Dreyfus Strategic
Municipals, Inc.
ANNUAL REPORT September 30, 2001
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 herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value
Contents
THE FUND
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2 Letter from the Chairman
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
16 Statement of Assets and Liabilities
17 Statement of Operations
18 Statement of Changes in Net Assets
19 Financial Highlights
20 Notes to Financial Statements
25 Report of Independent Auditors
26 Additional Information
29 Important Tax Information
30 Proxy Results
33 Officers and Directors
FOR MORE INFORMATION
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Back Cover
The Fund
Dreyfus
Strategic Municipals, Inc.
LETTER FROM THE CHAIRMAN
Dear Shareholder:
This annual report for Dreyfus Strategic Municipals, Inc. covers the 12-month
period from October 1, 2000 through September 30, 2001. 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, Paul Disdier.
It is impossible to address the economy and the financial markets without first
mentioning the devastating events that befell the U.S. on Tuesday, September 11,
2001. On behalf of The Dreyfus Corporation, I would like to extend heartfelt
sympathies to all who have been touched by these tragedies and assure you that
we continue to support the relief efforts.
Even before the September 11 attacks, a slowing economy and a return to more
normal valuations took their toll on stocks and high yield bonds. And,
realistically, the investment environment has become even more challenging in
the wake of these traumatic events. However, municipal bonds have generally been
one of the bright spots in an otherwise difficult investment environment.
Although lower interest rates generally caused tax-exempt bond yields to fall,
investors who allocated a portion of their overall investment portfolios to
municipal bonds enjoyed the benefits of tax-exempt income and potential capital
appreciation.
Over the past 50 years, we at Dreyfus have seen investment climates wax and
wane, alternately leading to optimism and pessimism among investors. But,
through it all, three enduring investment principles have helped investors
weather the periodic storms: ASSET ALLOCATION, DIVERSIFICATION and a LONG-TERM
PERSPECTIVE. Together, these investing basics have consistently demonstrated
their potential to improve performance, manage risk and combat volatility, even
during exaggerated market swings.
Given the current market environment, now might be a good time to ensure that
your investments are appropriately allocated and diversified for the long term.
We encourage you to contact your financial advisor for information about ways to
refine your investment strategies.
Thank you for your continued confidence and support.
Sincerely,
Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
October 15, 2001
DISCUSSION OF FUND PERFORMANCE
Paul Disdier, Portfolio Manager
How did Dreyfus Strategic Municipals, Inc. perform during the period?
For the 12-month period ended September 30, 2001, the fund achieved a 9.52%
total return.(1) Over the same period, the fund provided income dividends of
$0.562 per share, which is equal to a distribution rate of 5.80%.(2)
We attribute the fund' s good performance to a favorable environment for
municipal bonds. Tax-exempt securities provided strong returns because of
falling short-term interest rates and high levels of demand from investors
fleeing a declining stock market. Later in the reporting period, the fund was
also affected by the terrorist attacks of September 11.
What is the fund's investment approach?
The fund seeks high current federally tax-exempt income from a portfolio
primarily of municipal bonds.
To this end, we currently 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. When we believe an opportunity
exists, we also seek to upgrade the portfolio's investments with newly issued
bonds that, in our opinion, have better structural or income characteristics
than existing holdings. When such opportunities arise, we usually will look to
sell bonds that are close to redemption or maturity.
What other factors influenced the fund's performance?
Falling interest rates in a weakening economy represented a primary driver of
the fund's performance. The economy was already showing
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
signs of deterioration when the reporting period began, and the Federal Reserve
Board (the "Fed") took its first steps to stimulate economic growth by reducing
short-term interest rates on the first business day of January 2001. The Fed
eased a total of eight times, reducing interest rates by 3.50 percentage points
during the first nine months of 2001. Because we consistently maintained the
fund's average weighted maturity, the fund benefited from these changes in Fed
policy.
In this environment, many of the fund's income-oriented holdings benefited from
a narrowing of the yield differences among highly rated securities and lower
rated securities. Investors fleeing a falling stock market developed an
increased appetite for income-oriented bonds. As higher yielding bonds were
sold, redeemed or matured, we generally reinvested the proceeds in higher
quality securities.
Toward the end of the reporting period, the fund was influenced by a major
economic shock: the terrorist attacks on the World Trade Center in New York and
the Pentagon near Washington, D.C. This unexpected disaster sent an already
faltering U.S. economy into recession. Investors concerned about a falling stock
market, a weak economy and a newly unstable international political situation
flocked to higher quality, short-term securities, including tax-exempt bonds.
While the "flight to quality" generally supported municipal bond prices, helping
to offset the adverse effects of greater economic uncertainty, it had a more
profoundly negative influence on the prices of tax-exempt bonds issued by
airlines. Since the fund' s portfolio did have holdings in airline bonds, the
fund' s net asset value was affected.
