DREYFUS
STRATEGIC MUNICIPAL
BOND FUND, INC.
ANNUAL REPORT November 30, 2002
YOU, YOUR ADVISOR AND
(R)DREYFUS
A MELLON FINANCIAL COMPANY
DREYFUS STRATEGIC MUNICIPAL BOND FUND, 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 Selected Information
7 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 Important Tax Information
29 Additional Information
32 Proxy Results
33 Board Members Information
36 Officers of the Fund
37 Officers and Directors
FOR MORE INFORMATION
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Back Cover
The Fund
Dreyfus Strategic Municipal Bond Fund, Inc.
LETTER FROM THE CHAIRMAN
Dear Shareholder:
We present this annual report for Dreyfus Strategic Municipal Bond Fund, Inc.,
covering the 12-month period from December 1, 2001 through November 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,
James Welch.
In an otherwise turbulent year, municipal bonds have provided relatively
attractive and stable returns. Indeed, tax-exempt bond prices were boosted
further in November when the Federal Reserve Board (the "Fed" ) reduced
short-term interest rates by another 0.50 percentage points. As a result, the
performance of high-quality municipal bonds to date in 2002 has been
substantially better than many other asset classes.
Will highly rated municipal bonds continue to provide higher returns than
stocks? While no one can know for sure, many analysts currently believe that the
Fed' s next move may be toward higher interest rates, which is likely to put
downward pressure on prices of many bonds. History suggests that investing only
in fixed-income securities probably won't provide the long-term returns most
investors need. Instead, we believe that holding the right mix of stocks, bonds
and cash that fits their overall financial circumstances is an important
consideration for investors. We suggest you talk regularly with your financial
advisor to ensure that your portfolio reflects your investment needs, long-term
goals and attitudes toward risk.
Thank you for your continued confidence and support.
Sincerely,
/s/Stephen E. Canter
Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
December 16, 2002
DISCUSSION OF FUND PERFORMANCE
James Welch, Portfolio Manager
How did Dreyfus Strategic Municipal Bond Fund, Inc. perform during the period?
For the 12-month period ended November 30, 2002, the fund achieved a total
return of 4.53%.(1) During the same period, the fund provided aggregate income
dividends of $0.5604 per share, which is equal to a distribution rate of 7.11%
..(2 )
The fund has continued to perform well despite the effects of falling interest
rates on long-term bond yields. The fund's leveraging strategy, which is based
on the issuance of short-term auction-rate preferred notes, has continued to
benefit performance as borrowing costs have declined. However, ongoing credit
concerns affecting some of the fund's corporate-backed municipal securities
detracted from the fund's otherwise strong performance.
What is the fund's investment approach?
The fund seeks high current income exempt from federal income tax by investing
in long-term, tax-exempt municipal bonds.
In so doing, we look for bonds that we believe can provide high current income.
We strive to find such opportunities through analysis of individual bonds'
structures. Within the context of our bond structure analyses, we pay
particularly close attention to each bond' s maturity and early redemption
features.
Over time, many of the fund's older, higher-yielding bonds have matured or were
redeemed by their issuers. We have generally attempted to replace those bonds
with new securities that offered currently higher than average income payments.
We have also sought to upgrade the fund with newly issued bonds that, in our
opinion, have better structural or income characteristics than existing
holdings. When such opportunities arise, we usually sell bonds that are close to
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
their optimal redemption date or maturity. In addition, we conduct credit
analysis of our holdings in an attempt to avoid potential defaults on interest
and principal payments.
What other factors influenced the fund's performance?
The reporting period was characterized by a generally disappointing economic
recovery and falling interest rates. The Federal Reserve Board (the "Fed") began
the reporting period with a 0.25 percentage-point rate cut, the last of 11 such
reductions implemented during 2001. The Fed subsequently held interest rates
steady through the first 10 months of 2002, while it waited for the economic
recovery to gain momentum. When the economy failed to respond, the Fed stepped
in with an additional rate cut of 0.50 percentage points in November
These influences benefited many of the fund's higher-yielding holdings, which
experienced price appreciation as yields on newly issued bonds declined.
Heightened demand from risk-averse investors seeking an alternative to the stock
market also supported municipal bond prices and kept yields low.
Despite generally favorable market conditions, we maintained a relatively
conservative investment posture throughout the reporting period as we continued
to rebalance the fund in an attempt to make it less sensitive to credit concerns
and interest-rate trends. With interest rates already at a 40-year low, we
believed that it made little sense to position the fund for further rate cuts.
Similarly, we attempted to reduce the fund's holdings of lower-rated securities
because of the ongoing fiscal deterioration of most states and municipalities.
Accordingly, as existing holdings matured or were redeemed early by their
issuers, we generally reinvested the proceeds in highly rated securities,
including those carrying third-party insurance.(3)
Despite our efforts to reduce lower-rated corporate-backed municipal securities,
bonds issued on behalf of steel companies and airlines proved difficult to sell
at reasonable prices, and price erosion among these bonds detracted from the
fund's overall performance.
Finally, as we reported six months ago, the fund has continued to benefit from
low rates on the fund's auction-rate preferred shares. By extending maturities
to as long as one year, we have effectively locked in today's historically low
borrowing costs on money that we put to work in the municipal bond market on our
shareholders' behalf.
What is the fund's current strategy?
We have maintained the fund's defensive posture as we continue to rebalance the
fund. In our view, this strategy should benefit performance if and when the
economy gains momentum and the Fed begins to raise short-term interest rates.
Although there is no way of knowing when this will occur, we recently have seen
signs of a potentially stronger recovery, including a rallying stock market.
In the meantime, we have attempted to take advantage of opportunities to acquire
high-quality bonds at relatively attractive prices. For example, toward the end
of the reporting period, California came to market with more than $13 billion of
bonds, some of which were issued to reimburse the state treasury for outlays
related to the 2001 energy crisis. These bonds were offered with attractive
yields to heighten investor interest outside of California, and we participated
by purchasing some of the newly issued securities for the fund.
