UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number | 811-524 | |||||
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| The Dreyfus/Laurel Tax-Free Municipal Funds |
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| (Exact name of Registrant as specified in charter) |
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c/o The Dreyfus Corporation 200 Park Avenue New York, New York 10166 |
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| (Address of principal executive offices) (Zip code) |
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| Michael A. Rosenberg, Esq. 200 Park Avenue New York, New York 10166 |
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| (Name and address of agent for service) |
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Registrant's telephone number, including area code: | (212) 922-6000 | |||||
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Date of fiscal year end:
| 06/30 |
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Date of reporting period: | 06/30/2010 |
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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 | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
16 | Financial Highlights |
17 | Notes to Financial Statements |
24 | Report of Independent Registered Public Accounting Firm |
25 | Important Tax Information |
26 | Information About the Review and Approval of the Fund’s Investment Management Agreement |
30 | Board Members Information |
32 | Officers of the Fund |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus BASIC
California Municipal
Money Market Fund
The Fund
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this annual report for Dreyfus BASIC California Municipal Money Market Fund, covering the 12-month period from July 1, 2009, through June 30, 2010.
After posting solid gains over the second half of 2009 and the first quarter of 2010, the financial markets encountered renewed volatility late in the reporting period, which caused world stocks and some of the bond market’s higher-yielding sectors to erase some of their previous gains. Conversely, traditional safe havens such as gold and U.S. Treasury securities rallied as investors became more risk-averse.
Despite recent headlines about the current state of the U.S. economy, we still believe that it is unlikely that we’ll encounter a “double-dip” recession. Instead, we expect current financial strains to ease and the domestic economy to expand at a moderate pace over the second half of the year. However, we currently see a number of downside risks that could result in volatility over the short term, which is why we still believe that a long-term investment focus with an emphasis on high quality investments may be suitable for many investors.
We believe that short-term and liquid asset mutual fund investments are an important part of a long-term investment focus. But if you have not recently reviewed your portfolio, perhaps now is a good time to talk to your financial advisor about the current market environment and about potential opportunities provided by the financial markets in this investment climate.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
![](https://capedge.com/proxy/N-CSR/0000717341-10-000008/ar06101x4x2.jpg)
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
July 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of July 1, 2009, through June 30, 2010, as provided by Joseph Irace, Senior Portfolio Manager
Fund and Market Performance Overview
For the 12-month period ended June 30, 2010, Dreyfus BASIC California Municipal Money Market Fund produced a yield of 0.02%. Taking into account the effects of compounding, the fund produced an effective yield of 0.02%.1
With the overnight federal funds rate remaining unchanged in a range between 0% and 0.25% throughout the reporting period, yields of tax-exempt money market instruments stayed at historically low levels. Supply-and-demand factors also continued to contribute to low yields.
The Fund’s Investment Approach
The fund seeks to provide a high level of current income exempt from federal and California state income taxes to the extent consistent with the preservation of capital and the maintenance of liquidity.To pursue this objective, we attempt to add value by selecting the individual tax-exempt money market instruments from high-quality California exempt issuers that we believe are most likely to provide tax-exempt income.We also actively manage the fund’s weighted average maturity in anticipation of interest-rate and supply-and-demand changes in California’s short-term municipal marketplace.
The management of the fund’s weighted average maturity uses a more tactical approach. If we expect the supply of securities to increase temporarily, we may reduce the fund’s weighted average maturity to make cash available for the purchase of higher yielding securities, if they become available.This is due to the fact that yields tend to rise if issuers are competing for investor interest. If we expect demand to surge at a time when we anticipate little issuance and therefore lower yields, we may increase the fund’s average weighted maturity to maintain current yields for as long as we deem practical.At other times, we try to maintain a neutral average weighted maturity.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
Money Market Yields Hovered Near Historical Lows
The reporting period began near the start of an economic recovery. Although unemployment has remained stubbornly high, manufacturing activity rebounded, helping to bolster confidence among consumers, businesses and investors.
Still, the economic rebound has been milder than most previous recoveries. Indeed, new developments later in the reporting period, including turmoil in European debt markets and inflationary pressures in China, added to ongoing global economic concerns. In light of these challenges and their potentially dampening influence on the U.S. economy, the Federal Reserve Board (the “Fed”) retained the aggressively accommodative monetary policy it has maintained since December 2008.
In the national municipal securities market, the supply of variable-rate demand notes and tender option bonds remained relatively low, due mainly to tighter lending restrictions and credit-rating downgrades. Instead, issuers turned to longer-term bonds, including taxable securities through the federally subsidized Build America Bonds program. Meanwhile, demand for tax-exempt money market instruments remained robust, putting additional downward pressure on already low tax-exempt money market yields.
Finally, most states and municipalities have continued to face fiscal challenges stemming from lower-than-projected tax receipts and greater demand for services, further limiting the supply of instruments meeting our investment criteria. California faces a budget deficit of roughly $19 billion, which appears likely to be addressed through major cuts in health and welfare programs.
In-House Research Supported Credit Quality
We proceeded cautiously in this challenging environment.The in-depth, independent research conducted by our credit analysts into the fiscal health of the issuers we consider led us to focus on direct, high-quality municipal obligations during the reporting period. We favored instruments backed by pledged tax appropriations, such as school districts with stable tax bases, or revenues from facilities providing
4
essential services.We generally shied away from instruments issued entities that depend heavily on state aid.
With interest rates remaining near historical lows, municipal money market funds generally have maintained short weighted average maturi ties compared to historical norms.The fund was no exception, as we its weighted average maturity in a range that was roughly in line with industry averages. In addition, we prepared the fund for new government regulations that took effect during the second half of the reporting period, including a reduction in the fund’s maximum weighted average maturity from 90 days to 60 days.
Safety and Liquidity Remain Paramount
The Fed has repeatedly indicated that it is likely to keep short-term interest rates near historical lows for an extended period.Therefore, believe the prudent course continues to be an emphasis on preservation of capital and liquidity.
However, we expect the supply of newly issued tax-exempt money market instruments to trend higher in the months ahead, which could support higher yields.We also are mindful that, when the Fed eventually begins to raise the federal funds rate, a relatively defensive maturity-management strategy may enable the fund to capture higher yields more quickly as they become available.