What is the fund's current strategy?
Over the near term, we expect the Fed to look into reinvigorating the economy in
the aftermath of September' s terrorist attacks. The longer term outlook is
currently unclear and depends, in our view, on the willingness of businesses and
consumers to spend their way out of recession. With that said, however, we have
been encouraged by the stability and resiliency of the national municipal bond
market in the aftermath of these tragic events.
Nonetheless, low prevailing interest rates have continued to present a challenge
for the fund, because we have been unable to replace maturing bonds with new
securities offering comparable yields. However, the leverage provided by the
fund' s earlier issuance of preferred stock has helped to support the fund's
dividend. In addition, we have continued to look for what we believe are
attractive opportunities for current income when they become available.
October 15, 2001
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID,
BASED UPON NET ASSET VALUE PER SHARE. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. MARKET PRICE PER SHARE, NET ASSET VALUE PER SHARE AND
INVESTMENT RETURN FLUCTUATE. INCOME MAY BE SUBJECT TO STATE AND LOCAL
TAXES, AND SOME INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM
TAX (AMT) FOR CERTAIN INVESTORS. CAPITAL GAINS, IF ANY, ARE FULLY TAXABLE.
(2) DISTRIBUTION RATE PER SHARE IS BASED UPON DIVIDENDS PER SHARE PAID FROM NET
INVESTMENT INCOME DURING THE PERIOD ANNUALIZED, DIVIDED BY THE MARKET PRICE
PER SHARE AT THE END OF THE PERIOD.
The Fund
SELECTED INFORMATION
September 30, 2001 (Unaudited)
Market Price per share September 30, 2001 $9.69
Shares Outstanding September 30, 2001 58,549,216
New York Stock Exchange Ticker Symbol LEO
MARKET PRICE (NEW YORK STOCK EXCHANGE)
Fiscal Year Ended September 30, 2001
-----------------------------------------------------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
DECEMBER 31, 2000 MARCH 31, 2001 JUNE 30, 2001 SEPTEMBER 30, 2001
-----------------------------------------------------------------------------------------------------------
High $8.75 $9.53 $9.34 $10.05
Low 8.00 8.75 8.97 9.10
Close 8.63 9.35 9.31 9.69
PERCENTAGE GAIN based on change in Market Price*
September 23, 1987 (commencement of operations)
through September 30, 2001 167.86%
October 1, 1991through September 30, 2001 82.56
October 1, 1996 through September 30, 2001 33.73
October 1, 2000 through September 30, 2001 20.22
January 1, 2001 through September 30, 2001 17.44
April 1, 2001 through September 30, 2001 6.77
July 1, 2001 through September 30, 2001 5.66
NET ASSET VALUE PER SHARE
September 23, 1987 (commencement of operations) $ 9.32
September 30, 2000 9.38
December 31, 2000 9.57
March 31, 2001 9.77
June 30, 2001 9.76
September 30, 2001 9.66
PERCENTAGE GAIN based on change in Net Asset Value*
September 23, 1987 (commencement of operations)
through September 30, 2001 186.50%
October 1, 1991 through September 30, 2001 91.87
October 1, 1996 through September 30, 2001 34.94
October 1, 2000 through September 30, 2001 9.52
January 1, 2001 through September 30, 2001 5.51
April 1, 2001 through September 30, 2001 1.86
July 1, 2001 through September 30, 2001 .48
* WITH DIVIDENDS REINVESTED.
STATEMENT OF INVESTMENTS
September 30, 2001
Principal
LONG-TERM MUNICIPAL INVESTMENTS--97.5% Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
ALABAMA--1.6%
Alabama Industrial Development Authority,
SWDR (Pine City Fiber Co.)
