Dreyfus Strategic
Municipals, Inc.
ANNUAL REPORT September 30, 2002
DREYFUS STRATEGIC MUNICIPALS, 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
16 Statement of Assets and Liabilities
17 Statement of Operations
18 Statement of Changes in Net Assets
19 Financial Highlights
21 Notes to Financial Statements
27 Report of Independent Auditors
28 Additional Information
31 Important Tax Information
32 Proxy Results
33 Board Members Information
36 Officers of the Fund
FOR MORE INFORMATION
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Back Cover
The Fund
Dreyfus
Strategic Municipals, Inc.
LETTER FROM THE CHAIRMAN
Dear Shareholder:
We present this annual report for Dreyfus Strategic Municipals, Inc., covering
the 12-month period from October 1, 2001 through September 30, 2002. Inside,
you' ll find valuable information about how the fund was managed during the
reporting period, including a discussion with the fund's portfolio manager, W.
Michael Petty.
As a falling stock market dominated the financial headlines during the
reporting period, bonds generally produced relatively attractive returns. Prices
of bonds that are more interest-rate sensitive, such as high quality municipal
securities, rallied as investors revised their expectations of the direction and
timing of future interest-rate changes. On the other hand, the war on terrorism,
instability in the Middle East and new disclosures of questionable accounting
practices among U.S. corporations generally hurt securities that are more credit
sensitive, such as lower rated bonds.
Although negative investor sentiment has created a challenging market
environment over the near term, we believe that the most critical issue for
long-term performance is not investor psychology, but whether the economy and
corporate profits achieve a sustainable uptrend. We have recently seen a number
of positive fundamental factors suggesting that a moderate, if uneven, expansion
of economic activity is likely.
If you have questions or are worried about current market conditions, we
encourage you to talk with your financial advisor who can help you view current
events from the perspective of long-term market trends. In the meantime, we at
The Dreyfus Corporation intend to continue basing our investment decisions on an
objective, long-term view of the financial markets.
Thank you for your continued confidence and support.
Sincerely,
Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
October 15, 2002
DISCUSSION OF FUND PERFORMANCE
W. Michael Petty, Portfolio Manager
How did Dreyfus Strategic Municipals, Inc. perform during the period?
For the 12-month period ended September 30, 2002, the fund achieved a total
return of 4.02%.(1) Over the same period, the fund provided income dividends of
$0.6660 per share, which is equal to a distribution rate of 6.59%.(2)
We attribute the fund's positive overall performance to a generally favorable
investment environment for municipal bonds, which benefited from falling
interest rates and surging investor demand for investment alternatives to a
volatile stock market. However, the fund' s net asset value was hurt by its
holdings of tax-exempt bonds issued on behalf of airlines, which suffered in the
aftermath of the September 11 terrorist attacks and amid ongoing economic
weakness.
What is the fund's investment approach?
The fund' s investment objective is to maximize current income exempt from
federal income tax to the extent consistent with the preservation of capital.
Under normal market conditions, the fund invests at least 80% of its net assets
in municipal obligations. Generally, the fund invests at least 50% of its net
assets in municipal bonds considered investment grade or the unrated equivalent
as determined by Dreyfus.
To this end, we have constructed the portfolio by seeking income opportunities
through analysis of each bond's structure, including paying close attention to
each bond's yield, maturity and early redemption features.
Over time, many of the fund's relatively higher yielding bonds mature or
are redeemed by their issuers, and we generally attempt to replace those bonds
with what we believe are comparable securities at then prevailing yields. When
we believe an opportunity exists, we also may seek to upgrade the portfolio's
investments with newly issued bonds
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
that, in our opinion, have better structural or income characteristics than
existing holdings.
What other factors influenced the fund's performance?
The fund has benefited from falling interest rates and a historically steep
yield curve. When the reporting period began in October 2001, the nation was
mired in a recession that had just been intensified by the September 11
terrorist attacks. In an attempt to stimulate renewed economic growth, the
Federal Reserve Board continued to reduce short-term interest rates, driving the
federal funds rate to its lowest level in 40 years. Municipal bond yields also
declined in this environment.
At the same time, investors became increasingly concerned about widespread
accounting irregularities and revelations of malfeasance among corporate
executives at a number of major U.S. corporations. These concerns were
aggravated by heightened international tensions related to the war on terrorism
and possible military action in Iraq. Investor sentiment toward stocks turned
sharply negative, and investors flocked toward relatively safe havens, such as
municipal bonds, boosting bond prices further.
In this market environment, we continued our efforts to maintain the fund's
income stream and credit quality by replacing maturing bonds, primarily with
high quality, income-oriented securities. For example, many states have issued
bonds backed by litigation settlements with the nation's tobacco companies, and
these so-called "tobacco bonds" have featured relatively attractive yields
Our focus on credit quality continued during the reporting period. Ongoing
economic weakness put pressure on corporate earnings and we have attempted to
gradually reduce the fund' s holdings of tax-exempt bonds issued on behalf of
corporations. In addition, when we deemed it appropriate, we have attempted to
replace corporate-backed municipals with income-oriented bonds that we believe
have stronger foundations or are insured.(3) However, the fund's existing
holdings of
tax-exempt airline bonds have continued to languish after being hard-hit by the
September 11 terrorist attacks, and it has made little sense to sell them at
depressed prices. In the meantime, these bonds have continued to pay highly
competitive levels of tax-exempt income.
Finally, despite the reporting period' s low interest rates we were able to
increase the fund's dividend distribution rate. That's because we locked in low
rates on the fund' s auction-rate preferred shares, which were first issued
several years ago to provide the leverage required to enhance the fund's income
stream. By extending the maturities of the fund's auction-rate preferred shares
to as much as one year, we have effectively locked in today's historically low
borrowing costs.
What is the fund's current strategy?
Our strategy remains the same. The fund is fully invested in tax-exempt bonds,
using auction-rate preferred shares in an effort to maintain what we believe is
a competitive income stream in today's low interest-rate environment. At the
same time, we have continued to maintain a cautious posture, focusing on income
and credit quality in an uncertain economic and market climate.
October 15, 2002
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID,
BASED UPON NET ASSET VALUE PER SHARE. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. MARKET PRICE PER SHARE, NET ASSET VALUE PER SHARE AND
INVESTMENT RETURN FLUCTUATE. INCOME MAY BE SUBJECT TO STATE AND LOCAL
TAXES, AND SOME INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM
TAX (AMT) FOR CERTAIN INVESTORS. CAPITAL GAINS, IF ANY, ARE FULLY TAXABLE.
