investment in new equipment during the
reporting period was at its fastest pace in 14 years. The question is, how long
can this economic nirvana continue before inflation rekindles or, more to the
point, before the Federal Reserve Board (the Fed) embarks on a policy of
monetary restraint to dampen possible future inflationary excess?
Traditionally,the Fed has acted to contain inflation long before it could
spread throughout the economy, and Fed Chairman Alan Greenspan has been a
staunch inflation-fighter. Yet there are few traditional signs of potential
inflationary excess to battle against. The upward creep of factory operating
rates in response to surging industrial production is one, the tight labor
market is another. With the unemployment rate so low, there is concern that
employers will eventually raise wages to attract workers, resulting in higher
prices as increased labor costs are passed along to consumers. So far, there
has been a remarkable absence of wage and price pressures.
There are few signs that broader measures of inflation are accelerating. The
economy grew at a 4.1% rate over the first six months of this year, a pace that
in other times would have resulted in rumblings of inflationary pressures. Until
its modest rise in September, the Producer Price Index had an unprecedented
series of seven straight monthly declines. The Consumer Price Index rose at a
1.6% annual rate for the first eight months of the year, a rate less than half
the 3.3% rise for the comparable period in 1996.
Because of the lack of inflation, the Fed has been willing to tolerate strong
economic growth without tightening monetary policy. The Federal Open Market
Committee (FOMC), the policy-making arm of the Fed, has raised interest rates
just once in more than two years, a period roughly coinciding with the surge of
growth in the economy. The last increase in short-term interest rates came on
March 25, 1997 when the FOMC increased the Federal Funds target rate by a modest
one-quarter of a percentage point to 5.50%. (The Federal Funds rate is the rate
of interest that banks charge one another for overnight loans.)
In addition, the Fed has expected some slowdown throughout the 18-month
economic resurgence, yet demand remained strong throughout. However, the latest
revision of the second-quarter economic growth rate showed a considerable
buildup in business inventories. A rise in inventories could trigger a
subsequent slowdown in the economy if companies cut production in order to work
off unsold backlogs. Nevertheless, it is possible that the inherent momentum
<PAGE>
in the economy combined with more vigorous consumer spending in the third
quarter (retail sales showed renewed strength over the summer) could absorb
these inventories without a reduction in output.
Despite the quiescence of inflation, it is difficult to imagine continued
strong economic growth without price pressures. There has been much talk of a
so-called "new era" in economics, an age when the economy continues to grow
strongly, unemployment remains low, and inflation is subdued. Perhaps, but there
are limits to everything, and some factors explaining the absence of
inflation--the strong dollar, low energy and food costs, and huge business
investment in technology--may well be temporary. We remain alert for future
changes of monetary policy by the Fed, particularly the possibility of a
tightening if economic growth continues strong throughout the rest of this year.
MARKET ENVIRONMENT
Of course, the bond markets reacted quite favorably to this spate of positive
news on the economy and inflation. Throughout the past year, bond yields moved
within a broadly defined range. At the present time, yields have moved to the
lower end of the trading range, but have yet to break out and establish new
yield lows (higher prices). Without clear evidence that the markets are about to
push through to even lower yields, we currently think that the markets should
continue to be bounded within the current range.
What are the implications for tax-exempt investments? It shouldn't be assumed
that what holds true for the U.S. Treasury and corporate bond markets applies
equally to municipals. In fact, during the latest phase of the bond market
rally, when yields on Treasury bonds dropped by over 25 basis points (one
quarter of 1%), municipal yields barely moved. There are a number of reasons for
this underperformance of the tax-exempt sector. First, new issue supply was
running at a record pace. Second, individual investors were still more enticed
by the potential returns of stocks compared to bonds. Finally, even though
tax-exempts have underperformed taxables of late, municipal yields have actually
declined by 0.5% this year; many investors question whether rates have the
capacity to fall further. The economy continues to display considerable
strength, while the threat of rising inflation pressures overhangs the markets.