December 16, 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. 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
SELECTED INFORMATION
November 30, 2002 (Unaudited)
Market Price per share November 30, 2002 $7.88
Shares Outstanding November 30, 2002 48,031,336
New York Stock Exchange Ticker Symbol DSM
MARKET PRICE (NEW YORK STOCK EXCHANGE)
Fiscal Year Ended November 30, 2002
-----------------------------------------------------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
FEBRUARY 28, 2002 MAY 31, 2002 AUGUST 31, 2002 NOVEMBER 30, 2002
-----------------------------------------------------------------------------------------------------------
High $8.88 $8.69 $8.88 $8.80
Low 8.07 7.93 8.30 7.63
Close 8.66 8.41 8.66 7.88
PERCENTAGE GAIN (LOSS) based on change in Market Price*
November 22, 1989 (commencement of operations)
through November 30, 2002 92.51%
December 1, 1992 through November 30, 2002 52.22
December 1, 1997 through November 30, 2002 3.05
December 1, 2001 through November 30, 2002 (.36)
March 1, 2002 through November 30, 2002 (4.34)
June 1, 2002 through November 30, 2002 (3.13)
September 1, 2002 through November 30, 2002 (7.44)
NET ASSET VALUE PER SHARE
November 22, 1989 (commencement of operations) $9.32
November 30, 2001 8.75
February 28, 2002 8.75
May 31, 2002 8.72
August 31, 2002 8.77
November 30, 2002 8.56
PERCENTAGE GAIN (LOSS) based on change in Net Asset Value*
November 22, 1989 (commencement of operations)
through November 30, 2002 124.39%
December 1, 1992 through November 30, 2002 73.31
December 1, 1997 through November 30, 2002 25.33
December 1, 2001 through November 30, 2002 4.53
March 1, 2002 through November 30, 2002 2.85
June 1, 2002 through November 30, 2002 1.49
September 1, 2002 through November 30, 2002 (.71)
(*)WITH DIVIDENDS REINVESTED.
STATEMENT OF INVESTMENTS
November 30, 2002
Principal
LONG-TERM MUNICIPAL INVESTMENTS--140.0% Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
ALASKA--5.1%
Alaska Housing Finance Corporation:
6.25%, 6/1/2035 (Insured; MBIA) 7,590,000 8,058,227
6.05%, 6/1/2039 (Insured; MBIA) 12,185,000 12,741,611
ARIZONA--2.7%
Apache County Industrial Development Authority, PCR
(Tuscon Electric Power Co.) 5.85%, 3/1/2028 8,250,000 7,474,665
Maricopa County Pollution Control Corporation, PCR
(El Paso Electric Co.) 6.25%, 5/1/2037 4,000,000 4,007,360
ARKANSAS--1.3%
Arkansas Development Finance Authority, SFMR
6.25%, 1/1/2032 5,000,000 5,261,450
CALIFORNIA--3.7%
California Department Water Resources,
Power Supply Revenue 6%, 5/1/2015 5,000,000 5,516,300
California Health Facilities Financing Authority,
Health Facility Financing Revenue
(Cedars-Sinai Medical Center) 6.25%, 12/1/2034 3,750,000 3,959,963
California Pollution Control Financing Authority, PCR
(Southern California Edison Company) 7%, 2/28/2008 5,000,000 5,097,800
Los Angeles Regional Airports Improvement
Corporation, LR (International Airport--Delta)
6.35%, 11/1/2025 1,450,000 1,045,262
COLORADO--1.8%
Colorado Health Facilities Authority, Revenue
(American Housing Foundation 1, Inc.)
10.25%, 12/1/2020 5,600,000 (a) 1,896,496
Denver City and County, Special Facilities Airport Revenue
(United Air Lines) 6.875%, 10/1/2032 8,200,000 3,239,000
Northwest Parkway Public Highway Authority, Revenue
(First Tier Subordinated) 7.125%, 6/15/2041 2,000,000 2,073,400
CONNECTICUT--1.5%
Connecticut Development Authority, PCR
(Connecticut Light and Power) 5.95%, 9/1/2028 6,000,000 6,253,440
DELAWARE--1.5%
Delaware Health Facilities Authority, Revenue
(Beebe Medical Center) 6.80%, 6/1/2024 5,905,000 6,003,377
DISTRICT OF COLUMBIA--1.5%
Metropolitan Washington Airports Authority,
Special Facilities Revenue
(Caterair International Corp.) 10.125%, 9/1/2011 6,320,000 6,279,868
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
FLORIDA--3.3%
Florida Housing Finance Corporation, Housing Revenue
(Seminole Ridge Apartments)
6%, 4/1/2041 (Collateralized; GNMA) 6,415,000 6,682,185
Orange County Health Facilities Authority, Revenue:
(Adventist Health System) 6.25%, 11/15/2024 3,000,000 3,162,480
(Orlando Regional Healthcare System) 6%, 10/1/2026 3,500,000 3,575,460
GEORGIA--2.3%
Private Colleges and Universities Facilities Authority,
Revenue (Clark Atlanta University)
8.25%, 1/1/2015 (Prerefunded 1/1/2003) 8,900,000 (b) 9,398,311
IDAHO--1.2%
Idaho Housing & Finance Association, SFMR
6.35%, 1/1/2030 (Collateralized; FNMA) 2,500,000 2,619,925
Power County Industrial Development Corporation, SWDR
(FMC Corporation Project) 6.45%, 8/1/2032 2,800,000 2,412,368
ILLINOIS--5.6%
Illinois Development Finance Authority, Revenue
(Community Rehabilitation Providers Facilities
Acquisition Program) 6.05%, 7/1/2019 5,290,000 5,223,769
Illinois Health Facilities Authority, Revenue:
(Advocate Network Health Care) 6.125%, 11/15/2022 5,000,000 5,269,950
(OSF Healthcare Systems) 6.25%, 11/15/2029 12,000,000 12,402,480
INDIANA--2.6%
Burns Harbor Industrial Solid Waste Disposal Facilities,
Revenue (Bethlehem Steel Corp.) 8%, 4/1/2024 6,000,000 (a) 330,000
Franklin Township School Building Corporation
6.125%, 1/15/2022 (Prerefunded 7/15/2010) 6,000,000 (b) 7,100,460
Jasper County, EDR (Georgia Pacific Corp.)