(2) DISTRIBUTION RATE PER SHARE IS BASED UPON DIVIDENDS PER SHARE PAID FROM NET
INVESTMENT INCOME DURING THE PERIOD, DIVIDED BY THE MARKET PRICE PER SHARE
AT THE END OF THE PERIOD.
(3) INSURANCE ON INDIVIDUAL BONDS EXTENDS TO THE REPAYMENT OF PRINCIPAL AND THE
PAYMENT OF INTEREST IN THE EVENT OF DEFAULT. IT DOES NOT EXTEND TO THE
MARKET VALUE OF THE PORTFOLIO SECURITIES OR THE VALUE OF THE FUND'S SHARES.
The Fund
STATEMENT OF INVESTMENTS
September 30, 2002
Principal
LONG-TERM MUNICIPAL INVESTMENTS--145.5% Amount ($) Value ($)
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ALABAMA--3.6%
Alabama Industrial Development Authority, SWDR
(Pine City Fiber Co.) 6.45%, 12/1/2023 4,725,000 4,745,837
Birmingham Waterworks and Sewer Board, Water
and Sewer Revenue 5%, 1/1/2037 (Insured; MBIA) 6,055,000 6,218,364
Houston County Health Care Authority
6.25%, 10/1/2030 (Insured; AMBAC) 8,000,000 9,095,440
ALASKA--1.5%
Alaska Housing Finance Corp.:
6%, 12/1/2040 860,000 915,006
6%, 6/1/2049 (Insured; MBIA) 4,000,000 4,266,280
Valdez, Marine Terminal Revenue (BP Pipelines Inc.
Project) 5.65%, 12/1/2028 3,200,000 3,289,280
ARKANSAS--2.8%
Arkansas Development Finance Authority, SFMR
(Mortgage Backed Securities Program):
6.45%, 7/1/2031 (Guaranteed; GNMA, FNMA) 9,620,000 10,359,586
6.25%, 1/1/2032 (Guaranteed; GNMA) 5,000,000 5,344,150
ARIZONA--7.6%
Apache County Industrial Development Authority, PCR
(Tucson Electric Power Co. Project):
5.85%, 3/1/2028 3,900,000 3,664,674
5.875%, 3/1/2033 2,050,000 1,924,663
Maricopa Pollution Control Corp., PCR
(Public Service Co.) 5.75%, 11/1/2022 6,000,000 6,023,760
Pima County Industrial Development Authority, Industrial
Revenue (Tucson Electric Power Co. Project)
6%, 9/1/2029 14,500,000 13,993,225
Scottsdale Industrial Development Authority, HR
(Scottsdale Healthcare) 5.80%, 12/1/2031 6,000,000 6,207,720
Tempe Industrial Development Authority, IDR
(California Micro Devices Corp. Project)
10.50%, 3/1/2018 6,720,000 6,751,920
Tucson, Water System Revenue
5%, 7/1/2021 (Insured; FGIC) 3,500,000 3,700,410
CALIFORNIA--4.5%
California Pollution Control Financing Authority, PCR
(Southern California Edison Co.) 7%, 2/28/2008 5,000,000 5,122,900
State of California 9.037%, 12/1/2018 (Insured; FSA) 10,000,000 (a,b) 10,651,300
Los Angeles Regional Airports Improvement Corp., Lease
Revenue (Los Angeles International Airport)
6.35%, 11/1/2025 4,930,000 3,832,434
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
Port of Oakland, Revenue
5%, 11/1/2023 (Insured; FGIC) 5,345,000 5,552,974
COLORADO--1.4%
Denver City and County, Special Facilities Airport
Revenue (United Airlines Project)
6.875%, 10/1/2032 9,450,000 3,968,905
Northwest Parkway Public Highway Authority,
Revenue 7.125%, 6/15/2041 3,500,000 3,667,790
FLORIDA--4.0%
Escambia County, PCR
(Champion International Corp. Project)
6.90%, 8/1/2022 3,500,000 3,677,310
Florida Housing Finance Corp., Housing Revenue
(Nelson Park Apartments)
6.40%, 3/1/2040 (Insured; FSA) 12,380,000 13,362,477
Highlands County Health Facilities Authority, HR
(Adventist Health Systems) 5.25%, 11/15/2028 3,000,000 3,008,850
Orange County Health Facilities Authority, HR
(Regional Healthcare Systems) 6%, 10/1/2026 2,000,000 2,099,060
GEORGIA--2.8%
Georgia Housing Finance Authority, SFMR
6.45%, 12/1/2030 5,415,000 5,839,428
Private Colleges and Universities Facilities Authority,
Revenue (Clark Atlanta University Project)
8.25%, 1/1/2015 (Prerefunded 1/1/2003) 8,900,000 (c) 9,493,096
HAWAII--1.3%
Hawaii Department of Transportation,
Special Facility Revenue:
(Caterair International Corp. Project)
10.125%, 12/1/2010 3,700,000 3,721,571
(Continental Airlines, Inc.)
5.625%, 11/15/2027 6,820,000 3,398,611
IDAHO--.9%
Power County Industrial Development Corp, SWDR
(FMC Corp. Project) 6.45%, 8/1/2032 5,450,000 4,779,814
ILLINOIS--9.1%
Chicago:
6.125%, 1/1/2028 (Insured; FGIC) 15,815,000 18,421,786
(Wastewater Transmission Revenue)
6%, 1/1/2030 (Insured; MBIA) 3,000,000 3,581,820
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
Chicago-O'Hare International Airport, Special Facility Revenue:
(Delta Airlines Project) 6.45%, 5/1/2018 4,855,000 3,704,559
(United Airlines, Inc. Project):
6.75%, 11/1/2011 2,000,000 320,200
6.30%, 5/1/2016 11,000,000 1,870,550
Illinois Development Finance Authority, Revenue
(Community Rehabilitation Providers Facilities
Acquisition Program) 6%, 7/1/2015 3,500,000 3,570,560
Illinois Health Facilities Authority, Revenue:
(Advocate Network Health Care) 6.125%, 11/15/2022 4,020,000 4,353,539
(OSF Healthcare System) 6.25%, 11/15/2029 8,730,000 9,241,753
(Swedish American Hospital) 6.875%, 11/15/2030 4,995,000 5,466,978
INDIANA--2.3%
Franklin Township Independent School Building Corp.,
First Mortgage 6.125%, 1/15/2022 6,500,000 7,951,190
Indiana Housing Finance Authority, SFMR
5.95%, 1/1/2029 3,510,000 3,658,122
Indianapolis Airport Authority
(United Airlines Project) 6.50%, 11/15/2031 2,450,000 1,029,024
KANSAS--1.9%
Wichita, HR (Christian Health System Inc.)