July 15, 2010
An investment in the fund is not insured or guaranteed by the FDIC or any other government | |
agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is | |
possible to lose money by investing in the fund. | |
Short-term municipal securities holdings (as applicable), while rated in the highest rating category | |
by one or more NRSRO (or unrated, if deemed of comparable quality by Dreyfus), involve credit | |
and liquidity risks and risk of principal loss. | |
1 | Effective yield is based upon dividends declared daily and reinvested monthly. Past performance is |
no guarantee of future results.Yields fluctuate. Income may be subject to state and local taxes for | |
non-California residents, and some income may be subject to the federal alternative minimum tax | |
(AMT) for certain investors.Yields provided reflect the absorption of certain fund expenses by The | |
Dreyfus Corporation pursuant to an undertaking in effect that may be extended, terminated or | |
modified at any time. Had these expenses not been absorbed, fund yields would have been lower, | |
and in some cases, 7-day yields during the reporting period would have been negative absent the | |
expense absorption. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus BASIC California Municipal Money Market Fund from January 1, 2010 to June 30, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |
assuming actual returns for the six months ended June 30, 2010 | |
Expenses paid per $1,000† | $ 1.88 |
Ending value (after expenses) | $1,000.10 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |
assuming a hypothetical 5% annualized return for the six months ended June 30, 2010 | |
Expenses paid per $1,000† | $ 1.91 |
Ending value (after expenses) | $1,022.91 |
† Expenses are equal to the fund’s annualized expense ratio of .38%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
June 30, 2010 |
Short-Term | Coupon | Maturity | Principal | ||
Investments—103.9% | Rate (%) | Date | Amount ($) | Value ($) | |
California—92.0% | |||||
Alameda Unified School District, | |||||
GO Notes, TRAN | 2.00 | 6/30/11 | 1,000,000 | a | 1,009,870 |
California Department of Water | |||||
Resource, Water Revenue, CP | |||||
(Liquidity Facility; Landesbank | |||||
Hessen-Thuringen Girozentrale) | 0.47 | 7/6/10 | 1,000,000 | 1,000,000 | |
California Educational Facilities | |||||
Authority, Revenue, CP | |||||
(Stanford University) | 0.30 | 11/19/10 | 2,100,000 | 2,100,000 | |
California Infrastructure and | |||||
Economic Development Bank, IDR | |||||
(Bonny Doon Winery, Inc. | |||||
Project) (LOC; Comerica Bank) | 0.51 | 7/7/10 | 2,850,000 | b | 2,850,000 |
California Infrastructure and | |||||
Economic Development Bank, | |||||
Revenue (San Francisco Ballet | |||||
Association) (LOC; Allied | |||||
Irish Banks) | 1.75 | 7/1/10 | 5,000,000 | b | 5,000,000 |
California Pollution Control | |||||
Financing Authority, SWDR | |||||
(GreenWaste Recovery, Inc. | |||||
Project) (LOC; Comerica Bank) | 0.43 | 7/7/10 | 2,400,000 | b | 2,400,000 |
California Pollution Control | |||||
Financing Authority, SWDR | |||||
(Metropolitan Recycling Inc.) | |||||
(LOC; Comerica Bank) | 0.43 | 7/7/10 | 2,495,000 | b | 2,495,000 |
California Pollution Control | |||||
Financing Authority, SWDR | |||||
(Northern Recycling and Waste | |||||
Services, LLC Project) (LOC; | |||||
Union Bank of California) | 0.36 | 7/7/10 | 2,930,000 | b | 2,930,000 |
California Pollution Control | |||||
Financing Authority, SWDR | |||||
(Pena’s Disposal, Inc. | |||||
Project) (LOC; Comerica Bank) | 0.43 | 7/7/10 | 2,125,000 | b | 2,125,000 |
California Pollution Control | |||||
Financing Authority, SWDR | |||||
(South Tahoe Refuse Company | |||||
Project) (LOC; Union Bank | |||||
of California) | 0.36 | 7/7/10 | 1,150,000 | b | 1,150,000 |
The Fund 7
STATEMENT OF INVESTMENTS (continued)
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
California (continued) | |||||
California Pollution Control | |||||
Financing Authority, SWDR | |||||
(Sunset Waste Paper, Inc. | |||||
Project) (LOC; Comerica Bank) | 0.43 | 7/7/10 | 3,400,000 | b | 3,400,000 |
California Pollution Control | |||||
Financing Authority, SWDR | |||||
(Valley Vista Services, Inc. | |||||
Project) (LOC; Comerica Bank) | 0.43 | 7/7/10 | 2,000,000 | b | 2,000,000 |
California School Cash Reserve | |||||
Program Authority, Revenue | 2.50 | 12/30/10 | 5,000,000 | 5,037,026 | |
California Statewide Communities | |||||
Development Authority, | |||||
Revenue, CP (Kaiser Permanente) | 0.31 | 8/5/10 | 3,700,000 | 3,700,000 | |
California Statewide Communities | |||||
Development Authority, | |||||
Revenue, Refunding (University | |||||
Retirement Community at Davis | |||||
Project) (LOC; Bank of America) | 0.16 | 7/1/10 | 2,000,000 | b | 2,000,000 |
California Statewide Communities | |||||
Development Authority, TRAN | |||||
(County of Yolo) | 2.00 | 6/30/11 | 2,300,000 | a | 2,322,701 |
Deutsche Bank Spears/Lifers Trust | |||||
(Anaheim Redevelopment Agency, | |||||
Tax Allocation Revenue, | |||||
Refunding (Anaheim Merged | |||||
Redevelopment Project Area)) | |||||
(Liquidity Facility; Deutsche Bank | |||||
AG and LOC; Deutsche Bank AG) | 0.34 | 7/7/10 | 5,900,000 | b,c | 5,900,000 |
Golden State Tobacco | |||||
Securitization Corporation, | |||||
Enhanced Tobacco Settlement | |||||
Asset-Backed Bonds (Insured; | |||||
Berkshire Hathaway Assurance | |||||
Corporation and Liquidity | |||||
Facility; Citibank NA) | 0.31 | 7/7/10 | 5,505,000 | b,c | 5,505,000 |
Irvine Ranch Water District | |||||
(LOC; Landesbank | |||||
Hessen-Thueringen Girozentrale) | 0.14 | 7/1/10 | 1,500,000 | b | 1,500,000 |
Long Beach, | |||||
GO Notes, TRAN | 2.50 | 9/30/10 | 1,000,000 | 1,004,956 |
8
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
California (continued) | |||||
Los Angeles County Metropolitan | |||||
Transportation Authority, | |||||
Proposition C Sales Tax | |||||
Revenue, Refunding (Liquidity | |||||
Facility; Bank of Nova Scotia) | 0.13 | 7/1/10 | 1,400,000 | b | 1,400,000 |
Los Angeles Department of Water | |||||
and Power, Power System Revenue | 5.00 | 7/1/10 | 800,000 | 800,000 | |
Los Angeles Department of Water | |||||
and Power, Power System | |||||
Revenue (Liquidity Facility; | |||||
Bank of America) | 0.14 | 7/1/10 | 5,200,000 | b | 5,200,000 |
Los Angeles Municipal Improvement | |||||
Corporation, LR, CP (LOC; Bank | |||||
of America) | 0.41 | 9/21/10 | 1,000,000 | 1,000,000 | |
Puttable Floating Option Tax | |||||
Exempt Receipts (California | |||||
Statewide Communities | |||||
Development Authority, MFHR | |||||
(La Mision Village Apartments | |||||
Project)) (Liquidity Facility; | |||||
FHLMC and LOC; FHLMC) | 0.48 | 7/7/10 | 2,250,000 | b,c | 2,250,000 |
Ravenswood City School District, | |||||
GO Notes, TRAN | 1.75 | 7/1/11 | 1,600,000 | a | 1,611,072 |
Roseville Joint Union High School | |||||
District, COP (Insured; | |||||
Assured Guaranty Municipal | |||||
Corp. and Liquidity Facility; | |||||
Dexia Credit Locale) | 0.46 | 7/7/10 | 1,150,000 | b | 1,150,000 |
Southern California Public | |||||
Power Authority, Revenue | |||||
(Mead-Adelanto Project) | |||||
(Liquidity Facility; JPMorgan | |||||
Chase Bank) | 0.12 | 7/1/10 | 2,600,000 | b | 2,600,000 |
Southern California Public Power | |||||
Authority, Transmission Project | |||||
Revenue, Refunding (Southern | |||||
Transmission Project) (Insured; | |||||
Assured Guaranty Municipal | |||||
Corp. and Liquidity Facility; | |||||
Westdeutsche Landesbank) | 0.42 | 7/7/10 | 6,000,000 | b | 6,000,000 |
The Fund 9
STATEMENT OF INVESTMENTS (continued)
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
California (continued) | |||||
Victorville Joint Powers Financing | |||||
Authority, LR (Cogeneration | |||||
Facility Project) (LOC; Fortis Bank) | 0.42 | 7/7/10 | 9,770,000 | b | 9,770,000 |
West Covina Public Financing | |||||
Authority, LR, Refunding | |||||
(Public Facilities Project) | |||||
(LOC; California State | |||||
Teachers Retirement System) | 0.29 | 7/7/10 | 1,000,000 | b | 1,000,000 |
U.S. Related—11.9% | |||||
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(Liquidity Facility; Citibank NA) | 0.33 | 7/7/10 | 7,000,000 | b,c | 7,000,000 |
Puttable Floating Option Tax | |||||
Exempt Receipts (Puerto Rico | |||||
Highways and Transportation | |||||
Authority, Highway Revenue) | |||||
(Liquidity Facility; Dexia | |||||
Credit Locale and LOC; Dexia | |||||
Credit Locale) | 0.56 | 7/7/10 | 4,460,000 | b,c | 4,460,000 |
Total Investments (cost $99,670,625) | 103.9% | 99,670,625 | |||
Liabilities, Less Cash and Receivables | (3.9%) | (3,756,482) | |||
Net Assets | 100.0% | 95,914,143 |
a Purchased on a delayed delivery basis. |
b Variable rate demand note—rate shown is the interest rate in effect at June 30, 2010. Maturity date represents the |
next demand date, or the ultimate maturity date if earlier. |
c 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 June 30, 2010, these securities |
amounted to $25,115,000 or 26.2% of net assets. |
10
Summary of Abbreviations | |||