5.60%, 4/1/2029 5,000,000 3,273,150
LOUISIANA--5.4%
Lake Charles Harbor and Terminal, District Port Facilities
Revenue (Trunkline LNG Co.) 7.75%, 8/15/2022 15,000,000 15,621,000
Parish of De Soto, Environmental Improvement Revenue
(International Paper Co.) 6.55%, 4/1/2019 2,900,000 2,982,824
West Feliciana Parish, PCR
(Entergy Gulf States) 6.60%, 9/1/2028 3,750,000 3,814,650
MARYLAND--.9%
Baltimore County, PCR (Bethlehem Steel Corp.)
7.50%, 6/1/2015 5,000,000 (a) 275,000
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
MARYLAND (CONTINUED)
Maryland Industrial Development Financing Authority, EDR
(Medical Waste Associates Limited Partnership)
8.75%, 11/15/2010 3,865,000 3,343,225
MASSACHUSETTS--1.9%
Massachusetts Bay Transportation Authority,
Assessment Revenue 5.25%, 7/1/2030 3,750,000 3,809,625
Massachusetts Health and Educational Facilities
Authority, Revenue (Beth Israel)
9.942%, 7/1/2025 (Insured; AMBAC) 3,250,000 (c) 3,389,295
Pittsfield, SWDR (Vicon Recovery Associates)
7.95%, 11/1/2004 595,000 596,666
MICHIGAN--2.4%
Michigan Hospital Finance Authority, HR
(Genesys Health System Obligated Group)
8.125%, 10/1/2021 (Prerefunded 10/1/2005) 5,000,000 (b) 5,922,350
Michigan Strategic Fund, SWDR
(Genesee Power Station) 7.50%, 1/1/2021 4,000,000 3,874,120
MINNESOTA--1.0%
Minneapolis & Saint Paul Metropolitan Airports
Commissions, Special Facilities Revenue
(Northwest Airlines) 7%, 4/1/2025 5,400,000 3,973,806
MISSISSIPPI--2.5%
Mississippi Business Finance Corporation, PCR
(Systems Energy Resources, Inc.) 5.90%, 5/1/2022 11,070,000 10,239,197
MISSOURI--2.3%
Jackson County Industrial Development Authority,
Health Facilities Revenue
(Carondelet Health Corp.) 9%, 7/1/2020 6,345,000 6,361,370
Saint Louis Industrial Development Authority
(Saint Louis Convention) 7.25%, 12/15/2035 3,250,000 3,206,093
NEBRASKA--1.0%
Nebraska Investment Finance Authority, SFMR
9.54%, 3/1/2026 3,500,000 (c,d) 4,160,625
NEVADA--3.5%
Clark County, IDR
(Southwest Gas Corporation) 6.50%, 12/1/2033 5,000,000 5,042,050
Washoe County (Reno-Sparks Convention)
6.40%, 7/1/2029 (Insured; FSA,
Prerefunded 1/1/2010) 8,000,000 (b) 9,387,440
The Fund
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--3.6%
New Hampshire Business Finance Authority, PCR
(Public Service Co.):
6%, Series D, 5/1/2021 (Insured; MBIA) 2,690,000 2,922,362
6%, Series E, 5/1/2021 (Insured; MBIA) 6,000,000 6,518,280
New Hampshire Industrial Development Authority, PCR
(Connecticut Light) 5.90%, 11/1/2016 5,400,000 5,507,136
NEW JERSEY--1.8%
New Jersey Economic Development Authority
Special Facilities Revenue (Continental Airlines, Inc.):
6.25%, 9/15/2019 4,000,000 2,599,400
7.20%, 11/15/2030 7,000,000 4,685,800
NEW YORK--2.9%
Metropolitan Transportation Authority
(Service Contract) 5.125%, 1/1/2029 7,000,000 6,989,640
New York State Dormitory Authority, Revenue:
Judicial Facility Lease (Suffolk County)
9.50%, 4/15/2014 605,000 693,747
(Marymount Manhattan College) 6.25%, 7/1/2029 4,000,000 4,359,280
NORTH CAROLINA--.7%
North Carolina Eastern Municipal Power Agency,
Power Systems Revenue 6.70%, 1/1/2019 2,500,000 2,705,225
OHIO--7.0%
Cuyahoga County, HR (Metrohealth Systems)
6.15%, 2/15/2029 10,000,000 10,251,900
Cuyahoga County Hospital Facilities, Revenue
(UHHS/CSAHS Cuyahoga Inc. & CSAHS/
UHHS Canton Inc.) 7.50%, 1/1/2030 3,500,000 3,813,810
Mahoning County Hospital Facilities, Revenue
(Forum Health Obligation Group) 6%, 11/15/2032 5,000,000 4,861,100
Ohio Air Quality Development Authority, PCR
(Cleveland Electric Illuminating Co.) 6.10%, 8/1/2020 2,400,000 2,473,752
Ohio Housing Finance Agency, Mortgage Revenue
10.462%, 3/1/2029 (Collateralized; GNMA) 2,865,000 (c,d) 3,134,682
Ohio Water Development Authority, PCR
(Cleveland Electric) 6.10%, 8/1/2020 4,000,000 4,122,920
OKLAHOMA--3.6%
Oklahoma Development Finance Authority, Revenue
(St. John Health System) 6%, 2/15/2029 9,000,000 9,558,090
Oklahoma Industries Authority, Health System Revenue
(Obligation Group) 5.75%, 8/15/2029 (Insured; MBIA) 5,000,000 5,254,350
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
OREGON--1.4%
Umatilla County Hospital Facility Authority, Revenue
(Catholic Health Initiatives) 5.50%, 3/1/2022 3,440,000 3,475,707
Oregon Health and University
5%, 7/1/2032 (Insured;MBIA) 2,105,000 2,084,034
PENNSYLVANIA--5.5%
Allegheny County Port Authority, Special Transportation
Revenue 6.125%, 3/1/2029 (Insured; MBIA,
Prerefunded 3/1/2009) 4,750,000 (b) 5,533,940
Beaver County Industrial Development Authority, PCR
(Cleveland Electric) 7.625%, 5/1/2025 8,800,000 9,382,824
Pennsylvania Economic Development
Financing Authority, RRR (Northhampton
Generating Project) 6.60%, 1/1/2019 4,200,000 4,253,886
Pennsylvania Housing Finance Agency,
Multi-Family Development Revenue
8.25%, 12/15/2019 280,000 280,538
Sayre Health Care Facilities Authority, Revenue
(Guthrie Health ) 6.25%, 12/1/2018 3,000,000 3,199,680
RHODE ISLAND--1.6%
Rhode Island Health & Educational Building Corporation
Higher Educational Facilities (University of Rhode Island)
5.875%, 9/15/2029 (Insured; MBIA) 5,910,000 6,415,364
SOUTH CAROLINA--5.7%
Greenville Hospital System, Hospital Facilities Revenue
5.50%, 5/1/2026 (Insured; AMBAC) 7,000,000 7,252,140
South Carolina Medical Facilities, Hospital Facilities
Revenue 6%, 7/1/2019 (Prerefunded 7/1/2009) 5,000,000 (b) 5,799,900
Tobacco Settlement Revenue Management Authority,
Tobbacco Settlement Revenue 6.375%, 5/15/2028 10,645,000 10,396,013
TENNESSEE--3.9%
Memphis Center City Revenue Finance Corp.