6.25%, 11/15/2024 10,000,000 10,776,900
KENTUCKY--3.0%
Kenton County Airport Board, Airport Revenue
(Special Facilities-Delta Airlines Project):
7.50%, 2/1/2020 6,060,000 5,211,842
7.125%, 2/1/2021 6,000,000 5,063,700
6.125%, 2/1/2022 9,200,000 6,650,772
LOUISIANA--1.8%
Parish of Saint James, SWDR (Freeport-McMoRan
Partnership Project) 7.70%, 10/1/2022 10,000,000 9,881,600
MAINE--.7%
Maine Housing Authority, Mortgage 5.30%, 11/15/2023 4,000,000 4,153,040
MARYLAND--.0%
Baltimore County, PCR
(Bethlehem Steel Corp. Project) 7.50%, 6/1/2015 2,500,000 (d) 190,000
MASSACHUSETTS--2.5%
Massachusetts Industrial Finance Agency, Revenue
(Ogden Haverhill Project) 5.60%, 12/1/2019 6,000,000 5,337,660
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS (CONTINUED)
Massachusetts Health and Educational Facilities Authority,
Revenue:
(Beth Israel Hospital Issue)
10.12%, 7/1/2025 (Insured; AMBAC) 3,000,000 (a) 3,131,550
(Partners Healthcare System) 5.75%, 7/1/2032 5,000,000 5,339,950
MICHIGAN--3.7%
Michigan Hospital Finance Authority, HR:
(Ascension Health Credit) 6.125%, 11/15/2026 5,000,000 5,432,700
(Crittenton Hospital) 5.625%, 3/1/2027 2,000,000 2,065,180
(Genesys Health System Obligated Group)
8.125%, 10/1/2021 (Prerefunded 10/1/2005) 5,000,000 (c) 6,017,600
Michigan Strategic Fund, SWDR
(Genesee Power Station Project) 7.50%, 1/1/2021 6,900,000 6,836,658
MINNESOTA--2.2%
Duluth Economic Development Authority, Health
Care Facilities Revenue (Saint Luke's
Hospital) 7.25%, 6/15/2032 5,000,000 4,925,500
Minneapolis and Saint Paul Metropolitan Airports
Commission, Special Facilities Revenue
(Northwest Airlines Project) 7%, 4/1/2025 4,000,000 2,941,840
Minnesota Housing Finance Agency, Residential
Housing Finance 5%, 1/1/2020 4,525,000 4,655,546
MISSISSIPPI--4.6%
Claiborne County, PCR (Middle South Energy, Inc.)
(System Energy Resources, Inc.) 6.20%, 2/1/2026 4,545,000 4,494,823
Mississippi Business Finance Corp., PCR (System Energy
Resource Inc. Project) 5.875%, 4/1/2022 22,790,000 21,313,892
MISSOURI--2.1%
Missouri Health and Educational Facilities Authority,
Health Facilities Revenue (Saint Anthony's
Medical Center) 6.25%, 12/1/2030 6,750,000 7,248,420
Saint Louis Industrial Development Authority, Revenue
(Saint Louis Convention Center) 7.25%, 12/15/2035 4,250,000 4,281,620
MONTANA--1.6%
Montana Board of Housing, Single Family Mortgage
6.45%, 6/1/2029 8,110,000 8,682,485
NEVADA--3.4%
Clark County, IDR
(Southwest Gas Corp.) 7.50%, 9/1/2032 4,000,000 4,084,320
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
NEVADA (CONTINUED)
Washoe County (Reno-Sparks Convention Center)
6.40%, 7/1/2029 (Insured; FSA) 12,000,000 14,532,120
NEW HAMPSHIRE--2.7%
New Hampshire Business Finance Authority, PCR
(Public Service Co. of New Hampshire)
6%, 5/1/2021 (Insured; AMBAC) 7,000,000 7,734,160
New Hampshire Health and Educational Facilities Authority,
Revenue (Exeter Project):
6%, 10/1/2024 1,000,000 1,067,320
5.75%, 10/1/2031 1,000,000 1,046,540
New Hampshire Industrial Development Authority, PCR
(Connecticut Light and Power) 5.90%, 11/1/2016 5,000,000 5,169,200
NEW JERSEY--4.0%
New Jersey Economic Development Authority,
Special Facility Revenue (Continental Airlines Inc. Project)
6.40%, 9/15/2023 8,000,000 4,701,760
New Jersey Health Facilities Financing Authority, Revenue
(Christian Health Care Center) 8.75%, 7/1/2018 14,180,000 17,316,332
NEW MEXICO--1.7%
Farmington, PCR:
(El Paso Electric Co. Project)
6.375%, 6/1/2032 5,370,000 5,453,611
(Tucson Electric Power Co., San Juan)
6.95%, 10/1/2020 4,000,000 4,205,120
NEW YORK--2.7%
Long Island Power Authority,
New York Electric System Revenue
8.336% 12/1/2016 10,000,000 (a,b) 11,379,200
New York State Energy Research and Development
Authority, Electric Facilities Revenue
(Long Island Lighting Co.) 6.90%, 8/1/2022 3,275,000 3,389,952
NORTH CAROLINA--.4%
Charlotte, Special Facilities Revenue
(Charlotte/Douglas International Airport)
5.60%, 7/1/2027 (Guaranteed; U.S. Air) 5,145,000 2,366,700
NORTH DAKOTA--2.5%
North Dakota Housing Finance Agency, Home Mortgage
Revenue (Housing Finance Program):
6.50%, 1/1/2031 9,600,000 10,285,824
6.15%, 7/1/2031 3,355,000 3,547,577
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
OHIO--3.1%
Ohio Air Quality Development Authority, PCR
(Cleveland Electric Illuminating)
6.10%, 8/1/2020 (Insured; ACA) 3,000,000 3,189,750
Ohio Housing Finance Agency,
Residential Mortgage Revenue:
6.25%, 9/1/2020 (Collateralized; GNMA) 4,265,000 4,601,850
6.35%, 9/1/2031 (Collateralized; GNMA) 4,270,000 4,582,351
Ohio Water Development Authority, Pollution Control
Facilities Revenue (Cleveland Electric Illuminating)
6.10%, 8/1/2020 (Insured; ACA) 4,350,000 4,582,421
OKLAHOMA--3.1%
Oklahoma Industries Authority
(Health System Obligated Group) 5.75%, 8/15/2029 12,230,000 13,263,802
Tulsa Municipal Airport Trust, Revenue
(American Airlines) 7.35%,12/1/2011 4,850,000 3,909,536
OREGON--1.6%
Port of Portland, International Airport Revenue
(Portland International Airport)
5.50%, 7/1/2024 (Insured; AMBAC) 5,000,000 5,374,900
Tigard--Tualatin School District No. 23
5.375%, 6/15/2019 (Insured; MBIA) 3,000,000 3,327,720
PENNSYLVANIA--3.2%
Beaver County Industrial Development Authority, PCR
(Cleveland Electric Project) 7.625%, 5/1/2025 7,000,000 7,536,760