ABAG | Association of Bay Area Governments | ACA | American Capital Access |
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
HR | Hospital Revenue | IDB | Industrial Development Board |
IDC | Industrial Development Corporation | IDR | Industrial Development Revenue |
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MFHR | Multi-Family Housing Revenue |
MFMR | Multi-Family Mortgage Revenue | PCR | Pollution Control Revenue |
PILOT | Payment in Lieu of Taxes | PUTTERS Puttable Tax-Exempt Receipts | |
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | RRR | Resources Recovery Revenue |
SAAN | State Aid Anticipation Notes | SBPA | Standby Bond Purchase Agreement |
SFHR | Single Family Housing Revenue | SFMR | Single Family Mortgage Revenue |
SONYMA | State of New York Mortgage Agency | SWDR | Solid Waste Disposal Revenue |
TAN | Tax Anticipation Notes | TAW | Tax Anticipation Warrants |
TRAN | Tax and Revenue Anticipation Notes | XLCA | XL Capital Assurance |
The Fund 11
STATEMENT OF INVESTMENTS (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
F1+,F1 | VMIG1,MIG1,P1 | SP1+,SP1,A1+,A1 | 99.2 | ||
AAA,AA,Ad | Aaa,Aa,Ad | AAA,AA,Ad | .8 | ||
100.0 |
† | Based on total investments. |
d | Notes which are not F, MIG and SP rated are represented by bond ratings of the issuers. |
See notes to financial statements. |
12
STATEMENT OF ASSETS AND LIABILITIES |
June 30, 2010 |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 99,670,625 | 99,670,625 |
Cash | 1,111,050 | |
Interest receivable | 118,277 | |
100,899,952 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 2 | 37,271 | |
Payable for investment securities purchased | 4,943,643 | |
Dividend payable | 4,895 | |
4,985,809 | ||
Net Assets ($) | 95,914,143 | |
Composition of Net Assets ($): | ||
Paid-in capital | 95,914,143 | |
Net Assets ($) | 95,914,143 | |
Shares Outstanding | ||
(unlimited number of shares of Beneficial Interest authorized) | 95,914,143 | |
Net Asset Value, offering and redemption price per share ($) | 1.00 | |
See notes to financial statements. |
The Fund 13
STATEMENT OF OPERATIONS |
Year Ended June 30, 2010 |
Investment Income ($): | |
Interest Income | 648,447 |
Expenses: | |
Management fee—Note 2 | 685,799 |
Treasury insurance expense—Note 1(f) | 23,796 |
Trustees’ fees—Note 2 | 7,815 |
Total Expenses | 717,410 |
Less—reduction in expenses due to undertaking—Note 2 | (84,134) |
Less—Trustees’ fees reimbursed by the Manager—Note 2 | (7,815) |
Net Expenses | 625,461 |
Investment Income—Net, representing net increase | |
in net assets resulting from operations | 22,986 |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Year Ended June 30, | ||
2010 | 2009 | |
Operations ($): | ||
Investment income—net | 22,986 | 2,601,895 |
Net realized gain (loss) on investments | — | 803 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 22,986 | 2,602,698 |
Dividends to Shareholders from ($): | ||
Investment income—net | (23,789) | (2,608,657) |
Beneficial Interest Transactions ($1.00 per share): | ||
Net proceeds from shares sold | 374,184,052 | 511,133,170 |
Dividends reinvested | 6,788 | 551,087 |
Cost of shares redeemed | (473,061,222) | (576,575,702) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (98,870,382) | (64,891,445) |
Total Increase (Decrease) in Net Assets | (98,871,185) | (64,897,404) |
Net Assets ($): | ||
Beginning of Period | 194,785,328 | 259,682,732 |
End of Period | 95,914,143 | 194,785,328 |
See notes to financial statements. |
The Fund 15
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.
Year Ended June 30, | |||||
2010 | 2009 | 2008 | 2007 | 2006 | |
Per Share Data ($): | |||||
Net asset value, beginning of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Investment Operations: | |||||
Investment income—net | .000a | .010 | .027 | .032 | .025 |
Distributions: | |||||
Dividends from investment income—net | (.000)a | (.010) | (.027) | (.032) | (.025) |
Net asset value, end of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Total Return (%) | .02 | 1.04 | 2.72 | 3.21 | 2.50 |
Ratios/Supplemental Data (%): | |||||
Ratio of total expenses | |||||
to average net assets | .47 | .49 | .46 | .45 | .45 |
Ratio of net expenses | |||||
to average net assets | .41 | .49b | .45 | .45 | .45 |
Ratio of net investment income | |||||
to average net assets | .02 | 1.08 | 2.57 | 3.16 | 2.49 |
Net Assets, end of period ($ x 1,000) | 95,914 | 194,785 | 259,683 | 107,993 | 72,067 |
a | Amount represents less than $.001 per share. |
b | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements. |
16
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
Dreyfus BASIC California Municipal Money Market Fund (the “fund”) is a separate non-diversified series of The Dreyfus/Laurel Tax-Free Municipal Funds (the “Trust”) which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company, currently offering three series including the fund.The fund’s investment objective is to provide a high level of current income exempt from federal and California state personal income taxes to the extent consistent with the preservation of capital and the maintenance of liquidity. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of NewYork Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.
It is the fund’s policy to maintain a continuous net asset value per share of $1.00 for the fund; the fund has adopted certain investment, portfolio valuation and dividend and distribution policies to enable it to do so. There is no assurance, however, that the fund will be able to maintain a stable net asset value per share of $1.00.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (continued)
(a) Portfolio valuation: Investments in securities are valued at amortized cost in accordance with Rule 2a-7 of the Act, which has been determined by the Board of Trustees to represent the fair value of the fund’s investments.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the Act. Generally, amortized cost approximates the current fair value of a security, but since the value is
18
not obtained from a quoted price in an active market, such securities are reflected as Level 2.
The following is a summary of the inputs used as of June 30, 2010 in valuing the fund’s investments:
Short-Term | |
Valuation Inputs | Investments ($)† |
Level 1—Unadjusted Quoted Prices | — |
Level 2—Other Significant Observable Inputs | 99,670,625 |
Level 3—Significant Unobservable Inputs | — |
Total | 99,670,625 |
† See Statement of Investments for additional detailed categorizations. |
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Cost of investments represents amortized cost.
(c) Concentration of risk: The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
All cash balances were maintained with the Custodian,The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus.
(d) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net; such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended, (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (continued)
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended June 30, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the four-year period ended June 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At June 30, 2010, the components of accumulated earnings on a tax basis were substantially the same as for financial reporting purposes.
The tax character of distributions paid to shareholders during the fiscal periods ended June 30, 2010 and June 30, 2009 were as follows: tax-exempt income $23,789 and $ 2,601,092, ordinary income $0 and $803 and long-term capital gains $0 and $6,762, respectively.
During the period ended June 30, 2010, as a result of permanent book to tax differences, primarily due to dividend reclassification, the fund increased accumulated undistributed investment income-net by $803 and decreased accumulated net realized gain (loss) on investment by the same amount. Net assets and net asset value per share were not affected by this reclassification.
At June 30, 2010, 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).
(f) Treasury’s Temporary Guarantee Program: The fund entered into a Guarantee Agreement with the United States Department of the
20
Treasury (the “Treasury”) to participate in the Treasury’s Temporary Guarantee Program for Money Market Funds (the “Program”).
Under the Program, the Treasury guaranteed the share price of shares of the fund held by shareholders as of September 19, 2008 at $1.00 per share if the fund’s net asset value per share fell below $0.995 (a “Guarantee Event”) and the fund liquidated. Recovery under the Program was subject to certain conditions and limitations.
Fund shares acquired by investors after September 19, 2008 that increased the number of fund shares the investor held at the close of business on September 19, 2008 were not eligible for protection under the Program. In addition, fund shares acquired by investors who did not hold fund shares at the close of business on September 19, 2008 were not eligible for protection under the Program.