Sports Facility Revenue
(Memphis Redbirds) 6.50%, 9/1/2028 6,000,000 5,981,400
Tennessee Housing Development Agency
(Homeownership Program):
6%, 1/1/2028 4,890,000 5,061,541
6.40%, 7/1/2031 4,635,000 4,944,015
TEXAS--20.8%
Alliance Airport Authority Inc., Special Facilities Revenue
(American Airlines, Inc. Project) 7.50%, 12/1/2029 2,500,000 974,550
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
Austin (Convent Station) 6.70%, 1/1/2032 4,250,000 4,362,880
Dallas Fort Worth International Airport, Revenue
6%, 11/1/2028 (Insured; FGIC) 4,000,000 4,347,120
Gregg County Health Facilities Development
Corporation, HR (Good Shepherd Medical
Center) 6.375%, 10/1/2025 2,500,000 2,740,000
Harris County Health Facilities Development
Corporation, HR:
(Memorial Hermann Healthcare) 6.375%, 6/1/2029 7,000,000 7,314,300
(St. Luke's Episcopal Hospital) 5.375%, 2/15/2026 5,000,000 4,914,950
Houston Airport System, Special Facilities Revenue
(Airport Improvement Continental Airlines)
6.125%, 7/15/2017 6,075,000 3,649,739
Katy Independent School District
6.125%, 2/15/2032 11,360,000 12,507,928
Sabine River Authority, PCR (TXU Electric):
6.45%, 6/1/2021 2,900,000 2,661,794
5.50%, 5/1/2022 5,000,000 4,540,600
Springhill Courtland Heights Public Facility Corp. MFHR
5.85%, 12/1/2028 6,030,000 6,095,968
Texas:
(Veterans ) 6%, 12/1/2030 3,935,000 4,169,369
(Veterans Housing Assistance Program)
6.10%, 6/1/2031 8,510,000 9,002,389
Texas Department of Housing and Community Affairs,
Collateralized Home Mortgage Revenue
11.802%, 7/2/2024 5,450,000 (c) 6,282,706
Tomball Hospital Authority, Revenue 6.125%, 7/1/2023 3,450,000 3,457,107
Tyler Health Facilities Development Corp., HR
(East Texas Medical Center Regional Health Care System)
6.75%, 11/1/2025 5,850,000 5,581,368
Texas Turnpike Authority,
Central Texas Turnpike System Revenue
5.50%, 8/15/2039 (Insured; AMBAC) 3,000,000 3,118,500
UTAH--1.1%
Carbon County, SWDR (Sunnyside Cogeneration)
7.10%, 8/15/2023 4,532,000 4,470,455
Principal
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
VIRGINIA--4.8%
Henrico County Industrial Development Authority, Revenue
(Bon Secours Health System)
9.799%, 8/23/2027 (Insured; FSA) 7,500,000 (c) 9,156,150
Virginia Housing Development Authority
Rental Housing 6.20%, 8/1/2024 8,520,000 9,009,559
Virginia Port Authority,
Commonwealth Port Fund Revenue
5%, 7/1/2027 (Insured; MBIA) 1,750,000 1,709,488
WASHINGTON--6.7%
Energy Northwest, Revenue:
Electric 9.67%, 7/1/2017 10,000,000 (c,d) 11,823,000
(Wind Project) 6%, 7/1/2023 3,670,000 3,631,282
Port Seattle Special Facilities Revenue
(Northwest Airlines Project) 7.25%, 4/1/2030 2,300,000 1,692,800
Washington Higher Education Facilities Authority, Revenue
(Whitman College) 5.875%, 10/1/2029 10,000,000 10,557,100
WISCONSIN--9.9%
Badger TOB Asset Securitization Corp.