Pennsylvania Housing Financing Authority
10.291%, 4/1/2025 6,000,000 (a) 6,291,540
York County Hospital Authority, Revenue
(Health Center--Lutheran Social Services)
6.50%, 4/1/2022 4,250,000 4,159,560
SOUTH CAROLINA--4.4%
Greenville Hospital System, Hospital Facilities Revenue
5.50%, 5/1/2026 (Insured; AMBAC) 5,000,000 5,395,750
Piedmont Municipal Power Agency, Electric Revenue
6.55%, 1/1/2016 1,690,000 1,691,977
Tobacco Settlement Revenue Management Authority,
Tobacco Settlement Revenue:
6.375%, 5/15/2028 8,325,000 8,431,643
6.375%, 5/15/2030 8,900,000 9,050,588
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
TENNESSEE--5.7%
Knox County Health Educational and Housing Facilities
Board, Hospital Facilities Revenue
(Baptist Health System of Eastern Tennessee)
6.50%, 4/15/2031 6,000,000 6,272,220
Memphis Center City Revenue Finance Corp.,
Tennessee Sports Facility Revenue
(Memphis Redbirds) 6.50%, 9/1/2028 10,000,000 10,151,900
Tennessee Housing Development Agency
(Homeownership Program) 6.40%, 7/1/2031 13,920,000 15,096,379
TEXAS--14.5%
Austin Convention Enterprises Inc., Convention Center
Hotel Revenue:
5.75%, 1/1/2016 5,200,000 5,789,472
6.70%, 1/1/2028 4,000,000 4,142,840
5.75%, 1/1/2032 5,000,000 5,381,850
Dallas-Fort Worth International Airport, Airport Facility
Improvement Corp., Revenue (American Airlines Inc.)
6.375%, 5/1/2035 (Guaranteed; American Airlines Inc.) 8,500,000 3,449,385
Harris County Health Facilities Development Corp., HR
(Memorial Hermann Hospital System Project)
6.375%, 6/1/2029 8,500,000 9,146,935
Houston Airport System, Special Facilities Revenue,
Airport Improvement (Continental Airlines):
6.125%, 7/15/2027 10,875,000 5,885,332
6.75%, 7/1/2029 8,250,000 4,894,395
5.70%, 7/15/2029 3,750,000 1,872,150
Port Corpus Christi Authority, Nueces County General
Revenue (Union Pacific Corp.) 5.65%, 12/1/2022 7,750,000 7,848,348
Sabine River Authority, PCR (TXU Electric Co. Project)
6.45%, 6/1/2021 9,000,000 9,297,360
Sam Rayburn Municipal Power Agency, Power Supply
System Revenue 5.75%, 10/1/2021 6,000,000 6,581,040
Texas Department of Housing and Community Affairs,
Collateralized Home Mortgage Revenue
12.116%, 7/2/2024 4,400,000 (a) 5,388,592
Texas Turnpike Authority, Central Texas Turnpike
System Revenue 5.75%, 8/15/2038 (Insured; AMBAC) 7,100,000 7,929,990
Tyler Health Facilities Development Corp., HR
(East Texas Medical Center Regional Health Care
System Project) 6.75%, 11/1/2025 3,000,000 2,921,850
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
UTAH--.8%
Carbon County, SWDR (Sunnyside Cogeneration)
7.10%, 8/15/2023 4,536,000 4,601,863
VERMONT--1.2%
Vermont Housing Finance Agency, Single Family Housing
6.40%, 11/1/2030 (Insured; FSA) 6,195,000 6,612,481
VIRGINIA--2.2%
Greater Richmond Convention Center Authority, Hotel Tax
Revenue (Convention Center Expansion Project)
6.25%, 6/15/2032 10,500,000 11,987,850
WASHINGTON--5.7%
Energy Northwest:
Electric Revenue 9.67%, 7/1/2018 (Insured; MBIA) 10,000,000 (a,b) 12,880,400
Wind Project Revenue 5.875%, 7/1/2020 3,000,000 3,078,870
Public Utility District No. 1 of Pend Orielle County, Electric
Revenue 6.375%, 1/1/2015 3,755,000 4,046,501
Seattle, Water System Revenue
6%, 7/1/2029 (Insured; FGIC) 10,000,000 11,398,800
WEST VIRGINIA--6.4%
Braxton County, SWDR (Weyerhaeuser Co. Project):
5.40%, 5/1/2025 12,750,000 12,058,057
6.125%, 4/1/2026 14,000,000 14,329,840
West Virginia Housing Development Fund,
Housing Finance 6.50%, 5/1/2028 5,935,000 6,355,673
West Virginia Water Development Authority, Water
Development Revenue 6.375%, 7/1/2039 2,250,000 2,562,098
WISCONSIN--7.9%
Badger Tobacco Asset Securitization Corp., Tobacco
Settlement Revenue 7%, 6/1/2028 24,000,000 25,584,720
Wisconsin Health and Educational Facilities Authority,
Health, Hospital and Nursing Home Revenue
(Aurora Health Care Inc.) 5.60%, 2/15/2029 8,705,000 8,430,705
Wisconsin Housing and Economic Development Authority:
11.104%, 7/1/2025 2,900,000 (a,b) 3,065,097
6.45%, 9/1/2030 6,300,000 6,749,694
WYOMING--.9%
Sweetwater County, SWDR (FMC Corp. Project):
7%, 6/1/2024 3,150,000 2,970,922
6.90%, 9/1/2024 2,000,000 1,864,600
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
U. S. RELATED--1.5%
Guam Housing Corp., SFMR
5.75%, 9/1/2031 (Collateralized; FHLMC) 965,000 1,057,727
Puerto Rico Highway and Transportation Authority,
Transportation Revenue 6%, 7/1/2039 6,000,000 7,281,840
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(cost $792,185,669) 807,117,854
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS--3.1%
------------------------------------------------------------------------------------------------------------------------------------
ALASKA--1.0%
Valdez, Marine Terminal Revenue, VRDN (Exxon Mobil
Pipeline Co. Project) 2.05% 5,425,000 (e) 5,425,000
LOUISIANA--.1%
East Baton Rouge Parish, PCR VRDN (Exxon Mobil
Corp. Project) 2% 600,000 (e) 600,000
MASSACHUSETTS--.2%
Massachusetts Health and Educational Facilities Authority,
Revenue, VRDN (Capital Asset Program)
2.10% 1,000,000 (e) 1,000,000
PENNSYLVANIA--.1%
Geisinger Authority, Health System Revenue, VRDN
(Geisinger Health System)
2% (SBPA; Morgan Guaranty Trust Co.) 300,000 (e) 300,000
RHODE ISLAND--.8%
Rhode Island Industrial Facilities Corp., Marine
Terminal Revenue, VRDN (Exxon Mobil Corp.)