Presently, there exist a number of obstacles, but the longer-term outlook is
quite favorable. Supply should diminish in the weeks ahead, thus improving the
municipal market's technical posture. Furthermore, we believe it's quite
possible that more assets could be reallocated from the stock market to bonds in
the future.
PORTFOLIO OVERVIEW
The Fund continues to be managed with a cautious approach given both our wary
view of the economic fundamentals over the past several months and the ongoing
need to maximize dividend distributions. When possible, we have looked for
opportunities to increase dividend income, though we see limited opportunities
to add incremental income to the Fund. Going forward, we anticipate this factor
to be a continuing concern. Meanwhile, market exposure is kept to a minimum by
keeping the portfolio's duration (risk measure) well below that of the Lehman
Index. By maintaining a more defensive posture, some upside price performance
has been sacrificed during the rally, but, to a degree, has been offset by the
Fund's high income component.
<PAGE>
We will continue to mine for opportunities where we believe a yield can be
generated for shareholders. Unfortunately, the ever-changing landscape in the
tax-exempt market is making it more challenging to find appropriate securities
for inclusion in the Fund. This fact is evidenced by the narrowing yield spreads
between the highest quality (AAA-rated) and lesser-rated bonds. Interestingly,
nearly half of the new issuance now comes to market with bond insurance which
generally carries the highest rating. While interest rate swings will influence
returns over the short term, we maintain that, over the long run, focusing on
the generation of tax-exempt income should continue to be an important
determinant of market performance.
Very truly yours,
/s/ Richard J. Moynihan
Richard J. Moynihan
Director, Municipal Portfolio Management
The Dreyfus Corporation
October 20, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains paid,
based upon net asset value.
** Some income may be subject to the Federal Alternative Minimum Tax (AMT) for
certain shareholders.
*** 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.
<PAGE>
<TABLE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
Selected Information September 30, 1997 (Unaudited)
Market Price per share September 30, 1997.................... $10 3/8
Shares Outstanding September 30, 1997........................ 20,272,910
American Stock Exchange Ticker Symbol........................ DMF
MARKET PRICE (AMERICAN STOCK EXCHANGE)
Fiscal Year Ended September 30, 1997
--------------------------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
December 31, 1996 March 31, 1997 June 30, 1997 September 30, 1997
----------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C>
High $9 15/16 $10 3/8 $10 3/8 $10 7/8
Low 9 1/2 9 11/16 9 1/2 9 7/8
Close 9 15/16 9 15/16 10 1/4 10 3/8
PERCENTAGE GAIN based on change in Market Price*
October 24, 1988 (commencement of operations) through September 30, 1997. 96.52%
October 1, 1992 through September 30, 1997............................... 40.89
October 1, 1996 through September 30, 1997............................... 15.90
January 1, 1997 through September 30, 1997............................... 9.76
April 1, 1997 through September 30, 1997................................. 7.95
July 1, 1997 through September 30, 1997.................................. 2.91
NET ASSET VALUE PER SHARE
October 24, 1988 (commencement of operations).............. $9.26
September 30, 1996......................................... 9.60
December 31, 1996.......................................... 9.70
March 31, 1997............................................. 9.56
June 30, 1997.............................................. 9.59
September 30, 1997......................................... 9.55
PERCENTAGE GAIN based on change in Net Asset Value*
October 24, 1988 (commencement of operations) through September 30, 1997. 95.35%
October 1, 1992 through September 30, 1997............................... 35.36
October 1, 1996 through September 30, 1997............................... 6.27
January 1, 1997 through September 30, 1997............................... 3.51
April 1, 1997 through September 30, 1997................................. 3.29
July 1, 1997 through September 30, 1997.................................. 1.24
- ------------
* With dividends reinvested.