6.45%, 12/1/2023 (Guaranteed; Boise Cascade Corp.) 5,000,000 5,010,850
Houston County Health Care Authority
6.25%, 10/1/2030 (Insured; AMBAC) 8,000,000 8,770,880
ALASKA--1.1%
Alaska Housing Finance Corp.:
6%, 12/1/2040 2,000,000 2,059,880
6%, 6/1/2049 (Insured; MBIA) 7,250,000 7,445,967
ARKANSAS--1.9%
Arkansas Development Finance Authority, SFMR
(Mortgage Backed Securities Program):
6.45%, 7/1/2031 (Guaranteed; GNMA, FNMA) 10,000,000 10,693,900
6.25%, 1/1/2032 (Guaranteed; GNMA) 5,000,000 5,293,000
ARIZONA--4.0%
Apache County Industrial Development Authority, PCR
(Tucson Electric Power Co. Project):
5.85%, 3/1/2028 4,000,000 3,759,760
5.875%, 3/1/2033 2,500,000 2,348,100
Maricopa Pollution Control Corp., PCR
(Public Service Co.) 5.75%, 11/1/2022 6,000,000 5,930,340
Pima County Industrial Development Authority, Industrial
Revenue (Tucson Electric Power Co. Project) 6%, 9/1/2029 15,500,000 14,793,820
Tempe Industrial Development Authority, IDR
(California Micro Devices Corp. Project) 10.50%, 3/1/2018 6,890,000 6,948,703
CALIFORNIA--2.4%
State of California 8.82%, 12/1/2018 (Insured; FSA) 10,000,000 (a,b) 10,209,800
Foothill/Eastern Corridor Agency, Toll Road Revenue
5.75%, 1/15/2040 6,000,000 6,161,280
Los Angeles Regional Airports Improvement Corp., Lease
Revenue (Los Angeles International Airport)
6.35%, 11/1/2025 4,930,000 4,172,160
COLORADO--2.0%
Bent County, COP (Medium Security Correctional
Facility Project) 9.50%, 7/15/2013 11,560,000 11,925,065
Denver City and County, Airport Revenue:
8%, 11/15/2025 3,670,000 3,696,497
8%, 11/15/2025 (Prerefunded 11/15/2001) 1,330,000 (c) 1,339,815
DISTRICT OF COLUMBIA--1.1%
District of Columbia Tobacco Settlement Financing Corp.,
Asset Backed 6.75%, 5/15/2040 8,000,000 8,840,480
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
FLORIDA--6.2%
Escambia County, PCR (Champion International
Corp. Project) 6.90%, 8/1/2022 7,000,000 7,336,140
Florida Board of Education, Capital Outlay
9.557%, 6/1/2019 20,000,000 (a,b) 21,351,000
Florida Housing Finance Corp., Housing Revenue
(Nelson Park Apartments)
6.40%, 3/1/2040 (Insured; FSA) 12,380,000 13,132,333
Highlands County Health Facilities Authority, HR
(Adventist Health Systems) 5.25%, 11/15/2028 8,000,000 7,449,040
Orange County Health Facilities Authority, HR
(Regional Healthcare Systems) 6%, 10/1/2026 2,000,000 2,085,600
South Lake County Hospital District, Health, Hospital and
Nursing Home Revenue (South Lake Hospital Inc.)
5.80%, 10/1/2034 1,500,000 1,524,915
GEORGIA--2.2%
Georgia Housing Finance Authority,
SFMR 6.45%, 12/1/2030 7,495,000 8,002,861
Private Colleges and Universities Facilities Authority, Revenue
(Clark Atlanta University Project)
8.25%, 1/1/2015 (Prerefunded 1/1/2003) 9,280,000 (c) 10,386,733
HAWAII--1.0%
Hawaii Department of Transportation, Special Facility Revenue:
(Caterair International Corp. Project) 10.125%, 12/1/2010 3,900,000 3,944,421
(Continental Airlines, Inc.) 5.625%, 11/15/2027 6,820,000 4,483,877
ILLINOIS--6.4%
Chicago:
6.125%, 1/1/2028 (Insured; FGIC) 15,815,000 17,402,035
(Wastewater Transmission Revenue)
6%, 1/1/2030 (Insured; MBIA) 3,000,000 3,259,890
Chicago-O'Hare International Airport, Special Facility Revenue:
(Delta Airlines Project) 6.45%, 5/1/2018 4,855,000 4,142,189
(United Airlines, Inc. Project) 6.30%, 5/1/2016 4,000,000 3,338,840
Illinois Development Finance Authority, Revenue:
(Community Rehabilitation Providers Facilities
Acquisition Program) 6%, 7/1/2015 3,500,000 3,528,525
Hospital (Adventist Health System/Sunbelt
Obligated Group) 5.50%, 11/15/2029 4,250,000 4,071,033
Illinois Health Facilities Authority, Revenue:
(Advocate Network Health Care) 6.125%, 11/15/2022 4,020,000 4,242,427
(OSF Healthcare System) 6.25%, 11/15/2029 8,730,000 9,125,382
(Swedish American Hospital) 6.875%, 11/15/2030 5,000,000 5,430,000
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
----------------------------------------------------------------------------------------------------------------------------------
INDIANA--3.5%
Franklin Township Independent School Building Corp.,
First Mortgage 6.125%, 1/15/2022 6,500,000 7,631,065
Indiana Housing Finance Authority, SFMR 5.95%, 1/1/2029 3,750,000 3,871,462
Indianapolis Airport Authority:
(United Airlines Project) 6.50%, 11/15/2031 14,125,000 11,107,759
9.918%, 11/15/2031 12,000,000 (a,b) 6,809,520
KANSAS--1.3%
Wichita, HR (Christian Health System Inc.)