The Program, which was originally set to expire on December 18, 2008, was initially extended by the Treasury until April 30, 2009 and had been further extended by the Treasury until September 18, 2009, at which time the Secretary of the Treasury terminated the Program.As such, the fund is no longer eligible for protection under the Program. Participation in the initial term and the two extended periods of the Program required payments to the Treasury in the amounts of .01%, .015% and .015%, respectively, of the fund’s shares outstanding as of September 19, 2008 (valued at $1.00 per share).This expense was borne by the fund without regard to any expense limitation in effect.
NOTE 2—Investment Management Fee and Other Transactions with Affiliates:
Pursuant to an investment management agreement with the Manager, the Manager provides or arranges for one or more third parties and/or affiliates to provide investment advisory, administrative, custody, fund accounting and transfer agency services to the fund.The Manager also directs the investments of the fund in accordance with its investment objective, policies and limitations. For these services, the fund is con-
The Fund 21
NOTES TO FINANCIAL STATEMENTS (continued)
tractually obligated to pay the Manager a fee, calculated daily and paid monthly, at the annual rate of .45% of the value of the fund’s average daily net assets. Out of its fee, the Manager pays all of the expenses of the fund except brokerage fees, taxes, interest, fees and expenses of non-interested Trustees (including counsel fees) and extraordinary expenses. In addition, the Manager is required to reduce its fee in an amount equal to the fund’s allocable portion of fees and expenses of the non-interested Trustees (including counsel fees). Prior to January 1, 2010, each Board member received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust, The Dreyfus/Laurel Funds Trust, The Dreyfus/Laurel Funds, Inc., Dreyfus Investment Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds pay each Board member who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone. The Board Group Open-End Funds also reimburse each Board member who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts).With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, receives $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meet-
22
ing or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.The Trust’s portion of these fees and expenses are charged and allocated to each series based on net assets. Amounts required to be paid by the Trust directly to the non-interested Trustees, that would be applied to offset a portion of the management fee payable to the Manager, are in fact paid directly by the Manager to the non-interested Trustees.
The Manager has undertaken to reimburse expenses in the event that current yields drop below a certain level. Such limitations may fluctuate daily, is voluntary and not contractual and may be terminated at any time. The reduction in expenses, pursuant to the undertaking, amounted to $84,134 during the period ended June 30, 2010.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $37,271.
NOTE 3—Securities Transactions:
The fund is permitted to purchase or sell securities from or to certain related affiliated funds under specified conditions outlined in procedures adopted by the Board ofTrustees.The procedures have been designed to ensure that any purchase or sale of securities by the fund from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment adviser), commonTrustee and/or common officers, complies with Rule 17a-7 of the Act. During the period ended June 30, 2010, the fund engaged in purchases and sales of securities pursuant to Rule 17a-7 of the Act amounting to $173,125,000 and $216,090,000, respectively.
The Fund 23
REPORT OF INDEPENDENT REGISTERED |
PUBLIC ACCOUNTING FIRM |
The Board of Trustees and Shareholders The Dreyfus/Laurel Tax-Free Municipal Funds
We have audited the accompanying statement of assets and liabilities of Dreyfus BASIC California Municipal Money Market Fund (the “Fund”), a series of The Dreyfus/Laurel Tax-Free Municipal Funds, including the statement of investments, as of June 30, 2010, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in two-year period then ended and the financial highlights for each of the years in the five-year period then ended.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 the standards of the Public Company Accounting Oversight Board (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. Our procedures included confirmation of securities owned as of June 30, 2010, by correspondence with the custodian.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 BASIC California Municipal Money Market Fund of The Dreyfus/Laurel Tax-Free Municipal Funds as of June 30, 2010, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
August 25, 2010
24
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 June 30, 2010 as “exempt-interest dividends” (not subject to regular federal and, for individuals who are California residents, California personal income taxes).Where required by federal tax law rules, shareholders will receive notification of their portion of the fund’s exempt-interest dividends paid for the 2010 calendar year on Form 1099-INT, which will be mailed by early 2011.
The Fund 25
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S INVESTMENT MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Management Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.
26
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of retail, no-load California tax-exempt money market funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional California tax-exempt money market funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below).The Board members discussed the results of the comparisons for various periods ended December 31, 2009, and noted that the fund’s total return performance was above the Performance Group and Performance Universe medians for each of the periods.The Board also noted that the fund was the top performer in the Performance Group for each of the periods, except the ten-year period ended December 31, 2009, when the fund was ranked second among its Performance Group.
The Board members also discussed the fund’s contractual and actual management fees and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. Noting the fund’s “unitary fee” structure, the Board noted that the fund’s contractual management fee was at the Expense Group median, the fund’s actual management fee was above the Expense Group and Expense Universe medians, and the fund’s expense ratio was below the Expense Group and Expense Universe medians.
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, poli-
The Fund 27
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT MANAGEMENT AGREEMENT (Unaudited) (continued) |
cies and strategies, and included in the same Lipper category as the fund (the “Similar Funds”).They also noted that there were no other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided, noting the fund’s “unitary fee” structure.The Board members considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale.The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of,individual funds and the entire Dreyfus mutual fund complex. The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund.The Board members also considered potential benefits to the Manager from acting as investment adviser and noted there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services, and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the
28
profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the services provided by the Manager are adequate and appropriate.
The Board was satisfied with the fund’s relative performance.
The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative per- formance, expense and management fee information, costs of the services provided and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 29
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OFFICERS OF THE FUND (Unaudited)
BRADLEY J. SKAPYAK, President since January 2010.
Chief Operating Officer and a director of the Manager since June 2009. From April 2003 to June 2009, Mr. Skapyak was the head of the Investment Accounting and Support Department of the Manager. He is an officer of 76 investment companies (comprised of 170 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since February 1988.
PHILLIP N. MAISANO, Executive Vice President since July 2007.
Chief Investment Officer,Vice Chair and a director of the Manager, and an officer of 76 investment companies (comprised of 170 portfolios) managed by the Manager. Mr. Maisano also is an officer and/or Board member of certain other investment management subsidiaries of The Bank of New York Mellon Corporation, each of which is an affiliate of the Manager. He is 63 years old and has been an employee of the Manager since November 2006. Prior to joining the Manager, Mr. Maisano served as Chairman and Chief Executive Officer of EACM Advisors, an affiliate of the Manager, since August 2004.
MICHAEL A. ROSENBERG, Vice President and Secretary since August 2005.
Assistant General Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 50 years old and has been an employee of the Manager since October 1991.
KIESHA ASTWOOD, Vice President and Assistant Secretary since January 2010.
Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 37 years old and has been an employee of the Manager since July 1995.
JAMES BITETTO, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon and Secretary of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since December 1996.
JONI LACKS CHARATAN, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 54 years old and has been an employee of the Manager since October 1988.
JOSEPH M. CHIOFFI, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 48 years old and has been an employee of the Manager since June 2000.
KATHLEEN DENICHOLAS, Vice President and Assistant Secretary since January 2010.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 35 years old and has been an employee of the Manager since February 2001.
JANETTE E. FARRAGHER, Vice President and Assistant Secretary since August 2005.
Assistant General Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 47 years old and has been an employee of the Manager since February 1984.
32
JOHN B. HAMMALIAN, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 46 years old and has been an employee of the Manager since February 1991.
M. CRISTINA MEISER, Vice President and Assistant Secretary since January 2010.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 40 years old and has been an employee of the Manager since August 2001.
ROBERT R. MULLERY, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 58 years old and has been an employee of the Manager since May 1986.
JEFF PRUSNOFSKY, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 45 years old and has been an employee of the Manager since October 1990.
JAMES WINDELS, Treasurer since November 2001.
Director – Mutual Fund Accounting of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since April 1985.
RICHARD CASSARO, Assistant Treasurer since January 2008.
Senior Accounting Manager – Money Market and Municipal Bond Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since September 1982.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager of the Investment Accounting and Support Department of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 41 years old and has been an employee of the Manager since April 1991.
ROBERT ROBOL, Assistant Treasurer since August 2003.
Senior Accounting Manager – Fixed Income Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 46 years old and has been an employee of the Manager since October 1988.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager – Equity Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since June 1989.
The Fund 33
OFFICERS OF THE FUND (Unaudited) (continued)
ROBERT SVAGNA, Assistant Treasurer since August 2005.