</TABLE>
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
Statement of Investments September 30, 1997
<TABLE>
<CAPTION>
Principal
Long-Term Municipal Investments--99.2% Amount Value
- -------------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Alabama--1.4%
Courtland Industrial Development Board, SWDR
(Champion International Corp. Project) 6.50%, 9/1/2025....................... $ 2,500,000 $ 2,676,200
Arizona--1.5%
Tucson Airport Authority, Special Facility Revenue (Lockheed Aeromod Center Inc.)
8.70%, 9/1/2019.............................................................. 2,500,000 2,816,600
California--4.2%
California Housing Finance Agency, MFHR
6.05%, 8/1/2038 (Insured; MBIA).............................................. 2,500,000 2,551,150
Foothill/Eastern Transportation Corridor Agency, Toll Road Revenue
Zero Coupon, 1/1/2019........................................................ 18,000,000 5,401,080
Colorado--5.3%
City and County of Denver, Airport Revenue:
8.25%, 11/15/2012............................................................ 6,500,000 7,334,145
(Special Facilities-United Airlines Inc. Project) 6.875%, 10/1/2032.......... 2,480,000 2,658,982
Florida--7.8%
Orange County Health Facilities Authority, Revenue
(Health Facility-Mental Health Services)
9.25%, 7/1/2020 (Prerefunded 7/1/2000) (a)................................... 4,730,000 5,424,269
Palm Beach County, Solid Waste IDR:
(Okeelanta Power Limited Partnership Project)
6.85%, 2/15/2021 (b)....................................................... 7,450,000 3,725,000
(Osceola Power Limited Partnership Project)
6.95%, 1/1/2022 (b)........................................................ 2,700,000 1,323,000
Pinellas County Housing Finance Authority, SFMR (Multi-County Program)
6.70%, 2/1/2028.............................................................. 3,990,000 4,242,727
Georgia--4.3%
Private Colleges and Universities Facilities Authority, Revenue,
Refunding (Clark Atlanta University Project)
8.25%, 1/1/2015 (Prerefunded 1/1/2003) (a)................................... 6,680,000 8,135,238
Illinois--17.0%
Chicago-O'Hare International Airport, Special Facility Revenue:
(American Airlines Inc. Project):
7.875%, 11/1/2025.......................................................... 2,000,000 2,196,780
Refunding 8.20%, 12/1/2024................................................. 1,000,000 1,204,750
(United Airlines Inc. Project):
8.40%, 5/1/2018............................................................ 8,025,000 8,658,574
8.50%, 5/1/2018............................................................ 2,000,000 2,202,900
Illinois Development Finance Authority, Revenue
(Community Rehabilitation Providers Facilities Acquisition):
8.75%, 3/1/2010............................................................ 1,395,000 1,509,808
8.75%, 3/1/2010 (Prerefunded 3/1/1999) (a)................................. 605,000 645,365
8.50%, 9/1/2010............................................................ 5,000,000 5,346,800
</TABLE>
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
Statement of Investments (continued) September 30, 1997
<TABLE>
<CAPTION>
Principal
Long-Term Municipal Investments (continued) Amount Value
- -------------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Illinois (continued)
Robbins, RRR (Robbins Resource Recovery Partners)
8.375%, Series B, 10/15/2016................................................. $ 10,000,000 $ 10,535,700
Indiana--3.1%
Fishers Economic Development, First Mortgage Revenue
(United Student Aid Funds Inc. Project) 8.375%, 9/1/2014..................... 5,700,000 5,941,794
Kentucky--2.0%
Perry County, SWDR (TJ International Project)
7%, 6/1/2024................................................................. 3,500,000 3,793,195
Massachusetts--3.2%
Massachusetts Industrial Finance Agency, Revenue
(Water Treatment-American Hingham) 6.95%, 12/1/2035.......................... 5,640,000 6,119,682