6.25%, 11/15/2024 10,000,000 10,648,000
KENTUCKY--2.3%
Kenton County Airport Board, Airport Revenue
(Special Facilities-Delta Airlines Project):
7.50%, 2/1/2020 10,000,000 9,549,300
6.125%, 2/1/2022 12,000,000 9,787,200
LOUISIANA--1.2%
Parish of Saint James, SWDR
(Freeport-McMoRan Partnership Project)
7.70%, 10/1/2022 10,000,000 9,922,800
MARYLAND--.1%
Baltimore County, PCR
(Bethlehem Steel Corp. Project) 7.50%, 6/1/2015 2,500,000 (d) 1,126,550
MASSACHUSETTS--1.7%
Massachusetts Industrial Finance Agency, Revenue
(Ogden Haverhill Project) 5.60%, 12/1/2019 6,000,000 5,723,280
Massachusetts Health and Educational Facilities Authority,
Revenue:
(Beth Israel Hospital Issue)
8.573%, 7/1/2025 (Insured; AMBAC) 3,000,000 (a) 3,202,500
(Partners Healthcare System) 5.75%, 7/1/2032 5,000,000 5,113,450
MICHIGAN--2.1%
Michigan Hospital Finance Authority, HR
(Ascension Health Credit) 6.125%, 11/15/2026 5,000,000 5,289,600
(Genesys Health System Obligated Group)
8.125%, 10/1/2021 (Prerefunded 10/1/2005) 5,000,000 (c) 6,048,700
Michigan Strategic Fund, SWDR
(Genesee Power Station Project) 7.50%, 1/1/2021 7,000,000 6,918,800
MINNESOTA--.5%
Minneapolis and Saint Paul Metropolitan Airports
Commission, Special Facilities Revenue
(Northwest Airlines Project) 7%, 4/1/2025 5,000,000 3,960,500
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI--3.3%
Claiborne County, PCR (Middle South Energy, Inc.)
(System Energy Resources, Inc.) 6.20%, 2/1/2026 5,545,000 5,544,446
Mississippi Business Finance Corp., PCR (System Energy
Resource Inc. Project) 5.875%, 4/1/2022 22,790,000 22,482,791
MISSOURI-- .5%
Saint Louis Industrial Development Authority, Revenue
(Saint Louis Convention Center) 7.25%, 12/15/2035 4,250,000 4,549,413
MONTANA--1.1%
Montana Board of Housing, Single Family Mortgage
6.45%, 6/1/2029 9,175,000 9,719,536
NEVADA--4.2%
Clark County, IDR:
(Southwest Gas Corp.) 7.50%, 9/1/2032 4,000,000 4,129,040
(Nevada Power Company Project):
5.50%, 10/1/2030 5,000,000 4,537,700
5.60%, 10/1/2030 8,550,000 7,684,056
5.90%, 10/1/2030 6,000,000 5,666,820
Washoe County (Reno-Sparks Convention Center)
6.40%, 7/1/2029 (Insured; FSA) 12,000,000 14,049,000
NEW HAMPSHIRE--3.7%
New Hampshire Industrial Development Authority, PCR:
(Connecticut Light and Power) 5.90%, 11/1/2016 5,000,000 5,018,800
(Public Service Co. Project):
7.65%, Series A, 5/1/2021 15,645,000 15,983,245
7.65%, Series C, 5/1/2021 3,500,000 3,575,670
New Hampshire Business Finance Authority, PCR, Revenue
(Public Service Co. Project) 6%, 5/1/2021 7,000,000 7,070,560
NEW JERSEY--2.8%
New Jersey Economic Development Authority, Special
Facility Revenue (Continental Airlines Inc. Project):
6.40%, 9/15/2023 3,000,000 2,410,380
6.25%, 9/15/2029 5,000,000 3,839,550
New Jersey Health Facilities Financing Authority, Revenue
(Christian Health Care Center) 8.75%, 7/1/2018 14,585,000 17,842,851
NEW MEXICO--.5%
Farmington, PCR (Tucson Electric Power Co., San Juan)
6.95%, 10/1/2020 4,000,000 4,113,480
NEW YORK--2.6%
Long Island Power Authority, New York Electric
System Revenue 7.399%, 12/1/2016 10,000,000 (a,b) 10,548,300
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
New York State Energy Research and Development
Authority, Electric Facilities Revenue
(Long Island Lighting Co.):
7.15%, 2/1/2022 3,000,000 3,162,060
6.90%, 8/1/2022 3,275,000 3,524,653
TSASC, Inc., Tobacco Flexible Amortization Bonds
6.375%, 7/15/2039 4,500,000 4,878,675
NORTH CAROLINA--.3%
Charlotte, Special Facilities Revenue (Charlotte/Douglas
International Airport) 5.60%, 7/1/2027
(Guaranteed; U.S. Air) 5,145,000 2,475,980
NORTH DAKOTA--1.7%
North Dakota Housing Finance Agency, Home
Mortgage Revenue (Housing Finance Program):
6.50%, 1/1/2031 10,000,000 10,658,000
6.15%, 7/1/2031 3,420,000 3,569,625
OHIO--2.1%
Ohio Air Quality Development Authority, PCR
6.10%, 8/1/2020 3,000,000 3,065,250
Ohio Housing Finance Agency,
Residential Mortgage Revenue:
6.25%, 9/1/2020 (Collateralized; GNMA) 4,945,000 5,268,601
6.35%, 9/1/2031 (Collateralized; GNMA) 4,950,000 5,253,633
Ohio Water Development Authority, Pollution Control
Facilities Revenue (Cleveland Electric Co.)