TOB Settlement Revenue 7%, 6/1/2028 13,500,000 13,871,925
Wisconsin Health and Educational Facilities Authority,
Revenue (Aurora Health Care, Inc.) 5.60%, 2/15/2029 9,295,000 8,672,700
Wisconsin Housing and Economic Development Authority
Homeownership Revenue:
11.076%, 7/1/2025 10,600,000 (c,d) 11,103,818
6.25%, 9/1/2027 6,740,000 6,982,168
WYOMING--3.5%
Sweetwater County, SWDR (FMC Corp.):
7%, 6/1/2024 1,805,000 1,669,661
6.90%, 9/1/2024 2,465,000 2,253,157
Wyoming Student Loan Corporation, Student Loan Revenue:
6.20%, 6/1/2024 5,000,000 5,244,900
6.25%, 6/1/2029 5,000,000 5,241,650
U.S.RELATED--.5%
Puerto Rico Public Finance Corporation
6%, 8/1/2026 2,000,000 2,259,040
TOTAL LONG-TERM INVESTMENTS
(cost $585,969,741) 575,940,670
The Fund
STATEMENT OF INVESTMENTS (CONTINUED)
Principal
SHORT-TERM MUNICIPAL INVESTMENTS--3.3% Amount ($) Value ($)
------------------------------------------------------------------------------------------------------------------------------------
ALASKA--.3%
Valdez Alaska Marine Terminal Revenue, VRDN
(Exxon Pipeline Company) 1.10% 1,150,000 (e) 1,150,000
LOUISIANA--.6%
East Baton Rouge Parish, PCR, VRDN
(Exxon Project) 1.20% 2,500,000 (e) 2,500,000
NEW YORK--1.1%
New York City,VRDN
1.15% (LOC; Scotiabank, Insured; MBIA) 500,000 (e) 500,000
New York City Transitional Finance Authority, VRDN
Recovery Revenue 1.20% 3,900,000 (e) 3,900,000
RHODE ISLAND--.3%
Rhode Island Industrial Facilities Corporation
Marine Terminal Revenue, VRDN
(Exxon Mobil) 1.10% 1,400,000 (e) 1,400,000
TEXAS--1.0%
Gulf Coast Waste Disposal Authority, PCR, VRDN
(Amoco Oil Co.) 1.10% 4,300,000 (e) 4,300,000
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(cost $13,750,000) 13,750,000
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $599,719,741) 143.3% 589,690,670
CASH AND RECEIVABLES (NET) 1.9% 7,677,999
PREFERRED STOCK, AT REDEMPTION VALUE (45.2%) (186,000,000)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 100.0% 411,368,669
Summary of Abbreviations
AMBAC American Municipal Bond Assurance
Corporation
EDR Economic Development Revenue
FGIC Financial Guaranty Insurance
Company
FNMA Federal National Mortgage
Association
FSA Financial Security Assurance
GNMA Government National Mortgage
Association
HR Hospital Revenue
IDR Industrial Development Revenue
LOC Letter of Credit
LR Lease Revenue
MBIA Municipal Bond Investors Assurance
Insurance Corporation
MFHR Multi-Family Housing Revenue
PCR Pollution Control Revenue
RRR Resources Recovery Revenue
SFMR Single Family Mortgage Revenue
SWDR Solid Waste Disposal Revenue
VRDN Variable Rate Demand Notes
Summary of Combined Ratings (Unaudited)
Fitch or Moody's or Standard & Poor's Value (%)
------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa AAA 25.5
AA Aa AA 19.7
A A A 22.6
BBB Baa BBB 15.3
BB Ba BB 6.7
B B B 1.9
CCC Caa CCC .5
F-1+, F-1 VMIG1,MIG1,P1 SP1,A1 2.3
Not Rated(f) Not Rated(f) Not Rated(f) 5.5
100.0
(A) NON-INCOME PRODUCING SECURITY, INTEREST PAYMENTS IN DEFAULT.
(B) 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.
(C) INVERSE FLOATER SECURITY--THE INTEREST RATE IS SUBJECT TO CHANGE
PERIODICALLY.
(D) 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 NOVEMBER 30,
2002, THESE SECURITIES AMOUNTED TO $30,222,125 OR 7.3% OF NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS.
(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 INVESTMENT ADVISOR TO BE OF COMPARABLE QUALITY
TO THOSE RATED SECURITIES IN WHICH THE FUND MAY INVEST.
(G) AT NOVEMBER 30, 2002, THE FUND HAD $152,470,242 (37.1% OF NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS) INVESTED IN SECURITIES WHOSE PAYMENT OF
PRINCIPAL AND INTEREST IS DEPENDENT UPON REVENUES GENERATED FROM HEALTH
CARE PROJECTS.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2002
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 599,719,741 589,690,670
Interest receivable 11,083,334
Receivable for investment securities sold 5,097,080
Prepaid expenses 207,610
606,078,694
--------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 369,393
Cash overdraft due to Custodian 66,564
Payable for investment securities purchased 7,757,584
Dividends payable to preferred shareholders 124,245
Commissions payable 40,400
Accrued expenses 351,839
8,710,025
--------------------------------------------------------------------------------
AUCTION PREFERRED STOCK, Series A, B and C, par value
$.001 per share (7,440 shares issued and outstanding
at $25,000 per share liquidation) value--Note 1 186,000,000
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ($) 411,368,669
--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Common Stock, par value, $.001 per share
(48,031,336 shares issued and outstanding) 48,031
Paid-in capital 443,577,972
Accumulated undistributed investment income--net 6,286,357
Accumulated net realized gain (loss) on investments (28,514,620)
Accumulated net unrealized appreciation
(depreciation) on investments (10,029,071)
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 411,368,669
--------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING
(110 million shares of $.001 par value Common Stock authorized) 48,031,336
NET ASSET VALUE PER SHARE OF COMMON STOCK ($) 8.56
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended November 30, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 39,179,947
EXPENSES:
Management fee--Note 3(a) 3,017,164
Administration fee--Note 3(a) 1,508,582
Commission fees--Note 1 490,836
Professional fees 90,960
Shareholders' reports 67,855
Directors' fees and expenses--Note 3(b) 46,509
Shareholder servicing costs 42,039
Registration fees 38,536
Custodian fees 3,618
Miscellaneous 42,709
TOTAL EXPENSES 5,348,808
INVESTMENT INCOME--NET 33,831,139
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (9,058,484)
Net unrealized appreciation (depreciation) on investments (3,417,992)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (12,476,476)
DIVIDENDS ON PREFERRED STOCK (3,420,665)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 17,933,998
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CHANGES IN NET ASSETS
Year Ended November 30,
-----------------------------------
2002 2001(a)
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 33,831,139 34,489,807
Net realized gain (loss) on investments (9,058,484) (634,617)
Net unrealized appreciation
(depreciation) on investments (3,417,992) 5,593,035
Dividends on Preferred Stock (3,420,665) (5,551,745)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 17,933,998 33,896,480
--------------------------------------------------------------------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM ($):
INVESTMENT INCOME--NET (26,911,287) (26,833,810)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
DIVIDENDS REINVESTED--NOTE 1(C) 337,170 1,865,059
TOTAL INCREASE (DECREASE) IN NET ASSETS (8,640,119) 8,927,729
--------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 420,008,788 411,081,059
END OF PERIOD 411,368,669 420,008,788
Undistributed investment income--net 6,286,357 2,887,833
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (COMMON SHARES):
INCREASE IN COMMON SHARES OUTSTANDING
AS A RESULT OF DIVIDENDS REINVESTED 39,069 208,342
(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 shares.