Michigan--7.6%
Michigan Hospital Finance Authority, HR,
Refunding (Genesys Health System Obligated Group) 8.125%, 10/1/2021.......... 7,670,000 9,075,221
Michigan Strategic Fund, SWDR, Refunding (Genesee Power Station Project)
7.50%, 1/1/2021.............................................................. 5,000,000 5,313,100
Nevada--3.1%
Clark County, IDR (Southwest Gas Corp.):
7.50%, 9/1/2032.............................................................. 3,000,000 3,344,640
6.50%, 12/1/2033............................................................. 2,300,000 2,439,886
New Hampshire--4.2%
New Hampshire Industrial Development Authority, PCR
(Public Service Co. Project) 7.65%, 5/1/2021................................. 7,500,000 7,959,825
New York--4.8%
New York City:
8.25%, 11/15/2010............................................................ 240,000 274,954
8.25%, 11/15/2010 (Prerefunded 11/15/2001) (a)............................... 2,760,000 3,220,644
New York City Industrial Development Agency, Special Facility Revenue
(American Airlines Inc. Project) 7.75%, 7/1/2019............................. 3,390,000 3,565,941
New York State Mortgage Agency, Revenue, Homeowner Mortgage
6.05%, 4/1/2026.............................................................. 2,000,000 2,070,800
North Dakota--.5%
North Dakota Housing Finance Agency, SFMR 8.30%, 1/1/2012...................... 862,400 902,062
Pennsylvania--5.7%
Lancaster County Hospital Authority, Revenue
(Health Center-United Church of Christ Homes Inc.)
9.125%, 10/1/2014 (Prerefunded 10/1/1999) (a)................................ 2,000,000 2,226,640
</TABLE>
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
Statement of Investments (continued) September 30, 1997
<TABLE>
<CAPTION>
Principal
Long-Term Municipal Investments (continued) Amount Value
- -------------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Pennsylvania (continued)
Montgomery County Higher Education and Health Authority, HR
(United Hospital Inc.- Saint Christopher)
8.50%, 11/1/2017 (Prerefunded 11/1/1997) (a)................................. $ 4,865,000 $ 4,981,468
Pennsylvania Economic Development Financing Authority, RRR
(Northampton Generating Project) 6.60%, 1/1/2019............................. 3,500,000 3,618,615
South Carolina--1.1%
Piedmont Municipal Power Agency, Electric Revenue, Refunding
6.55%, 1/1/2016.............................................................. 2,075,000 2,080,499
Texas--12.0%
Alliance Airport Authority Inc., Special Facilities Revenue
(American Airlines Inc. Project) 7.50%, 12/1/2029............................ 2,375,000 2,587,420
Austin, Convention Center Revenue
8.25%, 11/15/2014 (Prerefunded 11/15/1999) (a)............................... 5,405,000 5,898,801
Bell County Health Facilities Development Corp., Revenue
(Southern Healthcare-Southview) 10.50%, 3/1/2020 (Prerefunded 3/1/2000) (a).. 4,790,000 5,557,023
Montgomery County Health Facilities Development Corp., Hospital Mortgage Revenue,
Refunding (Woodlands Medical Center Project)
8.85%, 8/15/2014 (Prerefunded 8/15/1999) (a)................................. 4,975,000 5,445,884
Texas Housing Agency, Mortgage Revenue
Residential Development:
8.40%, 7/1/2020............................................................ 1,350,000 1,418,512
8.40%, 1/1/2021............................................................ 1,805,000 1,895,069
Utah--2.4%
Carbon County, SWDR, Refunding (Sunnyside Cogeneration)
9.25%, 7/1/2018 (c).......................................................... 7,000,000 4,550,000
Washington--1.1%
Public Utility District No. 1 of Pend Orielle County, Electric Revenue
6.375%, 1/1/2015............................................................. 2,000,000 2,094,340
West Virginia--5.2%
Braxton County, SWDR (Weyerhaeuser Co. Project)
6.50%, 4/1/2025.............................................................. 5,000,000 5,391,150