6.10%, 8/1/2020 4,350,000 4,444,613
OKLAHOMA--1.5%
Oklahoma Industries Authority
(Health System Obligated Group) 5.75%, 8/15/2029 12,230,000 12,809,824
PENNSYLVANIA--2.5%
Beaver County Industrial Development Authority, PCR
(Cleveland Electric Project) 7.625%, 5/1/2025 7,000,000 7,580,930
Lehigh County General Purpose Authority, Revenue
(Wiley House) 9.50%, 11/1/2016
(Prerefunded 11/1/2001) 3,000,000 (c) 3,079,470
Pennsylvania Housing Finance Agency,
SFMR, 8.638%, 4/1/2025 6,000,000 (a) 6,232,500
York County Hospital Authority, Revenue
(Health Center - Lutheran Social Services)
6.50%, 4/1/2022 4,250,000 4,087,353
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--2.4%
Piedmont Municipal Power Agency, Electric Revenue
6.55%, 1/1/2016 1,690,000 1,690,642
Spartanburg County, Hospital Facilities Revenue
(Spartanburg General Hospital System)
9.962%, 4/13/2022 (Prerefunded 4/15/2002) 7,700,000 (a,c) 8,354,500
Tobacco Settlement Revenue Management Authority,
Tobacco Settlement Revenue 6.375%, 5/15/2028 9,825,000 10,505,185
TENNESSEE--3.0%
Memphis Center City Revenue Finance Corp.,
Tennessee Sports Facility Revenue
(Memphis Redbirds) 6.50%, 9/1/2028 10,000,000 9,678,900
Tennessee Housing Development Agency
(Homeownership Program) 6.40%, 7/1/2031 14,985,000 16,047,437
TEXAS--7.5%
Austin Convention Enterprises Inc., Convention Center
6.70%, 1/1/2028 4,000,000 4,135,920
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 6,798,555
Harris County Health Facilities Development Corp., HR
(Memorial Hermann Hospital System Project)
6.375%, 6/1/2029 8,500,000 9,005,580
Houston Airport System, Special Facilities Revenue,
Airport Improvement (Continental Airlines):
6.125%, 7/15/2027 8,100,000 5,859,135
6.75%, 7/1/2029 8,250,000 6,453,892
5.70%, 7/15/2029 3,750,000 2,501,625
Port Corpus Christi Authority, Nueces County General
Revenue (Union Pacific Corp.) 5.65%, 12/1/2022 7,750,000 7,580,895
Sabine River Authority, PCR (TXU Electric Project)
6.45%, 6/1/2021 9,000,000 9,259,740
Texas Department of Housing and Community Affairs
Collateralized Home Mortgage Revenue
10.859%, 7/2/2024 5,350,000 (a) 6,333,063
Tomball Hospital Authority, Health, Hospital and
Nursing Home Revenue (Tomball Regional Hospital)
6%, 7/1/2025 3,500,000 3,249,435
Tyler Health Facilities Development Corp., HR
(East Texas Medical Center Regional Health Care
System Project) 6.75%, 11/1/2025 3,000,000 2,408,640
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
UTAH--.6%
Carbon County, SWDR (Sunnyside Cogeneration):
7.10%, 8/15/2023 4,780,000 4,963,791
Zero Coupon, 8/15/2024 1,545,000 395,582
VERMONT--.8%
Vermont Housing Finance Agency,
Single Family Housing
6.40%, 11/1/2030 (Insured; FSA) 6,270,000 6,637,547
VIRGINIA--2.0%
Fairfax County Water Authority, Revenue
8.57%, 4/1/2029 5,000,000 (a,b) 5,096,950
Greater Richmond Convention Center Authority,
Hotel Tax Revenue (Convention Center
Expansion Project) 6.25%, 6/15/2032 10,500,000 11,482,170
WASHINGTON--1.7%
Public Utility District No. 1 of Pend Orielle County,
Electric Revenue 6.375%, 1/1/2015 3,755,000 3,973,428
Seattle, Water System Revenue
6%, 7/1/2029 (Insured; FGIC) 10,000,000 10,841,400
WEST VIRGINIA--4.1%
Braxton County, SWDR (Weyerhaeuser Co. Project) :
5.40%, 5/1/2025 12,800,000 12,114,176
6.125%, 4/1/2026 14,000,000 14,386,260
West Virginia Housing Development Fund,
Housing Finance 6.50%, 5/1/2028 5,935,000 6,299,112
West Virginia Water Development Authority, Water
Development Revenue 6.375%, 7/1/2039 2,250,000 2,473,920
WISCONSIN--3.7%
Wisconsin Health and Educational Facilities Authority,
Health, Hospital and Nursing Home Revenue
(Aurora Health Care Inc.) 5.60%, 2/15/2029 9,705,000 9,123,573
Wisconsin Housing and Economic Development
Authority, Homeownership Revenue:
9.891%, 7/1/2025 10,000,000 (a,b) 10,695,800
6.45%, 9/1/2030 11,195,000 11,891,441
WYOMING--.5%
Sweetwater County, SWDR (FMC Corp. Project):
7%, 6/1/2024 2,200,000 2,278,320
6.90%, 9/1/2024 2,000,000 2,066,200
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
U. S. RELATED--1.8%
Guam Housing Corp., SFMR
5.75%, 9/1/2031 (Collateralized; FHLMC) 8,225,000 8,738,404
Puerto Rico Highway and Transportation Authority,
Transportation Revenue 6%, 7/1/2039 6,000,000 6,660,360
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(cost $811,542,475) 829,186,407
-----------------------------------------------------------------------------------------------------------------------------------
Principal