2.05% 4,305,000 (e) 4,305,000
TEXAS--.6%
Gulf Coast Waste Disposal Authority, PCR, VRDN
(Amoco Oil Co. Project) 2.05% 3,600,000 (e) 3,600,000
WYOMING--.3%
Uinta County, PCR, VRDN
(Amoco Oil Co. Project) 2.05% 1,800,000 (e) 1,800,000
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $17,030,000) 17,030,000
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $809,215,669) 148.6% 824,147,854
CASH AND RECEIVABLES (NET) 2.8% 15,609,333
PREFERRED STOCK, AT REDEMPTION VALUE (51.4%) (285,000,000)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 100.0% 554,757,187
Summary of Abbreviations
ACA American Capital Access
AMBAC American Municipal Bond
Assurance Corporation
FGIC Financial Guaranty Insurance
Company
FHLMC Federal Home Loan Mortage
Corporation
FNMA Federal National Mortgage
Association
FSA Financial Security Assurance
GNMA Government National Mortgage
Association
HR Hospital Revenue
IDR Industrial Development Revenue
MBIA Municipal Bond Investors
Assurance Insurance
Corporation
PCR Pollution Control Revenue
SBPA Standby Bond Purchase
Agreement
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 28.5
AA Aa AA 12.9
A A A 18.0
BBB Baa BBB 17.3
BB Ba BB 10.0
B B B 2.5
CCC Caa CCC .6
CC Ca CC .3
F1 Mig1 SP1 2.0
Not Rated (f) Not Rated (f) Not Rated (f) 7.9
100.0
(A) INVERSE FLOATER SECURITY--THE INTEREST RATE IS SUBJECT TO CHANGE
PERIODICALLY.
(B) SECURITIES EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT
OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS. AT SEPTEMBER
30,2002, THESE SECURITIES AMOUNTED TO $37,975,997 OR 6.8% OF NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS.
(C) BONDS WHICH ARE PREREFUNDED ARE COLLATERALIZED BY U.S. GOVERNMENT
SECURITIES WHICH ARE HELD IN ESCROW AND ARE USED TO PAY PRINCIPAL AND
INTEREST ON THE MUNICIPAL ISSUE AND TO RETIRE THE BONDS IN FULL AT THE
EARLIEST REFUNDING DATE.
(D) NON-INCOME PRODUCING SECURITY--INTEREST PAYMENTS IN DEFAULT.
(E) SECURITIES PAYABLE ON DEMAND. VARIABLE INTEREST RATE--SUBJECT TO PERIODIC
CHANGE.
(F) SECURITIES WHICH, WHILE NOT RATED BY FITCH, MOODY'S AND STANDARD & POOR'S,
HAVE BEEN DETERMINED BY THE MANAGER TO BE OF COMPARABLE QUALITY TO THOSE
RATED SECURITIES IN WHICH THE FUND MAY INVEST.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2002
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 809,215,669 824,147,854
Cash 60,474
Interest receivable 15,626,860
Receivable for investment securities sold 7,026,072
Prepaid expenses 213,271
847,074,531
--------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 516,810
Payable for investment securities purchased 6,211,320
Dividends payable to preferred shareholders 283,274
Commissions payable 21,871
Accrued expenses 284,069
7,317,344
--------------------------------------------------------------------------------
AUCTION PREFERRED STOCK, Series M, T, W, Th and F
par value $.001 per share (11,400 shares
issued and outstanding at $25,000 per share
liquidation preference)--Note 1 285,000,000
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ($) 554,757,187
--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Common Stock, par value $.001 per share
(59,234,687 shares issued and outstanding) 59,235
Paid-in capital 558,737,374
Accumulated undistributed investment income--net 10,145,155
Accumulated net realized gain (loss) on investments (29,116,762)
Accumulated net unrealized appreciation
(depreciation) on investments 14,932,185
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 554,757,187
--------------------------------------------------------------------------------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized) 59,234,687
NET ASSET VALUE PER SHARE OF COMMON STOCK ($) 9.37
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended September 30, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 55,476,805
EXPENSES:
Management fee--Note 3(a) 6,304,576
Commission fee--Note 1 743,789
Shareholder servicing costs 145,907
Custodian fees--Note 3(b) 138,376
Shareholders' reports 93,390
Directors' fees and expenses--Note 3(c) 68,085
Professional fees 59,833
Registration fees 50,409
Miscellaneous 48,944
TOTAL EXPENSES 7,653,309
INVESTMENT INCOME--NET 47,823,496
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (18,783,774)
Net unrealized appreciation (depreciation) on investments (2,508,827)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (21,292,601)
DIVIDENDS ON PREFERRED STOCK (4,821,324)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 21,709,571
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended September 30,
-----------------------------------
2002 2001(a)
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 47,823,496 48,099,612
Net realized gain (loss) on investments (18,783,774) (140,789)
Net unrealized appreciation (depreciation)
on investments (2,508,827) 11,272,993
Dividends on Preferred Stock (4,821,324) (9,541,005)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 21,709,571 49,690,811
--------------------------------------------------------------------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (39,168,624) (32,904,664)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
DIVIDENDS REINVESTED 6,491,435 --
TOTAL INCREASE (DECREASE) IN NET ASSETS (10,967,618) 16,786,147
--------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 565,724,805 548,938,658
END OF PERIOD 554,757,187 565,724,805
Undistributed investment income--net 10,145,155 6,453,159
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
SHARES ISSUED FOR DIVIDENDS REINVESTED 685,471 --
(A) RESTATED TO CONFORM TO CURRENT YEAR'S PRESENTATION.
SEE NOTES TO FINANCIAL STATEMENTS.
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 market price data for the fund's common shares.