5.80%, 6/1/2027.............................................................. 4,450,000 4,504,557
Wyoming--1.7%
Sweetwater County, SWDR (FMC Corp. Project)
7%, 6/1/2024................................................................. 3,000,000 3,309,900
------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(cost $179,098,214).......................................................... $188,170,690
------------
------------
</TABLE>
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
Statement of Investments (continued) September 30, 1997
<TABLE>
<CAPTION>
Principal
Short-Term Municipal Investments--.8% Amount Value
- -------------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Mississippi;
Perry County PCR, VRDN
Refunding (Leaf River Forest Project) 4% (LOC; Wachovia Bank) (d,e)
(cost $1,500,000)........................................................... $ 1,500,000 $ 1,500,000
------------
TOTAL INVESTMENTS--100.0% ------------
(cost $180,598,214)......................................................... $189,670,690
------------
------------
</TABLE>
<TABLE>
Summary of Abbreviations
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HR Hospital Revenue PCR Pollution Control Revenue
IDR Industrial Development Revenue RRR Resources Recovery Revenue
LOC Letter of Credit SFMR Single Family Mortgage Revenue
MBIA Municipal Bond Investors Assurance SWDR Solid Waste Disposal Revenue
Insurance Corporation VRDN Variable Rate Demand Notes
MFHR Multi-Family Housing Revenue
</TABLE>
<TABLE>
<CAPTION>
Summary of Combined Ratings (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fitch (f) or Moody's or Standard & Poor's Percentage of Value
- --------- ------- ----------------- -------------------
AAA Aaa AAA 11.0%
AA Aa AA 3.3
A A A 7.8
BBB Baa BBB 38.6
BB Ba BB 4.2
F1 MIG1, VMIG1, P1 SP1, A1 .8
Not Rated (g) Not Rated (g) Not Rated (g) 34.3
------
100.0%
------
------
<FN>
Notes to Statement of Investments:
- --------------------------------------------------------------------------------
(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 bonds in full at the earliest refunding date.
(b) Non-income producing security; interest payment in default.
(c) Non-income accruing security.
(d) Secured by a letter of credit.
(e) Securities payable on demand. The interest rate, which is subject to change,
is based upon bank prime rates or an index of market interest rates.
(f) Fitch currently provides creditworthiness information for a limited number
of investments.
(g) 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.
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 1997
<TABLE>
<CAPTION>
Cost Value
------------ ------------
<S> <C> <C> <C>
ASSETS: Investments in securities--See Statement of Investments $180,598,214 $189,670,690
Cash............................................. 57,022
Interest receivable.............................. 4,060,780
Prepaid expenses................................. 4,281
------------
193,792,773
------------
LIABILITIES: Due to The Dreyfus Corporation and affiliates.... 135,282
Accrued expenses................................. 79,678
------------
214,960
------------
NET ASSETS..................................................................... $193,577,813
------------
------------
REPRESENTED BY: Paid-in capital................................... $188,831,596
Accumulated undistributed investment income--net.. 969,555
Accumulated net realized gain (loss) on investments (5,295,814)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4.......................... 9,072,476
------------
NET ASSETS..................................................................... $193,577,813
------------
------------
SHARES OUTSTANDING
(110 million shares of $.001 par value Common Stock authorized)................ 20,272,910
NET ASSET VALUE per share...................................................... $9.55
-----
-----
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Income, Inc.