Year Ended November 30,
----------------------------------------------------------------------
2002(a) 2001(b) 2000(b) 1999(b) 1998(b)
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
Net asset value, beginning of period 8.75 8.60 8.56 9.52 9.49
Investment Operations:
Investment income--net .70(c) .72 .70 .58 .60
Net realized and unrealized
gain (loss) on investments (.26) .11 .06 (.90) .05
Dividends on Preferred Stock
from net investment income (.07) (.12) (.16) (.02) --
Total from Investment Operations .37 .71 .60 (.34) .65
Distributions to
Common Shareholders:
Dividends from investment
income--net (.56) (.56) (.56) (.58) (.62)
Capital Stock transactions--net effect
of Preferred Stock Offering -- -- (.00)(d) (.04) --
Net asset value, end of period 8.56 8.75 8.60 8.56 9.52
Market value, end of period 7.88 8.45 81_8 711_16 103_16
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(E) (.36) 10.72 13.30 (19.36) 2.23
The Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
Year Ended November 30,
----------------------------------------------------------------------
2002(a) 2001(b) 2000(b) 1999(b) 1998(b)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of expenses to average
net assets applicable
to Common Shareholders 1.28(f,g) 1.27(f,g) 1.34(f,g) .91(f,g) .81
Ratio of net investment income
to average net assets
applicable to Common Shareholders 8.10(f,g) 8.10(f,g) 8.25(f,g) 6.64(f,g) 6.26
Portfolio Turnover Rate 44.71 13.36 27.58 32.58 6.33
Asset coverage of Preferred
Stock, end of period 321 326 321 320 --
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, net of Preferred Stock,
end of period ($ x 1,000) 411,369 420,009 411,081 408,958 453,893
Preferred Stock outstanding,
end of period ($ x 1,000) 186,000 186,000 186,000 186,000 --
(A) AS REQUIRED, EFFECTIVE DECEMBER 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
NOVEMBER 30, 2002 WAS TO INCREASE NET INVESTMENT INCOME PER SHARE AND
DECREASE NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS BY LESS
THAN $.01 AND INCREASE THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET
ASSETS APPLICABLE TO COMMON SHAREHOLDERS FROM 8.08% TO 8.10%. PER SHARE
DATA AND RATIOS/SUPPLEMENTAL DATA FOR PERIODS PRIOR TO DECEMBER 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) AMOUNT REPRESENTS LESS THAN $.01 PER SHARE.
(E) CALCULATED BASED ON MARKET VALUE.
(F) DOES NOT REFLECT THE EFFECT OF DIVIDENDS TO PREFERRED STOCK SHAREHOLDERS.
(G) THE RATIO OF EXPENSES TO TOTAL AVERAGE NET ASSETS AND THE RATIO OF NET
INVESTMENT INCOME TO TOTAL AVERAGE NET ASSETS WERE .89% AND 5.61%,
RESPECTIVELY, FOR THE YEAR ENDED NOVEMBER 30, 2002, .89% AND 5.64%,
RESPECTIVELY, FOR THE YEAR ENDED NOVEMBER 30, 2001, .92% AND 5.64%,
RESPECTIVELY, FOR THE YEAR ENDED NOVEMBER 30, 2000 AND .84% AND 6.13%,
RESPECTIVELY, FOR THE YEAR ENDED NOVEMBER 30, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Strategic Municipal Bond Fund, 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 believed by
the fund's investment adviser to be consistent with the preservation of capital.
The Dreyfus Corporation ("Dreyfus") serves as the fund's investment adviser and
administrator. Dreyfus is a direct subsidiary of Mellon Bank, N.A., which is a
wholly-owned subsidiary of Mellon Financial Corporation ("Mellon"). Boston Safe
Deposit and Trust Company (the "Custodian") acts as the fund's custodian. The
Custodian is a wholly-owned subsidiary of Mellon. PFPC Global Fund Services
("PFPC"), a subsidiary of PNC Bank ("PNC"), serves as the fund's transfer agent,
dividend-paying agent, registrar and plan agent. The fund's Common Stock trades
on the New York Stock Exchange under the ticker symbol DSM.
The fund has outstanding 2,480 shares of Series A, Series B and Series C for a
total of 7,440 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 dividend rates are determined pursuant to
periodic auctions. Deutsche Bank, 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 Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The holders of the APS, voting as a separate class, have the right to elect at
least two directors. The holders of the APS vote as a separate class on certain
other matters, as required by law. The fund has designated Robin A. 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 securities 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 invest
ments, is earned from settlement date and recognized on the accrual basis.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date.
(C) DIVIDENDS TO SHAREHOLDERS OF COMMON STOCK (" COMMON SHAREHOLDER(S)"):
Dividends are recorded on the ex-dividend date. Dividends from investment
income-net are declared and paid monthly. Dividends from net realized capital
gain, if any, are normally declared and paid 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 plan.
On November 29, 2002, the Board of Directors declared a cash dividend to Common
Shareholders of $.0467 per share from investment income-net, payable on December
30, 2002 to Common Shareholders of record as of the close of business on
December 13, 2002.
(D) DIVIDENDS TO SHAREHOLDERS OF APS: For APS, dividends are currently reset
annually for Series A and B and every 7 days for Series C. The dividend rates in
effect at November 30, 2002 were as follows: Series A - 2.07%, Series B - 1.625%
and Series C - 1.30% .
(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
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At November 30, 2002, the components of accumulated earnings on a tax basis were
as follows: accumulated capital losses $28,514,620 and unrealized depreciation
$9,876,120.