SHORT-TERM INVESTMENTS--.7% Amount ($) Value ($)
-----------------------------------------------------------------------------------------------------------------------------------
MICHIGAN--.3%
Midland County Economic Development Corp., Limited
Obligation Revenue, VRDN (Dow Chemical Co.) 2.90% 2,400,000 (e) 2,400,000
VIRGINIA--.3%
Roanoke Industrial Development Authority, HR, VRDN
(Carolion Health System)
2.75% (SBPA; Nationsbank N.A.) 2,600,000 (e) 2,600,000
WYOMING--.1%
Lincoln County, PCR, VRDN (Exxon Project) 2.80% 1,400,000 (e) 1,400,000
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $6,400,000) 6,400,000
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $817,942,475) 98.2% 835,586,407
CASH AND RECEIVABLES (NET) 1.8% 15,138,398
NET ASSETS 100.0% 850,724,805
Summary of Abbreviations
AMBAC American Municipal Bond
Assurance Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance
Company
FHLMC Federal Home Loan Mortgage
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 24.7
AA Aa AA 14.0
A A A 16.0
BBB Baa BBB 21.9
BB Ba BB 11.5
B B B .7
F1 Mig1 SP1 .8
Not Rated( f) Not Rated( f) Not Rated( f) 10.4
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,
2001, THESE SECURITIES AMOUNTED TO $64,711,370 OR 7.6% OF NET ASSETS.
(C) BONDS WHICH ARE PREREFUNDED ARE COLLATERALIZED BY U.S. GOVERNMENT
SECURITIES WHICH ARE HELD IN ESCROW AND ARE USED TO PAY PRINCIPAL AND
INTEREST ON THE MUNICIPAL ISSUE AND TO RETIRE THE BONDS IN FULL AT THE
EARLIEST REFUNDING DATE.
(D) SUBSEQUENT TO 9/30/2001 THESE SECURITIES STOPPED ACCRUING INTEREST.
(E) SECURITIES PAYABLE ON DEMAND. VARIABLE RATE INTEREST--SUBJECT TO PERIODIC
CHANGE.
(F) SECURITIES WHICH, WHILE NOT RATED BY FITCH, MOODY'S AND STANDARD & POOR'S,
HAVE BEEN DETERMINED BY THE MANAGER TO BE OF COMPARABLE QUALITY TO THOSE
RATED SECURITIES IN WHICH THE FUND MAY INVEST.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2001
Cost Value
-------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 817,942,475 835,586,407
Interest receivable 16,564,202
Prepaid expenses 20,849
852,171,458
-------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 570,447
Cash overdraft due to Custodian 511,139
Dividends payable to preferred shareholders 88,252
Commissions payable 10,277
Accrued expenses 266,538
1,446,653
-------------------------------------------------------------------------------
NET ASSETS ($) 850,724,805
-------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
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
Common Stock par value, $.001 per share
(58,549,216 shares issued and outstanding) 58,549
Paid-in capital 551,890,239
Accumulated undistributed investment income--net 6,453,159
Accumulated net realized gain (loss) on investments (10,321,074)
Accumulated net unrealized appreciation
(depreciation) on investments--Note 4 17,643,932
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 565,724,805
-------------------------------------------------------------------------------
NET ASSETS ($) 850,724,805
-------------------------------------------------------------------------------
SHARES OUTSTANDING
(500 million shares of $.001 par value Common Stock authorized) 58,549,216
NET ASSET VALUE PER SHARE OF COMMON STOCK ($) 9.66
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended September 30, 2001
-------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 55,960,632
EXPENSES:
Management fee--Note 3(a) 6,388,194
Commission fees--Note 1 753,913
Professional fees 183,362
Shareholder servicing costs 143,215
Custodian fees--Note 3(b) 135,499
Shareholders' reports 95,662
Registration fees 58,609
Directors' fees and expenses--Note 3(c) 58,566
Miscellaneous 44,000
TOTAL EXPENSES 7,861,020
INVESTMENT INCOME--NET 48,099,612
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4($):
Net realized gain (loss) on investments (140,789)
Net unrealized appreciation (depreciation) on investments 11,272,993
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 11,132,204
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 59,231,816
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended September 30,
-----------------------------------
2001 2000
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 48,099,612 41,928,438
Net realized gain (loss) on investments (140,789) (10,047,493)
Net unrealized appreciation
(depreciation) on investments 11,272,993 10,713,730
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 59,231,816 42,594,675