Year Ended September 30,
---------------------------------------------------------------------
2002(a) 2001(b) 2000(b) 1999(b) 1998(b)
-----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 9.66 9.38 9.41 10.22 10.02
Investment Operations:
Investment income--net .81(c) .82 .71 .56 .59
Net realized and unrealized
gain (loss) on investments (.35) .18 .02 (.80) .25
Dividends on Preferred Stock
from net investment income (.08) (.16) (.13) -- --
Total from Investment Operations .38 .84 .60 (.24) .84
Distributions to Common Shareholders:
Dividends from
investment income--net (.67) (.56) (.55) (.57) (.64)
Dividends from net realized
gain on investments -- -- (.02) -- --
Total Distributions to
Common Shareholders (.67) (.56) (.57) (.57) (.64)
Capital Stock transactions,
net effect of Preferred
Stock offerings -- -- (.06) -- --
Net asset value, end of period 9.37 9.66 9.38 9.41 10.22
Market value, end of period 10.11 9.69 89_16 8 105_16
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(D) 11.89 20.22 14.76 (17.55) 3.35
The Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
Year Ended September 30,
----------------------------------------------------------------------
2002(a) 2001(b) 2000(b) 1999(b) 1998(b)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to
average net assets
applicable to Common Stock 1.38(e,f) 1.39(e,f) 1.25(e,f) .84 .85
Ratio of net investment income
to average net assets
applicable to Common Stock 8.61(e,f) 8.49(e,f) 7.91(e,f) 5.63 5.78
Portfolio Turnover Rate 36.81 10.07 19.03 27.05 20.95
Asset coverage of Preferred Stock,
end of period 294 299 295 -- --
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, net of Preferred Stock,
end of period ($ x 1,000) 554,757 565,725 548,939 550,755 595,693
Preferred Stock outstanding,
end of period ($ x 1,000) 285,000 285,000 285,000 -- --
(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
FROM 8.58% TO 8.61%. PER SHARE DATA AND RATIOS/SUPPLEMENTAL DATA PRIOR TO
OCTOBER 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN
PRESENTATION.
(B) RESTATED TO CONFORM TO CURRENT YEAR'S PRESENTATION.
(C) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END.
(D) CALCULATED BASED ON MARKET VALUE.
(E) DOES NOT REFLECT THE EFFECT OF DIVIDENDS TO PREFERRED STOCK SHAREHOLDERS.
(F) THE RATIO OF EXPENSES TO TOTAL AVERAGE NET ASSETS AND THE RATIO OF NET
INVESTMENT INCOME TO TOTAL AVERAGE NET ASSETS WERE .91% AND 5.69%,
RESPECTIVELY, FOR THE YEAR ENDED SEPTEMBER 30, 2002, .92% AND 5.65%,
RESPECTIVELY, FOR THE YEAR ENDED SEPTEMBER 30, 2001 AND .92% AND 5.79%,
RESPECTIVELY, FOR THE YEAR ENDED SEPTEMBER 30, 2000.
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Strategic Municipals, Inc. (the "fund" ) is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a 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., 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 LEO.
The fund has issued and outstanding 2,280 shares of Series M, Series T, Series
W, Series TH and Series F for a total of 11,400 shares of 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
dividends 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 Robin R.
Pringle and John E. Zuccotti 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.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(a) Portfolio valuation: Investments in municipal 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
(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
the last business day of each week and month.
(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 discount and premium 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 Shareholders(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.
For Common Shareholders who elect to receive their distributions in additional
shares of the fund, in lieu of cash, such distributions will be reinvested at
the lower of the market price or net asset value per share (but not less than
95% of the market price) as defined in the dividend reinvestment and cash
purchase plan.
On September 27, 2002, the Board of Directors declared a cash dividend to Common
Shareholders of $.060 per share from investment income-net, payable on October
25, 2002 to Common Shareholders of record as of the close of business on October
11, 2002.
(d) Dividends to shareholders of APS: For APS, dividends are currently reset
every 7 days for Series M and Series Th. The dividend rate for Class T will be
in effect until July 21, 2003. The dividend rate for Series W will be in effect
until December 5, 2002. The dividend rate for Series F will be in effect until
February 7, 2003. The dividend rates in effect at September 30, 2002 were as
follows: Series M-1.40% , Series T-1.75%, Series W-2.30%, Series TH-1.25% and
Series F-1.90%.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as
a regulated investment company, which can distribute tax exempt dividends, by
complying with the applicable provisions of the Code and to make distributions
of income and net realized capital gain sufficient to relieve it from
substantially all federal income and excise taxes.
At September 30, 2002, the components of accumulated earnings on a tax basis
were as follows: undistributed tax exempt income $10,145,155, accumulated
capital losses $9,912,633 and unrealized appreciation $15,080,043. In addition,
the fund had $19,096,458 of capital losses realized after October 31, 2001,
which were deferred for tax purposes to the first day of the following fiscal
year.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The accumulated capital loss carryover is available to be applied against future
net securities profits, if any, realized subsequent to September 30, 2002. If
not applied, $9,836,505 of the carryover expires in fiscal 2009 and $76,128
expires in fiscal 2010.
The tax character of distributions paid to shareholders during the fiscal
periods ended September 30, 2002 and September 30, 2001, respectively, were as
follows: tax exempt income $43,989,948 and $42,445,669.
During the period ended September 30, 2002, as a result of permanent book to tax
differences, the fund decreased accumulated undistributed investment income-net
by $344,472, decreased accumulated net realized gain (loss) on investments by
$11,914 and increased paid-in capital by $356,386. Net assets were not affected
by this reclassification.
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $100 million
unsecured line of credit primarily to be utilized for temporary or emergency
purposes. Interest is charged to the fund based on prevailing market rates in
effect at the time of borrowings. During the period ended September 30, 2002,
the fund did not borrow under the line of credit.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement ("Agreement") with the Manager, the
management fee is computed at the annual rate of .75 of 1% of the value of the
fund' s average weekly net assets and is payable monthly. The Agreement provides
for an expense reimbursement from the Manager should the fund's aggregate
expenses, exclusive of taxes, interest on borrowings, brokerage and
extraordinary expenses, in any full fiscal year exceed the lesser of (1) the
expense limitation of any state having jurisdiction over the fund or (2) 2% of
the first $10 million, 1 1_2% of the next $20 million and 1% of the excess over
$30 million of the average value of the fund's net assets. During the period
ended September 30, 2002, there was no expense reimbursement pursuant to the
Agreement.
(b) The fund compensates Boston Safe Deposit and Trust Company, an affiliate of
the Manager, under a custody agreement for providing custodial services to the
fund. During the period ended September 30, 2002, $138,376 was charged by Boston
Safe Deposit and Trust Company 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 $4,500 and an attendance fee of $500 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation and the Director Emeritus receives 50% 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, 2002, amounted to
$300,048,018 and $301,228,724, respectively.