- -------------------------------------------------------------------------
Statement of Operations Year Ended September 30, 1997
<TABLE>
INVESTMENT INCOME
<S> <C> <C> <C>
INCOME Interest Income............................ $13,898,577
EXPENSES: Management fee--Note 3(a)................... $ 1,355,660
Shareholder servicing costs--Note 3(b)...... 79,890
Shareholders' reports...................... 41,462
Directors' fees and expenses--Note 3(c)..... 39,994
Professional fees.......................... 28,497
Registration fees.......................... 14,500
Custodian fees--Note 3(b)................... 14,059
Miscellaneous.............................. 15,135
------------
Total Expenses........................... 1,589,197
-----------
INVESTMENT INCOME--NET.................................................... 12,309,380
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments.... $ 1,028,768
Net unrealized appreciation (depreciation)
on investments........................... (1,484,982)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS................... (456,214)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $11,853,166
-----------
-----------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Investment income--net................................................. $ 12,309,380 $ 12,834,123
Net realized gain (loss) on investments................................ 1,028,768 659,153
Net unrealized appreciation (depreciation) on investments.............. (1,484,982) (3,620,880)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations...... 11,853,166 9,872,396
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income--net................................................. (12,954,025) (12,536,499)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Dividends reinvested--Note 1(c)........................................ 1,513,339 312,857
------------ ------------
Total Increase (Decrease) in Net Assets............................ 412,480 (2,351,246)
NET ASSETS:
Beginning of Period.................................................... 193,165,333 195,516,579
------------ ------------
End of Period.......................................................... $193,577,813 $193,165,333
------------ ------------
------------ ------------
Undistributed investment income--net..................................... $ 969,555 $ 1,614,200
------------ ------------
Shares Shares
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Increase In Shares Outstanding As A Result Of Dividends Reinvested... 156,460 32,900
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Income, Inc.
- -------------------------------------------------------------------------------
Financial Highlights
Contained below is per share operating performance data for a share of Common
Stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from the financial statements and market price data for the Fund's
shares.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
PER SHARE DATA: 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 9.60 $ 9.74 $ 9.41 $10.45 $10.06
------ ------ ------ ------ ------
Investment Operations:
Investment income--net.................................. .61 .64 .65 .67 .71
Net realized and unrealized gain (loss) on investments.. (.02) (.16) .35 (.93) .44
------ ------ ------ ------ ------
Total from Investment Operations........................ .59 .48 1.00 (.26) 1.15
------ ------ ------ ------ ------
Distributions:
Dividends from investment income--net................... (.64) (.62) (.67) (.70) (.70)
Dividends from net realized gain on investments......... -- -- -- (.08) (.06)
------ ------ ------ ------ ------
Total Distributions..................................... (.64) (.62) (.67) (.78) (.76)
------ ------ ------ ------ ------
Net asset value, end of period.......................... $ 9.55 $ 9.60 $ 9.74 $ 9.41 $10.45
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Market value, end of period............................. $10 3/8 $9 9/16 $9 3/8 $8 7/8 $10 3/4
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN*................................... 15.90% 8.83% 13.48% (10.77%) 10.30%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets................. .82% .83% .85% .84% .83%
Ratio of net investment income to average net assets.... 6.36% 6.61% 6.86% 6.76% 7.01%
Portfolio Turnover Rate................................. 10.67% 8.56% 36.09% 14.41% 11.94%
Net Assets, end of period (000's Omitted)............... $193,578 $193,165 $195,517 $188,730 $206,999
<FN>
- -----------------
* Calculated based on market value.
</TABLE>
See notes to financial statements.
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Municipal Income, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 ("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 ("Manager") serves as the
Fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank,
N.A. ("Mellon").
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles 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 on the last business day of each week and month 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
the last business day of each week and month. Investments not listed on an
exchange or the national securities market, or securities for which there were
no transactions, are valued at the average of the most recent bid and asked
prices. Bid price is used when no asked price is available.
(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 original issue 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: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net are declared and paid monthly.
Dividends from net realized capital gain are declared and paid at least
annually. 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 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 29, 1997, the Board of Directors declared a cash dividend of
$.054 per share from investment income-net, payable on October 27, 1997 to
shareholders of record as of the close of business on October 13, 1997.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to qualify
as a regulated investment company, which can distribute tax exempt dividends, by
complying with the applicable provisions of the Internal Revenue Code, and to
make distributions of income and net realized capital gain sufficient to relieve
it from substantially all Federal income and excise taxes.