The accumulated capital loss carryover is available to be applied against future
net securities profits, if any, realized subsequent to November 30, 2002. If not
applied, $9,312,230 of the carryover expires in fiscal 2003, $3,964,163 expires
in fiscal 2007, $5,542,712 expires in fiscal 2008, $442,201 expires in fiscal
2009 and $9,253,314 expires in fiscal 2010.
The tax character of distributions paid to shareholders during the fiscal
periods ended November 30, 2002 and November 30, 2001, respectively, were as
follows: tax exempt income of $30,331,952 and $32,385,555.
During the period ended November 30, 2002, as a result of permanent book to tax
differences, the fund decreased accumulated undistributed investment income-net
by $256,777, increased net realized gain (loss) on investments by $4,496,663 and
decreased paid-in capital by $4,239,886. 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 November 30, 2002, the
fund did not borrow under the line of credit.
NOTE 3--Investment Advisory Fee, Administration Fee and Other Transactions With
Affiliates:
(A) The fee payable by the fund, pursuant to the provisions of an Investment
Advisory Agreement with Dreyfus, is payable monthly based on an annual rate of
.. 50 of 1% of the value of the fund's average weekly net assets. The fund also
has an Administration Agreement with Dreyfus, a Custody Agreement with the
Custodian and a Transfer
Agency and Registrar Agreement with PFPC. The fund pays in the aggregate for
administration, custody and transfer agency services a monthly fee based on an
annual rate of .25 of 1% of the value of the fund's average weekly net assets;
out-of pocket transfer agency and custody expenses are paid separately by the
fund.
(B) Each director who is not an "affiliated person" as defined in the Act
receives from the fund an annual fee of $2,500 and an attendance fee of $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 November 30, 2002, amounted to
$264,155,985 and $263,429,116, respectively.
At November 30, 2002, the cost of investments for federal income tax purposes
was $599,566,790; accordingly, accumulated net unrealized depreciation on
investments was $9,876,120, consisting of $23,903,556 gross unrealized
appreciation and $33,779,676 gross unrealized depreciation.
NOTE 5--Change in Accounting Principle:
(A) As required, effective December 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 December 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 $156,114 increase in accumulated
undistributed investment income-net and a corresponding $156,114 decrease in
accumulated net unrealized appreciation (depreciation), based on securities held
by the fund on November 30, 2001.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The effect of this change for the period ended November 30, 2002 was to increase
net investment income by $100,662, increase net unrealized appreciation
(depreciation) by $3,163 and decrease net realized gains (losses) by $103,825.
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 December 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 Three Series of Auction Preferred Stock relating to compliance with
rating agency guidelines. In adopting EITF D-98, the fund's net assets as of
December 1, 2000 in the statement of changes in net assets is restated by
excluding preferred stock valued at $186,000,000 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 $3,420,665 and
$5,551,745 to net assets from operations for the periods ended November 30, 2002
and November 30, 2001, respectively. As part of the adoption, per share
distributions of dividends on preferred stock was reclassified from
distributions to amounts from investment operations for each period presented in
the financial highlights.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors Dreyfus Strategic Municipal Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Dreyfus
Strategic Municipal Bond Fund, Inc., including the statement of investments, as
of November 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 November
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 Municipal Bond Fund, Inc. at November 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
January 7, 2003
The Fund
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 November 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 and capital gain
distributions paid for the 2002 calendar year on Form 1099-DIV which will be
mailed by January 31, 2003.
ADDITIONAL INFORMATION (Unaudited)
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Under the fund' s Dividend Reinvestment Plan (the "Plan"), a holder of Common
Stock (" Common Shareholder" ) who has fund shares registered in his name will
have all dividends and distributions reinvested automatically by PFPC Global
Fund Services, 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 Common 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 dividend or other distribution payable only in cash
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 the name of his
broker/dealer or other nominee (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 or other nominee in additional shares of the fund if such
service is provided by the broker/dealer or other nominee; otherwise such
dividends and distributions will be treated like any other cash dividend or
distribution.
A Common Shareholder who has fund shares registered in his name may elect to
withdraw from the Plan at any time for a $5.00 fee and thereby elect to receive
cash in lieu of shares of the fund. Changes in elections must be by direct mail
to PFPC Global Fund Services, Attention: Closed-End funds, Post Office Box 8030,
Boston, Massachusetts 02266, or by telephone at 1-800-331-1710, and should
include the shareholder' s name and address as they appear on the Agent's
records. Elections received by the Agent will be effective only if received
prior to the record date for any distribution.
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- The Fun
ADDITIONAL INFORMATION (Unaudited) (CONTINUED)
certificated form in the name of the participant, and each such participant's
proxy will include those shares purchased pursuant to the Plan.
The fund pays the Agent's fee for reinvestment of dividends and distributions.
Plan participants pay a pro rata share of brokerage commissions incurred with
respect to the Agent's open market purchases in connection with the reinvestment
of dividends or distributions.
The fund reserves the right to amend or terminate the Plan as applied to any
dividend or distribution paid subsequent to written 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
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 November 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,
(iii) no material changes in the principal risk factors associated with
investment in the fund, and (iv) no changes in the person primarily responsible
for the day-to-day management of the fund's portfolio.
The Fund
PROXY RESULTS (Unaudited)
Holders of common stock and holders Auction Preferred Stock, 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 three Class III Directors:((+))
David W. Burke 42,828,211 736,910
Hans C. Mautner 42,831,817 733,304
John E. Zuccotti((+)(+)) 6,488 9
((+)) THE TERMS OF THESE CLASS III DIRECTORS EXPIRE IN 2005.
((+)(+)) ELECTED SOLELY BY APS HOLDERS.
BOARD MEMBERS INFORMATION (Unaudited)
JOSEPH S. DIMARTINO (59)
CHAIRMAN OF THE BOARD (1995)
CURRENT TERM EXPIRES IN 2003
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Corporate Director and Trustee
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* The Muscular Dystrophy Association, Director
* Levcor International, Inc., an apparel fabric processor, 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
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 190
--------------
DAVID W. BURKE (66)
BOARD MEMBER (1994)
CURRENT TERM EXPIRES IN 2005
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* Corporate Director and Trustee.