At September 30, 2002, the cost of investments for federal income tax purposes
was $809,067,811; accordingly, accumulated net unrealized appreciation on
investments was $15,080,043, consisting of $50,962,689 gross unrealized
appreciation and $35,882,646 gross unrealized depreciation.
NOTE 5--Change in Accounting Principle:
(a) As required, effective October 1, 2001, the fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing discount or premium on a scientific basis for debt securities
on a daily basis. Prior to October 1, 2001, the fund amortized premiums on 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 $202,920 increase in accumulated
undistributed investment income-net and a corresponding $202,920 decrease in
accumulated net unrealized appreciation (depreciation), based on securities held
by the fund on September 30, 2001.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The effect of this change for the period ended September 30, 2002 was to
increase net investment income by $141,552, decrease net unrealized appreciation
(depreciation) by $52,608 and decrease net realized gains (losses) by $88,944.
The statement of changes in net assets and financial highlights for prior
periods have not been restated to reflect this change in presentation.
(b) Effective October 1, 2000, the fund adopted the classification requirement
of EITF D-98, Classification and Measurement of Redeemable Securities. EITF D-98
requires that preferred stock for which its redemption is outside of the fund's
control should be presented outside of net assets in the statement of assets and
liabilities. The redemption of the fund's preferred stock is outside of the
control of the fund because of provisions in the fund's Articles Supplementary
Creating Five 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 $285,000,000 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 $4,821,324 and
$9,541,005 to net assets from operations for the periods ended September 30,
2002 and September 30, 2001, respectively. As part of the adoption, per share
distributions of dividends on preferred stock were reclassified from
distributions to amounts from investment operations for each period presented in
the financial highlights.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Dreyfus Strategic Municipals, Inc.
We have audited the accompanying statement of assets and liabilities of Dreyfus
Strategic Municipals, Inc. including the statement of investments, as of
September 30, 2002, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the years indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund' s management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
verification by examination of securities held by the custodian as of September
30, 2002 and confirmation of securities not held by the custodian by
correspondence with others. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus Strategic Municipals, Inc. at September 30, 2002, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated years, in conformity with accounting principles generally accepted
in the United States.
New York, New York
November 7, 2002
The Fund
ADDITIONAL INFORMATION (Unaudited)
Dividend Reinvestment and Cash Purchase Plan
Under the fund' s Dividend Reinvestment and Cash Purchase Plan (the "Plan"), a
holder of Common Stock who has fund shares registered in his name will have all
dividends and distributions reinvested automatically by The Bank of New York, 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.
A Common Shareholder who has fund shares registered in his name may elect to
withdraw from the Plan at any time for a $2.50 fee and thereby elect to receive
cash in lieu of shares of the fund. Changes in elections must be in writing,
sent to The Bank of New York, Dividend Reinvestment Department, P.O. Box 1958,
Newark, New Jersey 07101-9774, 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 fifteen days prior to the record date for any distribution.
A Plan participant who has fund shares in his name has the option of making
additional cash payments to the Agent, semi-annually, in any amount from $1,000
to $10,000, for investment in the fund's shares in the open market on or about
January 15 and July 15. Any voluntary cash payments received more than 30 days
prior to these dates will be returned by the Agent, and interest will not be
paid on any uninvested
cash payments. A participant may withdraw a voluntary cash payment by written
notice, if the notice is received by the Agent not less than 48 hours before the
payment is to be invested. A Common Shareholder who owns fund shares registered
in street name should consult his broker/dealer to determine whether an
additional cash purchase option is available through his broker/dealer.
The Agent maintains all Common Shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account. Shares in the account
of each Plan participant will be held by the 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 and purchases from voluntary cash
payments, and a $1.25 fee for each purchase made from a voluntary cash payment.
The fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
notice of the change sent to Plan participants at least 90 days before the
record date for such dividend or distribution. The Plan also may be amended or
terminated by the Agent on at least 90 days' written notice to Plan
participants.
Managed Dividend Policy
The fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. In order to provide
shareholders with a more consistent yield to the current trading price of shares
of Common Stock of the fund, the fund may at times pay out less than the entire
amount of net investment income earned in any particular month and may at times
in any month pay out such accumulated but undistributed income in addition to
net investment income earned in that month. As a result, the dividends paid by
The Fund
ADDITIONAL INFORMATION (Unaudited) (CONTINUED)
the fund for any particular month may be more or less than the amount of net
investment income earned by the fund during such month. The fund's current
accumulated but undistributed net investment income, if any, is disclosed in the
Statement of Assets and Liabilities, which comprises part of the Financial
Information included in this report.
Benefits and Risks of Leveraging
The fund utilizes leverage to seek to enhance the yield and net asset value
of its Common Stock. These objectives cannot be achieved in all interest rate
environments. To leverage, the fund issues Preferred Stock, which pays dividends
at prevailing short-term interest rates, and invests the proceeds in long-term
municipal bonds. The interest earned on these investments is paid to Common
Shareholders in the form of dividends, and the value of these portfolio holdings
is reflected in the per share net asset value of the fund's Common Stock. In
order to benefit Common Shareholders, the yield curve must be positively sloped:
that is, short-term interest rates must be lower than long-term interest rates.
At the same time, a period of generally declining interest rates will benefit
Common Shareholders. If either of these conditions change, then the risk of
leveraging will begin to outweigh the benefits.
Supplemental Information
For the period ended September 30, 2002, there were: (i) no material changes in
the fund' s investment objectives or policies, (ii) no changes in the fund's
charter or by-laws that would delay or prevent a change of control of the fund,
and (iii) no material changes in the principal risk factors associated with
investment in the fund. In addition, on November 1, 2001, James Welch was
assigned as the person primarily responsible for the day-to-day management of
the fund's portfolio.
IMPORTANT TAX INFORMATION (Unaudited)
In accordance with federal tax law, the fund hereby designates all the dividends
paid from investment income-net during the fiscal year ended September 30, 2002
as "exempt-interest dividends" (not generally subject to regular federal income
tax) .
As required by federal tax law rules, shareholders will receive notification of
their portion of the fund's taxable ordinary dividends (if any) and capital gain
distributions (if any) paid for the 2002 calendar year on Form 1099-DIV which
will be mailed by January 31, 2003.
The Fund
PROXY RESULTS (Unaudited)
Holders of Common Stock and holders of Auction Preferred Stock ("APS") voted
together as a single class (except as noted below) on a proposal presented at
the annual shareholders' meeting held on May 10, 2002 as follows:
Shares
------------------------------------------------
For Authority Withheld
------------------------------------------------
To elect two Class II Directors:((+))
Ehud Houminer 52,924,716 577,398
Robin A. Pringle((+)(+)) 10,803 3
((+)) THE TERMS OF THESE CLASS II DIRECTORS EXPIRE IN 2005.