--------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net:
Common Stock (32,904,664) (32,319,176)
Preferred Stock (9,541,005) (7,790,712)
Net realized gain on investments:
Common Stock -- (895,803)
TOTAL DIVIDENDS (42,445,669) (41,005,691)
-------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Proceeds from issuance of Preferred Stock -- 285,000,000
Offering costs charged to paid-in capital resulting
from issuance of Preferred Stock -- (3,405,309)
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS -- 281,594,691
TOTAL INCREASE (DECREASE) IN NET ASSETS 16,786,147 283,183,675
-------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 833,938,658 550,754,983
END OF PERIOD 850,724,805 833,938,658
Undistributed investment income--net 6,453,159 799,617
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,
------------------------------------------------------------------
2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 9.38 9.41 10.22 10.02 9.88
Investment Operations:
Investment income--net .82 .71 .56 .59 .66
Net realized and unrealized
gain (loss) on investments .18 .02 (.80) .25 .16
Total from Investment Operations 1.00 .73 (.24) .84 .82
Distributions:
Dividends from investment income--net:
Common Stock (.56) (.55) (.57) (.64) (.68)
Preferred Stock (.16) (.13) -- -- --
Dividends from net realized gain
on investments--Common Stock -- (.02) -- -- --
Total Distributions (.72) (.70) (.57) (.64) (.68)
Capital Stock transactions, net effect of
Preferred Stock offerings -- (.06) -- -- --
Net asset value, end of period 9.66 9.38 9.41 10.22 10.02
Market Value, end of period 9.69 8(9)/(16) 8 10(5)/(16) 10(5)/(8)
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 20.22 14.76 (17.55) 3.35 13.77
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average net assets
applicable to Common Stock 1.39(b,c) 1.25(b,c) .84 .85 .85
Ratio of net investment income to average
net assets applicable to Common Stock 8.49(b,c) 7.91(b,c) 5.63 5.78 6.64
Portfolio Turnover Rate 10.07 19.03 27.05 20.95 16.66
Asset Coverage of Preferred Stock,
end of period 299 295 -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, net of Preferred Stock,
end of period ($ x 1,000) 565,725 548,939 550,755 595,693 577,209
Preferred Stock outstanding,
end of period ($ x 1,000) 285,000 285,000 -- -- --
(A) CALCULATED BASED ON MARKET VALUE.
(B) DOES NOT REFLECT THE EFFECT OF DIVIDENDS TO PREFERRED STOCK SHAREHOLDERS.
(C) THE RATIO OF EXPENSES TO TOTAL AVERAGE NET ASSETS AND THE RATIO OF NET
INVESTMENT INCOME TO TOTAL AVERAGE NET ASSETS WERE .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.
The Fund
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 outstanding 2,280 shares of Series M, Series T, Series W, Series TH
and Series F Auction Preferred Stock ("APS"), each with a liquidation preference
of $25,000 per share (plus an amount equal to accumulated but unpaid dividends
upon liquidation) . APS dividend rates are determined pursuant to periodic
auctions. Banker's Trust Company, 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.
(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.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In November 2000 the American Institute of Certified Public Accountants
(" AICPA" ) issued a revised version of the AICPA Audit and Accounting Guide for
Investment Companies (the "Guide" ). The revised version of the Guide is
effective for financial statements issued for fiscal years beginning after
December 15, 2000. One of the new provisions in the Guide requires investment
companies to accrete market discount on municipal securities which the fund does
not currently do. Upon adoption, the fund will be required to record a
cumulative effect adjustment to conform with accounting principles generally
accepted in the United States. The effect of this adjustment, effective October
1, 2001, is to increase accumulated net investment income with an offsetting
decrease to accumulated unrealized appreciation (depreciation) on securities.
This adjustment will therefore, have no effect on the net assets of the fund.
(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 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 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 28, 2001, the Board of Directors declared a cash dividend of $.051
per share from investment income-net, payable on October 26, 2001 to Common
Shareholders of record as of the close of business on October 12, 2001.