OTHER BOARD MEMBERSHIPS AND AFFILIATIONS:
* John F. Kennedy Library Foundation, Director
* U.S.S. Constitution Museum, Director
NO. OF PORTFOLIOS FOR WHICH BOARD MEMBER SERVES: 59
--------------
HODDING CARTER III (67)
BOARD MEMBER (1988)
CURRENT TERM EXPIRES IN 2003
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
* President and Chief Executive Officer of the John S. and 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 (62)
BOARD MEMBER (1996)
CURRENT TERM EXPIRES IN 2004
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 (1976)
CURRENT TERM EXPIRES IN 2003
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 (65)
BOARD MEMBER (1978)
CURRENT TERM EXPIRES IN 2005
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 (39)
BOARD MEMBER (1995)
CURRENT TERM EXPIRES IN 2004
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 (1984)
CURRENT TERM EXPIRES IN 2005
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 MEMBERS 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 Dreyfus. 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 Dreyfus. He is 57 years old, and has been an employee of
Dreyfus since May 1995
STEPHEN R. BYERS, EXECUTIVE VICE PRESIDENT SINCE NOVEMBER 2002.
Chief Investment Officer, Vice Chairman and a Director of Dreyfus, and an
officer of 94 investment companies (comprised of 188 portfolios) managed by
Dreyfus. Mr. Byers also is an Officer, Director or an Executive Committee
Member of certain other investment management subsidiaries of Mellon
Financial Corporation, each of which is an affiliate of Dreyfus. He is 49
years old and has been an employee of Dreyfus since January 2000. Prior to
joining Dreyfus, he served as an Executive Vice President-Capital Markets,
Chief Financial Officer and Treasurer at Gruntal & Co., L.L.C.
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 other investment companies (comprised of 3
portfolios) managed by Dreyfus. He is 47 years old and has been an employee
of Dreyfus since February 1988.
MARK N. JACOBS, VICE PRESIDENT SINCE MARCH 2000.
Executive Vice President, Secretary and General Counsel of Dreyfus, and an
officer of 95 investment companies (comprised of 202 portfolios) managed by
Dreyfus. He is 56 years old, and has been an employee of Dreyfus since June
1977.
JOHN B. HAMMALIAN, SECRETARY SINCE MARCH 2000.
Associate General Counsel of Dreyfus, and an officer of 36 investment
companies (comprised of 43 portfolios) managed by Dreyfus. He is 39 years
old, and has been an employee of Dreyfus since February 1991.
MICHAEL A. ROSENBERG, ASSISTANT SECRETARY SINCE MARCH 2000.
Associate General Counsel of Dreyfus, and an officer of 93 investment
companies (comprised of 198 portfolios) managed by Dreyfus. He is 42 years
old, and has been an employee of Dreyfus since October 1991.
STEVEN F. NEWMAN, ASSISTANT SECRETARY SINCE MARCH 2000.
Associate General Counsel and Assistant Secretary of Dreyfus, and an
officer of 95 investment companies (comprised of 202 portfolios) managed by
Dreyfus. He is 53 years old, and has been an employee of Dreyfus since July
1980.
JAMES WINDELS, TREASURER SINCE NOVEMBER 2001.
Director-Mutual Fund Accounting of Dreyfus, and an officer of 95 investment
companies (comprised of 202 portfolios) managed by Dreyfus. He is 44 years
old and has been an employee of Dreyfus since April 1985.
GREGORY S. GRUBER, ASSISTANT TREASURER SINCE MARCH 2000.
Senior Accounting Manager - Municipal Bond Funds of Dreyfus, and an officer
of 29 nvestment companies (comprised of 55 portfolios) managed by Dreyfus.
He is 43 years old, and has been an employee of Dreyfus since August 1981.
KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001.
Mutual Funds Tax Director of Dreyfus, and an officer of 95 investment
companies (comprised of 202 portfolios) managed by Dreyfus. He is 48 years
old, and has been an employee of Dreyfus since June 1993.
OFFICERS AND DIRECTORS
Dreyfus Strategic Municipal Bond Fund, 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 A. Pringle ((+))
John E. Zuccotti ((+)
((+)) AUCTION PREFERRED STOCK DIRECTORS
OFFICERS
President
Stephen E. Canter
Executive Vice President
Paul Disdier
Vice President
Mark N. Jacobs
Secretary
John B. Hammalian
Assistant Secretaries
Steven F. Newman
Michael A. Rosenberg
Treasurer
James Windels
Assistant Treasurers
Gregory S. Gruber
Kenneth J. Sandgren
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 AND ADMINISTRATOR
The Dreyfus Corporation
CUSTODIAN
Boston Safe Deposit and Trust Company
COUNSEL
Stroock & Stroock & Lavan LLP
TRANSFER AGENT, DIVIDEND-PAYING AGENT, REGISTRAR AND DISBURSING AGENT
PFPC Global Fund Services
(Common Stock)
Deutsche Bank (Auction Preferred Stock)
AUCTION AGENT
Deutsche Bank (Auction Preferred Stock)
STOCK EXCHANGE LISTING
NYSE Symbol: DSM
INITIAL SEC EFFECTIVE DATE
11/22/89
THE NET ASSET VALUE APPEARS IN THE FOLLOWING PUBLICATIONS: BARRON'S, CLOSED-END
BOND FUNDS SECTION UNDER THE HEADING "MUNICIPAL BOND FUNDS" EVERY MONDAY; WALL
STREET JOURNAL, MUTUAL FUNDS SECTION UNDER THE HEADING "CLOSED-END FUNDS" EVERY
MONDAY; NEW YORK TIMES, BUSINESS SECTION UNDER THE HEADING "CLOSED-END BOND
FUNDS--MUNICIPAL BOND FUNDS" EVERY MONDAY.
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 Municipal
Bond Fund, 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-Paying Agent,
Registrar and Disbursing Agent
PFPC Global Fund Services
(Common Stock)
101 Federal Street
Boston, MA 02110
(c) 2003 Dreyfus Service Corporation 852AR1102