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
The Fund has an unused capital loss carryover of approximately $5,300,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to September 30, 1997. If not
applied the carryover expires in fiscal 2004.
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 at rates which are related to the
Federal Funds rate in effect at the time of borrowings. For the period ended
September 30, 1997, 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 weekly 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 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 September 30, 1997.
(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, 1997, the Fund was charged $11,587
pursuant to the transfer agency agreement.
The Fund compensates Mellon under a custody agreement to provide custodial
services for the Fund. During the period ended September 30, 1997, the Fund was
charged $14,059 pursuant to the custody agreement.
(C) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee of $250 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended September 30, 1997
amounted to $20,207,720 and $20,938,266, respectively.
At September 30, 1997, accumulated net unrealized appreciation on investments
was $9,072,476, consisting of $16,012,734 gross unrealized appreciation and
$6,940,258 gross unrealized depreciation.
At September 30, 1997, 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).
<PAGE>
Dreyfus Municipal Income, Inc.
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Report of Ernst & Young LLP, 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, 1997, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held by the custodian as of September 30, 1997 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, 1997, 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 generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
November 5, 1997
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (Unaudited)
Under the Fund's Dividend Reinvestment Plan (the "Plan"), a holder of the
Common Stock ("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 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, N.A., 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 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 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.
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
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, 1997 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 1997 calendar year on Form 1099-DIV
which will be mailed by January 31, 1998.
<PAGE>
Dreyfus Municipal Income, Inc.
- --------------------------------------------------------------------------------
Proxy Results (Unaudited)
Shareholders voted on the following proposals presented at the annual
shareholders' meeting held on September 12, 1997. The description of each
proposal and the number of shares voted are as follows:
Shares
---------------------------------
For Authority Withheld
---------- ------------------
1. To elect three Class I Directors:*
Lucy Wilson Benson................ 15,774,943 295,931
David W. Burke.................... 15,750,814 320,060
Martin D. Fife.................... 15,770,799 300,075
Shares
------------------------------------
For Against Abstained
---------- ------- ---------
2. To ratify the selection of Ernst &
Young LLP as independent auditors
of the Fund......................... 15,815,473 84,055 155,064
- --------------
* The terms of these Class I Directors expire in 2000.
<PAGE>
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
Martin D. Fife
Whitney I. Gerard
Robert R. Glauber
Arthur A. Hartman
George L. Perry
Paul Wolfowitz
OFFICERS
President and Treasurer
Marie E. Connolly
Vice President and Assistant Treasurer
Richard W. Ingram
Vice President and Assistant Treasurer
Mary A. Nelson
Vice President and Assistant Treasurer
Michael Petrucelli
Vice President and Assistant Treasurer
Joseph F. Tower, III
Vice President and Assistant Secretary
Douglas C. Conroy
Vice President and Assistant Secretary
Elizabeth Keeley
PORTFOLIO MANAGERS
Joseph P. Darcy
A. Paul Disdier
Karen M. Hand
Stephen C. Kris
Richard J. Moynihan
Jill C. Shaffro
Samuel J. Weinstock
Monica S. Wieboldt
INVESTMENT ADVISER
The Dreyfus Corporation
CUSTODIAN
Mellon Bank, N.A.
COUNSEL
Stroock & Stroock & Lavan LLP
TRANSFER AGENT,
DIVIDEND DISTRIBUTION AGENT
AND REGISTRAR
Mellon Bank, N.A.
STOCK EXCHANGE LISTING
AMEX 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 Bond Funds"
every Monday; New York Times, Money and 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.
- --------------------------------------------------------------------------------
<PAGE>
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 Distribution Agent
and Registrar
Mellon Bank, N.A.
85 Challenger Road
Ridgefield Park, NJ 07660
Printed in U.S.A. 856AR979