(D) DIVIDENDS TO SHAREHOLDERS OF APS: For APS, dividends are currently reset
every 7 days. The dividend rates in effect at September 30, 2001were as follows:
Series M-2.25% , Series T-2.30% , Series W-2.30% , Series TH-2.30% and Series
F-2.25%.
(E) FEDERAL INCOME TAXES: It is the policy of the fund to continue to qualify as
a regulated investment company, which can distribute tax exempt dividends, by
complying with the applicable provisions of the Internal Revenue Code of 1986,
as amended and to make distributions of income and net realized capital gain
sufficient to relieve it from substantially all Federal income and excise taxes
The Fund has an unused capital loss carryover of approximately $9,837,000
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to September 30, 2001. This
amount is calculated based on federal income tax regulations which may differ
from financial reporting in accordance with accounting principles generally
accepted in the United States. If not applied, the carryover expries in fiscal
2009.
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $100 million
unsecured line of credit primarily to be utilized for temporary or emergency
purposes. Interest is charged to the fund based on prevailing market rates in
effect at the time of borrowings. During the period ended September 30, 2001,
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, 11_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, 2001, there was no expense reimbursement pursuant to the
agreement.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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, 2001, $135,499 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, 2001, amounted to
$83,879,219 and $88,344,854, respectively.
At September 30, 2001, accumulated net unrealized appreciation on investments
was $17,643,932, consisting of $45,501,025 gross unrealized appreciation and
$27,857,093 gross unrealized depreciation.
At September 30, 2001, 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).
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, 2001, 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, 2001 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, 2001, 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 8, 2001
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 for any particular month may be more or less than the amount of net
invest The Fund
ADDITIONAL INFORMATION (Unaudited) (CONTINUED)
ment 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, 2001, there were: (i) no material changes in
the fund' s investment objectives or polices, (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 makes the following
designations regarding its fiscal year ended September 30, 2001:
-- all the dividends paid from investment income-net are "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 2001 calendar year on Form 1099-DIV which
will be mailed by January 31, 2002.
The Fund
PROXY RESULTS (Unaudited)
Holders of Common Stock and holders of Auction Preferred Stock ("APS") voted
together as a single class on a proposal presented at the annual shareholders'
meeting held on May 11, 2001. The description of the proposal and the number of
shares voted are as follows:
Shares
-------------------------------------------------
For Authority Withheld
-------------------------------------------------
To elect three Class I Directors:((+))
Hodding Carter III 52,537,285 1,064,010
Joseph S. DiMartino 52,584,530 1,016,765
Richard C. Leone 52,603,355 997,940
((+)) THE TERMS OF THESE CLASS I DIRECTORS EXPIRE IN 2004.
NOTES
OFFICERS AND DIRECTORS
Dreyfus Strategic Municipals, Inc.
200 Park Avenue
New York, NY 10166
DIRECTORS
Joseph S. DiMartino
David W. Burke
Hodding Carter, III
Ehud Houminer
Richard C. Leone
Hans C. Mautner
Robin R. Pringle(*)
John E. Zuccotti(*)
* AUCTION PREFERRED STOCK DIRECTORS
OFFICERS
President
Stephen E. Canter
Vice President
Mark N. Jacobs
Vice President and Treasurer
Joseph Connolly
Executive Vice President
Paul Disdier
Secretary
John B. Hammalian
Assistant Secretary
Steven F. Newman
Assistant Treasurer
Gregory S. Gruber
PORTFOLIO MANAGERS:
Joseph P. Darcy
A. Paul Disdier
Douglas J. Gaylor
Joseph A. Irace
PORTFOLIO MANAGERS (CONTINUED)
Colleen A. Meehan
W. Michael Petty
Scott Sprauer
James Welch
Monica S. Wieboldt
INVESTMENT ADVISER
The Dreyfus Corporation
CUSTODIAN
Boston Safe Deposit
and Trust Company
COUNSEL
Stroock & Stroock & Lavan LLP
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The Bank of New York (Common Stock)
Bankers Trust (Auction Preferred Stock)
AUCTION AGENT
Bankers Trust (Auction Preferred Stock)
STOCK EXCHANGE LISTING
NYSE Symbol: LEO
INITIAL SEC EFFECTIVE DATE
9/23/87
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, BUSINESS SECTION UNDER THE HEADING "CLOSED-END
BOND FUNDS--NATIONAL MUNICIPAL BOND FUNDS" EVERY SUNDAY.
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED, THAT THE FUND MAY PURCHASE SHARES OF ITS COMMON
STOCK IN THE OPEN MARKET WHEN IT CAN DO SO AT PRICES BELOW THE THEN CURRENT NET
ASSET VALUE PER SHARE.
The Fund
For More Information
Dreyfus 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) 2001 Dreyfus Service Corporation 853AR0901