Senior Accounting Manager – Equity Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the Manager and The Dreyfus Family of Funds (77 investment companies, comprised of 193 portfolios). From November 2001 through March 2004, Mr. Connolly was first Vice-President, Mutual Fund Servicing for Mellon Global Securities Services. In that capacity, Mr. Connolly was responsible for managing Mellon’s Custody, Fund Accounting and Fund Administration services to third-party mutual fund clients. He is 53 years old and has served in various capacities with the Manager since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.
NATALIA GRIBAS, Anti-Money Laundering Compliance Officer since July 2010.
Anti-Money Laundering Compliance Officer of the Distributor, and the Anti-Money Laundering Compliance Officer of 73 investment companies (comprised of 189 portfolios) managed by the Manager. She is 40 years old and has been an employee of the Distributor since September 2008.
34
NOTES
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Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
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 | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
13 | Statement of Assets and Liabilities |
14 | Statement of Operations |
15 | Statement of Changes in Net Assets |
16 | Financial Highlights |
17 | Notes to Financial Statements |
24 | Report of Independent Registered Public Accounting Firm |
25 | Important Tax Information |
26 | Information About the Review and Approval of the Fund’s Investment Management Agreement |
30 | Board Members Information |
32 | Officers of the Fund |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus BASIC |
Massachusetts Municipal |
Money Market Fund |
The Fund
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this annual report for Dreyfus BASIC Massachusetts Municipal Money Market Fund, covering the 12-month period from July 1, 2009, through June 30, 2010.
After posting solid gains over the second half of 2009 and the first quarter of 2010, the financial markets encountered renewed volatility late in the reporting period, which caused world stocks and some of the bond market’s higher-yielding sectors to erase some of their previous gains. Conversely, traditional safe havens such as gold and U.S. Treasury securities rallied as investors became more risk-averse.
Despite recent headlines about the current state of the U.S. economy, we still believe that it is unlikely that we’ll encounter a “double-dip” recession. Instead, we expect current financial strains to ease and the domestic economy to expand at a moderate pace over the second half of the year. However, we currently see a number of downside risks that could result in volatility over the short term, which is why we still believe that a long-term investment focus with an emphasis on high quality investments may be suitable for many investors.
We believe that short-term and liquid asset mutual fund investments are an important part of a long-term investment focus. But if you have not recently reviewed your portfolio, perhaps now is a good time to talk to your financial advisor about the current market environment and about potential opportunities provided by the financial markets in this investment climate.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
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Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
July 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of July 1, 2009, through June 30, 2010, as provided by J. Christopher Nicholl and John F. Flahive, Portfolio Managers
Fund and Market Performance Overview
For the 12-month period ended June 30, 2010, Dreyfus BASIC Massachusetts Municipal Money Market Fund produced a yield of 0.00%. Taking into account the effects of compounding, the fund produced an effective yield of 0.00%.1
With the overnight federal funds rate remaining unchanged in a range between 0% and 0.25% throughout the reporting period, yields of tax-exempt money market instruments stayed at historically low levels. Supply-and-demand factors also contributed to low yields.
The Fund’s Investment Approach
The fund seeks to provide a high level of current income exempt from federal and Massachusetts state income taxes to the extent consistent with the preservation of capital and the maintenance of liquidity.To pursue its goal, the fund normally invests substantially all of its assets in short-term, high-quality municipal obligations that provide income exempt from federal and Massachusetts state income taxes. When the fund manager believes that acceptable Massachusetts municipal obligations are unavailable for investment, the fund may invest temporarily in securities that provide income subject to Massachusetts state personal income taxes, but not federal income tax. In addition, the fund may invest temporarily in high-quality, taxable money market instruments when acceptable municipal obligations are not available for investment.
The fund may also invest in high-quality short-term structured notes, which are derivative instruments whose value is tied to underlying municipal obligations.
Money Market Yields Stayed at Historical Lows
The reporting period began near the start of an economic recovery:after four consecutive quarters of contraction, U.S. GDP returned to growth
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
during the third quarter of 2009. Although unemployment remained stubbornly high, manufacturing activity rebounded, helping to bolster confidence among consumers, businesses and investors. In addition, credit markets thawed in response to massive government intervention, including several programs that ended during the reporting period.
Still, the economic rebound proved to be milder than most previous recoveries, and inflationary pressures have been negligible. Indeed, new developments later in the reporting period, including turmoil in European debt markets and inflationary pressures in China, added to ongoing economic concerns in the United States and throughout the world. In light of these challenges, the Federal Reserve Board (the “Fed”) left short-term interest rates unchanged.
In the municipal securities market, tighter lending restrictions and credit-rating downgrades contributed to a decrease in the supply of variable-rate demand notes and tender option bonds. Instead, many issuers turned to longer-term bonds, including taxable securities through the federally subsidized Build America Bonds program.These factors effectively limited the available supply of municipal money market instruments. Meanwhile, demand for tax-exempt money market instruments remained robust, putting additional downward pressure on already low tax-exempt money market yields.
Finally, most states and municipalities have continued to struggle with lower-than-projected tax receipts and greater demand for services, further limiting the supply of instruments meeting our investment criteria. Massachusetts faced a large deficit when formulating its 2010 budget, which it addressed through a combination of new revenues, spending cuts, federal stimulus funds and disbursements from reserves.
Maintaining a Conservative Posture
We proceeded cautiously in this challenging environment. Early in the reporting period, a lack of newly issued Massachusetts instruments meeting our credit criteria led us to invest a portion of the fund’s assets in money market instruments from other states. Fortunately, an improved supply of eligible instruments later in the reporting period enabled us to return the fund to a fully invested position in
4
Massachusetts paper. Otherwise, the fund saw little change in its asset mix, which was composed primarily of variable-rate demand notes on which yields are reset weekly or daily.
We maintained a weighted average maturity that was roughly in line with industry averages for much of the reporting period, as narrow yield differences along the market’s maturity range provided little incentive to assume the risks that longer-dated instruments typically entail. Late in the reporting period, we identified new opportunities among longer-dated instruments, and the fund ended the reporting period with a weighted average maturity that was modestly longer than industry averages.
The U.S. Securities and Exchange Commission (“SEC”) has issued new regulations governing money market funds, many of which required compliance during the reporting period.
Safety and Liquidity Remain Paramount
The Fed has repeatedly indicated that it is likely to keep short-term interest rates near historical lows for an extended period, and recent signs of economic weakness make it unlikely that rates will rise anytime soon.Therefore, we believe the prudent course continues to be a conservative credit selection strategy with an emphasis on preservation of capital and liquidity.