((+)(+)) ELECTED SOLELY BY APS HOLDERS; COMMON SHAREHOLDERS NOT ENTITLED TO
VOTE.
BOARD MEMBERS INFORMATION (Unaudited)
JOSEPH S. DIMARTINO (58)
CHAIRMAN OF THE BOARD (1995)
CURRENT TERM EXPIRES IN 2004
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Corporate Director and Trustee
OTHER DIRECTORSHIPS AND AFFILIATIONS:
* The Muscular Dystrophy Association, Director
* Carlyle Industries, Inc., a button packager and distributor, Director
* Century Business Services, Inc., a provider of outsourcing functions for small
and medium size companies, Director
* The Newark Group, a provider of a national market of paper recovery
facilities, paperboard mills and paperboard converting plants, Director
* QuikCAT.com, a developer of high speed movement, routing, storage and
encryption of data, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 190
--------------
DAVID W. BURKE (66)
BOARD MEMBER (1994)
CURRENT TERM EXPIRES IN 2003
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Corporate Director and Trustee
OTHER DIRECTORSHIPS AND AFFILIATIONS:
* John F. Kennedy Library Foundation, Director
* U.S.S. Constitution Museum, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 59
--------------
WILLIAM HODDING CARTER III (67)
BOARD MEMBER (1988)
CURRENT TERM EXPIRES IN 2004
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* President and Chief Executive Officer of the John Sand James L. Knight
Foundation; (1998-present)
* President and Chairman of MainStreet TV (1985-1998)
* Knight Professor in Journalism at the University of Maryland (1995-1998)
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 7
The Fund
BOARD MEMBERS INFORMATION (Unaudited) (CONTINUED)
EHUD HOUMINER (61)
BOARD MEMBER (1994)
CURRENT TERM EXPIRES IN 2005
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Professor and Executive-in-Residence at the Columbia Business School, Columbia
University
* Principal of Lear, Yavitz and Associates, a management consulting firm
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* Avnet Inc., an electronics distributor, Director
* Super Sol Limited, an Israeli supermarket chain, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 21
--------------
RICHARD C. LEONE (62)
BOARD MEMBER (1987)
CURRENT TERM EXPIRES IN 2004
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* President of The Century Foundation (formerly, The Twentieth Century Fund,
Inc.), a tax exempt research foundation engaged in the study of economic,
foreign policy and domestic issues
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 7
--------------
HANS C. MAUTNER (64)
BOARD MEMBER (1987)
CURRENT TERM EXPIRES IN 2003
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Vice Chairman and a Director of Simon Property Group, a real estate investment
company (1998-present)
* Chairman of Simon Global Limited (1998-present)
* Chairman, Chief Executive Officer and a Trustee of Corporate Property
Investors (1977-1998)
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 7
ROBIN A. PRINGLE (38)
BOARD MEMBER (1995)
CURRENT TERM EXPIRES IN 2005
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Senior Vice President of The National Mentoring Partnership (formerly, The One
to One Partnership), a national non-profit organization that seeks to promote
mentoring and economic empowerment for at-risk youths
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 7
--------------
JOHN E. ZUCCOTTI (65)
BOARD MEMBER (1987)
CURRENT TERM EXPIRES IN 2003
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Chairman of Brookfield Financial Properties, Inc.
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 7
--------------
THE ADDRESS OF EACH BOARD MEMBER IS C/O THE DREYFUS CORPORATION, 200 PARK
AVENUE, NEW YORK, NEW YORK 10166.
The Fund
OFFICERS OF THE FUND (Unaudited)
STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000.
Chairman of the Board, Chief Executive Officer and Chief Operating Officer
of the Manager, and an officer of 94 investment companies (comprised of 188
portfolios) managed by the Manager. Mr. Canter also is a Board member and, where
applicable an Executive Committee Member of the other investment management
subsidiaries of Mellon Financial Corporation, each of which is an affiliate of
the Manager. He is 57 years old, and has been an employee of the Manager since
May 1995.
MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000.
Executive Vice President, Secretary and General Counsel of the Manager, and
an officer of 95 investment companies (comprised of 202 portfolios) managed by
the Manager. He is 56 years old, and has been an employee of the Manager since
June 1977.
A. PAUL DISDIER, EXECUTIVE VICE PRESIDENT SINCE MARCH 2000.
Executive Vice President of the fund, Director of Dreyfus Municipal
Securities, and an officer of 3 investment companies (comprised of 3 portfolios)
managed by the Manager. He is 47 years old, and has been an employee of the
Manager since February 1988.
MICHAEL A. ROSENBERG, SECRETARY SINCE MARCH 2000.
Associate General Counsel of the Manager, and an officer of 93 investment
companies (comprised of 198 portfolios) managed by the Manager. He is 42 years
old, and has been an employee of the Manager since October 1991.
STEVEN F. NEWMAN, ASSISTANT SECRETARY SINCE MARCH 2000.
Associate General Counsel and Assistant Secretary of the Manager, and an
officer of 95 investment companies (comprised of 202 portfolios) managed by the
Manager. He is 53 years old, and has been an employee of the Manager since July
1980.
JOHN B. HAMMALIAN, ASSISTANT SECRETARY SINCE MARCH 2000.
Associate General Counsel and Assistant Secretary of the Manager, and an
officer of 36 investment companies (comprised of 43 portfolios) managed by the
Manager. He is 39 years old, and has been an employee of the Manager since
February 1991.
JAMES WINDELS, TREASURER SINCE NOVEMBER 2001.
Director - Mutual Fund Accounting of the Manager, and an officer of 95
investment companies (comprised of 202 portfolios) managed by the Manager. He is
44 years old, and has been an employee of the Manager since April 1985.
GREGORY S. GRUBER, ASSISTANT TREASURER SINCE MARCH 2000.
Senior Accounting Manager - Municipal Bond Funds of the Manager, and an
officer of 29 investment companies (comprised of 55 portfolios) managed by the
Manager. He is 43 years old, and has been an employee of the Manager since
August 1981.
KENNETH SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001.
Mutual Funds Tax Director of the Manager, and an officer of 95 investment
companies (comprised of 202 portfolios) managed by the Manager. He is 48 years
old, and has been an employee of the Manager since June 1993.
For More Information
Dreyfus Strategic Municipals, Inc.
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, MA 02108
Transfer Agent &
Dividend Disbursing Agent
and Registrar
(Common Stock)
The Bank of New York
101 Barclay Street
New York, NY 10286
(c) 2002 Dreyfus Service Corporation 853AR0902