July 15, 2010
An investment in the fund is not insured or guaranteed by the FDIC or any other government | |
agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is | |
possible to lose money by investing in the fund. | |
Short-term municipal securities holdings (as applicable), while rated in the highest rating category | |
by one or more NRSRO (or unrated, if deemed of comparable quality by Dreyfus), involve credit | |
and liquidity risks and risk of principal loss. | |
1 | Effective yield is based upon dividends declared daily and reinvested monthly. Past performance is |
no guarantee of future results.Yields fluctuate. Income may be subject to state and local taxes for | |
non-Massachusetts residents, and some income may be subject to the federal alternative minimum | |
tax (AMT) for certain investors.Yields provided reflect the absorption of certain fund expenses by | |
The Dreyfus Corporation pursuant to an agreement in which shareholders will be given at least | |
90 days’ notice prior to the time such absorption may be terminated. Had these expenses not been | |
absorbed, fund yields would have been lower, and in some cases, 7-day yields during the reporting | |
period would have been negative absent the expense absorption. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus BASIC Massachusetts Municipal Money Market Fund from January 1, 2010 to June 30, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |
assuming actual returns for the six months ended June 30, 2010 | |
Expenses paid per $1,000† | $ 1.44 |
Ending value (after expenses) | $1,000.00 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |
assuming a hypothetical 5% annualized return for the six months ended June 30, 2010 | |
Expenses paid per $1,000† | $ 1.45 |
Ending value (after expenses) | $1,023.36 |
Expenses are equal to the fund’s annualized expense ratio of .29%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
June 30, 2010 |
Short-Term | Coupon | Maturity | Principal | ||
Investments—98.0% | Rate (%) | Date | Amount ($) | Value ($) | |
Holyoke, | |||||
GO Notes, BAN | 1.50 | 2/25/11 | 697,530 | 701,681 | |
Hull, | |||||
GO Notes, BAN | 1.25 | 2/15/11 | 2,900,000 | a | 2,913,340 |
Massachusetts, | |||||
Consolidated Loan (Liquidity | |||||
Facility; Dexia Credit Locale) | 0.24 | 7/1/10 | 3,800,000 | b | 3,800,000 |
Massachusetts Department of | |||||
Transportation, Metropolitan | |||||
Highway System Senior Revenue | |||||
(LOC; Wells Fargo Bank) | 0.22 | 7/7/10 | 3,500,000 | b | 3,500,000 |
Massachusetts Department of | |||||
Transportation, Metropolitan | |||||
Highway System Subordinated | |||||
Revenue (Commonwealth Contract | |||||
Assistance Secured) (Liquidity | |||||
Facility; Barclays Bank PLC) | 0.20 | 7/7/10 | 4,000,000 | b | 4,000,000 |
Massachusetts Development Finance | |||||
Agency, Higher Education | |||||
Revenue, Refunding (Smith | |||||
College Issue) | 0.24 | 7/7/10 | 4,000,000 | b,c | 4,000,000 |
Massachusetts Development Finance | |||||
Agency, Revenue (Boston | |||||
University Issue) (LOC; Allied | |||||
Irish Banks) | 1.25 | 7/1/10 | 5,000,000 | b,c | 5,000,000 |
Massachusetts Development Finance | |||||
Agency, Revenue (Boston University | |||||
Issue) (LOC; BNP Paribas) | 0.23 | 7/7/10 | 4,400,000 | b,c | 4,400,000 |
Massachusetts Development Finance | |||||
Agency, Revenue (Boston University | |||||
Issue) (LOC; BNP Paribas) | 0.23 | 7/7/10 | 2,000,000 | b,c | 2,000,000 |
Massachusetts Development Finance | |||||
Agency, Revenue (Exploration | |||||
School, Inc. Issue) (LOC; TD Bank) | 0.31 | 7/7/10 | 2,590,000 | b,c | 2,590,000 |
Massachusetts Development Finance | |||||
Agency, Revenue (Fay School | |||||
Issue) (LOC; TD Bank) | 0.31 | 7/7/10 | 3,800,000 | b,c | 3,800,000 |
Massachusetts Development Finance | |||||
Agency, Revenue (Harvard | |||||
University Issue) | 0.21 | 7/7/10 | 2,000,000 | b,c | 2,000,000 |
The Fund 7
STATEMENT OF INVESTMENTS (continued)
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts Development Finance | |||||
Agency, Revenue (Justice | |||||
Resource Institute Issue) | |||||
(LOC; Bank of America) | 0.18 | 7/7/10 | 2,000,000 | b | 2,000,000 |
Massachusetts Development Finance | |||||
Agency, Revenue (Saint | |||||
Peter-Marian Issue) (LOC; | |||||
Bank of America) | 0.40 | 7/7/10 | 910,000 | b | 910,000 |
Massachusetts Development Finance | |||||
Agency, Revenue, Refunding | |||||
(College of The Holy Cross | |||||
Issue) (LOC; Bank of America) | 0.18 | 7/1/10 | 1,000,000 | b,c | 1,000,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Amherst College Issue) | 0.23 | 7/7/10 | 4,000,000 | b,c | 4,000,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Bentley | |||||
College Issue) (LOC; JPMorgan | |||||
Chase Bank) | 0.22 | 7/7/10 | 6,200,000 | b,c | 6,200,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Boston | |||||
University Issue) (LOC; State | |||||
Street Bank and Trust Co.) | 0.18 | 7/7/10 | 415,000 | b,c | 415,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Capital | |||||
Asset Program Issue) (LOC; | |||||
Bank of America) | 0.13 | 7/1/10 | 1,500,000 | b | 1,500,000 |
Massachusetts Health and | |||||
Educational Facilities Authority, | |||||
Revenue (Dana-Farber Cancer | |||||
Institute Issue) (LOC; JPMorgan | |||||
Chase Bank) | 0.24 | 7/7/10 | 1,500,000 | b | 1,500,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Great | |||||
Brook Valley Health Center | |||||
Issue) (LOC; TD Bank) | 0.24 | 7/7/10 | 1,925,000 | b | 1,925,000 |
8
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Museum of | |||||
Fine Arts Issue) (Liquidity | |||||
Facility; Bank of America) | 0.15 | 7/1/10 | 900,000 | b | 900,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Partners | |||||
HealthCare System Issue) | |||||
(LOC; Citibank NA) | 0.26 | 7/7/10 | 4,000,000 | b | 4,000,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue (Peabody | |||||
Essex Museum Issue) | |||||
(LOC; Bank of America) | 0.28 | 7/7/10 | 2,235,000 | b | 2,235,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Wellesley College Issue) | 0.18 | 7/7/10 | 3,675,000 | b,c | 3,675,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Williams College Issue) | 0.24 | 7/7/10 | 1,893,000 | b,c | 1,893,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Williams College Issue) | 0.27 | 7/7/10 | 1,000,000 | b,c | 1,000,000 |
Massachusetts Health and | |||||
Educational Facilities | |||||
Authority, Revenue | |||||
(Williams College Issue) | 0.45 | 4/7/11 | 1,500,000 | c | 1,500,000 |
Massachusetts Water Resources | |||||
Authority, Multi-Modal | |||||
Subordinated General | |||||
Revenue (LOC; Landesbank | |||||
Hessen-Thuringen Girozentrale) | 0.18 | 7/7/10 | 200,000 | b | 200,000 |
Massachusetts Water Resources | |||||
Authority, Multi-Modal | |||||
Subordinated General Revenue, | |||||
Refunding (LOC; Landesbank | |||||
Baden-Wurttemberg) | 0.25 | 7/1/10 | 2,750,000 | b | 2,750,000 |
The Fund 9
STATEMENT OF INVESTMENTS (continued)
Short-Term | Coupon | Maturity | Principal | |
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
Massachusetts Water Resources | ||||
Authority, Multi-Modal | ||||
Subordinated General Revenue, | ||||
Refunding (LOC; Landesbank | ||||
Hessen-Thuringen Girozentrale) | 0.22 | 7/1/10 | 6,800,000 b | 6,800,000 |
Nahant, | ||||
GO Notes, BAN | 1.50 | 10/13/10 | 1,566,000 | 1,569,320 |
Stoughton, | ||||
GO Notes, BAN | 1.50 | 5/13/11 | 2,500,000 | 2,519,359 |
Waltham, | ||||
GO Notes, BAN | 1.25 | 8/19/10 | 3,713,000 | 3,717,916 |
Total Investments (cost $90,914,616) | 98.0% | 90,914,616 | ||
Cash and Receivables (Net) | 2.0% | 1,871,546 | ||
Net Assets | 100.0% | 92,786,162 |
a Purchased on a delayed delivery basis. |
b Variable rate demand note—rate shown is the interest rate in effect at June 30, 2010. Maturity date represents the |
next demand date, or the ultimate maturity date if earlier. |
c At June 30, 2010, the fund had $43,473,000 or 46.9% of net assets invested in securities whose payment of |
principal and interest is dependent upon revenues generated from education. |
10
Summary of Abbreviations | |||
ABAG | Association of Bay Area Governments | ACA | American Capital Access |
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
HR | Hospital Revenue | IDB | Industrial Development Board |
IDC | Industrial Development Corporation | IDR | Industrial Development Revenue |
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MFHR | Multi-Family Housing Revenue |
MFMR | Multi-Family Mortgage Revenue | PCR | Pollution Control Revenue |
PILOT | Payment in Lieu of Taxes | PUTTERS Puttable Tax-Exempt Receipts | |
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | RRR | Resources Recovery Revenue |
SAAN | State Aid Anticipation Notes | SBPA | Standby Bond Purchase Agreement |
SFHR | Single Family Housing Revenue | SFMR | Single Family Mortgage Revenue |
SONYMA | State of New York Mortgage Agency | SWDR | Solid Waste Disposal Revenue |
TAN | Tax Anticipation Notes | TAW | Tax Anticipation Warrants |
TRAN | Tax and Revenue Anticipation Notes | XLCA | XL Capital Assurance |
The Fund 11
STATEMENT OF INVESTMENTS (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
F1+,F1 | VMIG1,MIG1,P1 | SP1+,SP1,A1+,A1 | 98.9 | ||
AAA,AA,Ad | Aaa,Aa,Ad | AAA,AA,Ad | 1.1 | ||
100.0 |
† | Based on total investments. |
d | Notes which are not F, MIG and SP rated are represented by bond ratings of the issuers. |
See notes to financial statements. |
12
STATEMENT OF ASSETS AND LIABILITIES |
June 30, 2010 |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 90,914,616 | 90,914,616 |
Cash | 4,747,506 | |
Interest receivable | 65,534 | |
95,727,656 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 2 | 28,137 | |
Payable for investment securities purchased | 2,913,340 | |
Dividend payable | 17 | |
2,941,494 | ||
Net Assets ($) | 92,786,162 | |
Composition of Net Assets ($): | ||
Paid-in capital | 92,786,162 | |
Net Assets ($) | 92,786,162 | |
Shares Outstanding | ||
(unlimited number of shares of Beneficial Interest authorized) | 92,797,247 | |
Net Asset Value, offering and redemption price per share ($) | 1.00 | |
See notes to financial statements. |
The Fund 13
STATEMENT OF OPERATIONS |
Year Ended June 30, 2010 |
Investment Income ($): | |
Interest Income | 345,684 |
Expenses: | |
Management fee—Note 2 | 482,621 |
Treasury insurance expense—Note 1(f) | 13,847 |
Trustees’ fees—Note 2 | 7,543 |
Total Expenses | 504,011 |
Less—reduction in expenses due to undertaking—Note 2 | (150,818) |
Less—Trustees’ fees reimbursed by the Manager—Note 2 | (7,543) |
Net Expenses | 345,650 |
Investment Income—Net, representing net increase | |
in net assets resulting from operations | 34 |
See notes to financial statements. |
14
STATEMENT OF CHANGES IN NET ASSETS
Year Ended June 30, | ||
2010 | 2009 | |
Operations ($): | ||
Investment income—net | 34 | 1,626,687 |
Net realized gain (loss) on investments | — | 15 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 34 | 1,626,702 |
Dividends to Shareholders from ($): | ||
Investment income—net | (49) | (1,659,677) |
Beneficial Interest Transactions ($1.00 per share): | ||
Net proceeds from shares sold | 214,114,794 | 306,103,065 |
Dividends reinvested | 3 | 227,602 |
Cost of shares redeemed | (254,135,177) | (352,722,205) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (40,020,380) | (46,391,538) |
Total Increase (Decrease) in Net Assets | (40,020,395) | (46,424,513) |
Net Assets ($): | ||
Beginning of Period | 132,806,557 | 179,231,070 |
End of Period | 92,786,162 | 132,806,557 |
See notes to financial statements. |
The Fund 15
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.
Year Ended June 30, | |||||
2010 | 2009 | 2008 | 2007 | 2006 | |
Per Share Data ($): | |||||
Net asset value, beginning of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Investment Operations: | |||||
Investment income—net | .000a | .009 | .026 | .032 | .024 |
Distributions: | |||||
Dividends from investment income—net | (.000)a | (.009) | (.026) | (.032) | (.024) |
Net asset value, end of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Total Return (%) | .00b | .95 | 2.59 | 3.21 | 2.48 |
Ratios/Supplemental Data (%): | |||||
Ratio of total expenses | |||||
to average net assets | .47 | .49 | .46 | .46 | .46 |
Ratio of net expenses | |||||
to average net assets | .32 | .47 | .45 | .45 | .45 |
Ratio of net investment income | |||||
to average net assets | .00b | .96 | 2.51 | 3.17 | 2.46 |
Net Assets, end of period ($ x 1,000) | 92,786 | 132,807 | 179,231 | 162,062 | 130,286 |
a | Amount represents less than $.001 per share. |
b | Amount represents less than .01%. |
See notes to financial statements. |
16
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
Dreyfus BASIC Massachusetts Municipal Money Market Fund (the “fund”) is a separate non-diversified series of The Dreyfus/Laurel Tax-Free Municipal Funds (the “Trust”) which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company, currently offering three series including the fund. The fund’s investment objective is to provide a high level of current income exempt from federal and Massachusetts state personal income taxes to the extent consistent with the preservation of capital and the maintenance of liquidity. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.
It is the fund’s policy to maintain a continuous net asset value per share of $1.00 for the fund; the fund has adopted certain investment, portfolio valuation and dividend and distribution policies to enable it to do so. There is no assurance, however, that the fund will be able to maintain a stable net asset value per share of $1.00.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (continued)
(a) Portfolio valuation: Investments in securities are valued at amortized cost in accordance with Rule 2a-7 of the Act, which has been determined by the Board of Trustees to represent the fair value of the fund’s investments.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the Act. Generally, amortized cost
18
approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2.
The following is a summary of the inputs used as of June 30, 2010 in valuing the fund’s investments:
Short-Term | |
Valuation Inputs | Investments ($)† |
Level 1—Unadjusted Quoted Prices | — |
Level 2—Other Significant Observable Inputs | 90,914,616 |
Level 3—Significant Unobservable Inputs | — |
Total | 90,914,616 |
† See Statement of Investments for additional detailed categorizations. |
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Cost of investments represents amortized cost.
(c) Concentration of risk: The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the commonwealth and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
All cash balances were maintained with the Custodian,The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus.
(d) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net; such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of
The Fund 19
NOTES TO FINANCIAL STATEMENTS (continued)
the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended June 30, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the four-year period ended June 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At June 30, 2010, the components of accumulated earnings on a tax basis were substantially the same as for financial reporting purposes.
The tax character of distributions paid to shareholders during the fiscal periods ended June 30, 2010 and June 30, 2009 were as follows: tax exempt income $34 and $ 1,626,687, ordinary income $15 and $32,498 and long-term capital gains $0 and $492, respectively.
During the period ended June 30, 2010, as a result of permanent book to tax differences, primarily due to dividend reclassification, the fund increased accumulated undistributed investment income-net by $15 and decreased accumulated net realized gain (loss) on investment by the same amount. Net assets and net asset value per share were not affected by this reclassification.
At June 30, 2010, 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).
20
(f) Treasury’s Temporary Guarantee Program: The fund entered into a Guarantee Agreement with the United States Department of the Treasury (the “Treasury”) to participate in the Treasury’s Temporary Guarantee Program for Money Market Funds (the “Program”).
Under the Program, the Treasury guaranteed the share price of shares of the fund held by shareholders as of September 19, 2008 at $1.00 per share if the fund’s net asset value per share fell below $0.995 (a “Guarantee Event”) and the fund liquidated. Recovery under the Program was subject to certain conditions and limitations.
Fund shares acquired by investors after September 19, 2008 that increased the number of fund shares the investor held at the close of business on September 19, 2008 were not eligible for protection under the Program. In addition, fund shares acquired by investors who did not hold fund shares at the close of business on September 19, 2008 were not eligible for protection under the Program.
The Program, which was originally set to expire on December 18, 2008, was initially extended by the Treasury until April 30, 2009 and had been further extended by the Treasury until September 18, 2009, at which time the Secretary of the Treasury terminated the Program.As such, the fund is no longer eligible for protection under the Program. Participation in the initial term and the two extended periods of the Program required payments to the Treasury in the amounts of .01%, .015% and .015%, respectively, of the fund’s shares outstanding as of September 19, 2008 (valued at $1.00 per share).This expense was borne by the fund without regard to any expense limitation in effect.
NOTE 2—Investment Management Fee And Other Transactions With Affiliates:
Pursuant to an investment management agreement with the Manager, the Manager provides or arranges for one or more third parties and/or affiliates to provide investment advisory, administrative, custody, fund accounting and transfer agency services to the fund.The Manager also directs the investments of the fund in accordance with its investment
The Fund 21
NOTES TO FINANCIAL STATEMENTS (continued)
objective, policies and limitations. For these services, the fund is contractually obligated to pay the Manager a fee, calculated daily and paid monthly, at the annual rate of .45% of the value of the fund’s average daily net assets. Out of its fee, the Manager pays all of the expenses of the fund except brokerage fees, taxes, interest, fees and expenses of non-interested Trustees (including counsel fees) and extraordinary expenses. In addition, the Manager is required to reduce its fee in an amount equal to the fund’s allocable portion of fees and expenses of the non-interested Trustees (including counsel fees). Prior to January 1, 2010, each Board member received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust, The Dreyfus/Laurel Funds Trust,The Dreyfus/Laurel Funds, Inc., Dreyfus Investment Funds and Dreyfus Funds, Inc. (collectively, the “Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds pay each Board member who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone. The Board Group Open-End Funds also reimburse each Board member who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable
22
amounts).With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, receives $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus HighYield Strategies Fund.The Trust’s portion of these fees and expenses are charged and allocated to each series based on net assets. Amounts required to be paid by the Trust directly to the non-interested Trustees, that would be applied to offset a portion of the management fee payable to the Manager, are in fact paid directly by the Manager to the non-interested Trustees.
The Manager has undertaken to reimburse expenses in the event that current yields drop below a certain level. Such limitations may fluctuate daily, is voluntary and not contractual and may be terminated at any time. The reduction in expenses, pursuant to the undertaking, amounted to $150,818 during the period ended June 30, 2010.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $28,137.
The Fund 23
REPORT OF INDEPENDENT REGISTERED |
PUBLIC ACCOUNTING FIRM |
The Board of Trustees and Shareholders The Dreyfus/Laurel Tax-Free Municipal Funds
We have audited the accompanying statement of assets and liabilities of Dreyfus BASIC Massachusetts Municipal Money Market Fund (the “Fund”), a series of The Dreyfus/Laurel Tax-Free Municipal Funds, including the statement of investments, as of June 30, 2010, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. 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 the standards of the Public Company Accounting Oversight Board (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. Our procedures included confirmation of securities owned as of June 30, 2010, by correspondence with the custodian.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 BASIC Massachusetts Municipal Money Market Fund of The Dreyfus/Laurel Tax-Free Municipal Funds as of June 30, 2010, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
August 25, 2010
24
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 June 30, 2010 as “exempt-interest dividends” (not subject to regular federal and, for individuals who are Massachusetts residents, Massachusetts personal income taxes), except $15 that is being designated as an ordinary income distribution for reporting purposes.Where required by federal tax law rules, shareholders will receive notification of their portion of the fund’s exempt-interest dividends paid for the 2010 calendar year on Form 1099-INT, which will be mailed by early 2011.
The Fund 25
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S INVESTMENT MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Management Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.
26
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of retail, no-load Massachusetts tax-exempt money market funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional Massachusetts tax-exempt money market funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below). The Board members discussed the results of the comparisons for various periods ended December 31, 2009, and noted that the fund’s total return performance was at or above the Performance Group and Performance Universe medians for each of the periods, except for the one-year period ended December 31, 2009, when the fund’s total return performance was below the Performance Universe.
The Board members also discussed the fund’s contractual and actual management fees and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. A representative of the Manager reminded the Board members that the Manager had undertaken to reimburse a portion of expenses in the event that current yields dropped below a certain level and that the fund’s expense ratio reflected such a waiver. It was noted that the waiver was voluntary and may be terminated at any time. Noting that the fund was the only fund in the Expense Group with a “unitary fee” structure, the Board noted that the fund’s contractual management fee was equal to the Expense Group median and that the fund’s actual management fee and expense ratio were below their respective Expense Group and Expense Universe medians.
The Fund 27
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S INVESTMENT MANAGEMENT AGREEMENT (Unaudited) (continued) |
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by the only mutual fund managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category as the fund (the “Similar Fund”). They also noted that there were no other accounts managed by the Manager or its affiliates with similar investment objectives, policies and strategies as the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided, noting the fund’s “unitary fee” structure.The Board members considered the relevance of the fee information provided for the Similar Fund to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which,like the con-sultant,found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund. The Board members also considered potential benefits to the Manager from acting as investment adviser and noted that there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s
28
assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.The Board also noted the fee waiver arrangement and its effect on the profitability of the Manager.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the services provided by the Manager are adequate and appropriate.
The Board was satisfied with the fund’s relative performance.
The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative per- formance, expense and management fee information, costs of the services provided and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 29
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OFFICERS OF THE FUND (Unaudited)
BRADLEY J. SKAPYAK, President since January 2010.
Chief Operating Officer and a director of the Manager since June 2009. From April 2003 to June 2009, Mr. Skapyak was the head of the Investment Accounting and Support Department of the Manager. He is an officer of 76 investment companies (comprised of 170 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since February 1988.
PHILLIP N. MAISANO, Executive Vice President since July 2007.
Chief Investment Officer,Vice Chair and a director of the Manager, and an officer of 76 investment companies (comprised of 170 portfolios) managed by the Manager. Mr. Maisano also is an officer and/or Board member of certain other investment management subsidiaries of The Bank of New York Mellon Corporation, each of which is an affiliate of the Manager. He is 63 years old and has been an employee of the Manager since November 2006. Prior to joining the Manager, Mr. Maisano served as Chairman and Chief Executive Officer of EACM Advisors, an affiliate of the Manager, since August 2004.
MICHAEL A. ROSENBERG, Vice President and Secretary since August 2005.
Assistant General Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 50 years old and has been an employee of the Manager since October 1991.
KIESHA ASTWOOD, Vice President and Assistant Secretary since January 2010.
Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 37 years old and has been an employee of the Manager since July 1995.
JAMES BITETTO, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon and Secretary of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since December 1996.
JONI LACKS CHARATAN, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 54 years old and has been an employee of the Manager since October 1988.
JOSEPH M. CHIOFFI, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 48 years old and has been an employee of the Manager since June 2000.
KATHLEEN DENICHOLAS, Vice President and Assistant Secretary since January 2010.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 35 years old and has been an employee of the Manager since February 2001.
JANETTE E. FARRAGHER, Vice President and Assistant Secretary since August 2005.
Assistant General Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 47 years old and has been an employee of the Manager since February 1984.
32
JOHN B. HAMMALIAN, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 46 years old and has been an employee of the Manager since February 1991.
M. CRISTINA MEISER, Vice President and Assistant Secretary since January 2010.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 40 years old and has been an employee of the Manager since August 2001.
ROBERT R. MULLERY, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 58 years old and has been an employee of the Manager since May 1986.
JEFF PRUSNOFSKY, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 45 years old and has been an employee of the Manager since October 1990.
JAMES WINDELS, Treasurer since November 2001.
Director – Mutual Fund Accounting of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since April 1985.
RICHARD CASSARO, Assistant Treasurer since January 2008.
Senior Accounting Manager – Money Market and Municipal Bond Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since September 1982.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager of the Investment Accounting and Support Department of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 41 years old and has been an employee of the Manager since April 1991.
ROBERT ROBOL, Assistant Treasurer since August 2003.
Senior Accounting Manager – Fixed Income Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 46 years old and has been an employee of the Manager since October 1988.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager – Equity Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since June 1989.
The Fund 33
OFFICERS OF THE FUND (Unaudited) (continued)
ROBERT SVAGNA, Assistant Treasurer since August 2005.
Senior Accounting Manager – Equity Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the Manager and The Dreyfus Family of Funds (77 investment companies, comprised of 193 portfolios). From November 2001 through March 2004, Mr. Connolly was first Vice-President, Mutual Fund Servicing for Mellon Global Securities Services. In that capacity, Mr. Connolly was responsible for managing Mellon’s Custody, Fund Accounting and Fund Administration services to third-party mutual fund clients. He is 53 years old and has served in various capacities with the Manager since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.
NATALIA GRIBAS, Anti-Money Laundering Compliance Officer since July 2010.
Anti-Money Laundering Compliance Officer of the Distributor, and the Anti-Money Laundering Compliance Officer of 73 investment companies (comprised of 189 portfolios) managed by the Manager. She is 40 years old and has been an employee of the Distributor since September 2008.
34
NOTES
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Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.dreyfus.com and sign up for Dreyfus eCommunications. It’s simple and only takes a few minutes.
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 | |
2 | A Letter from the Chairman and CEO |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
15 | Statement of Assets and Liabilities |
16 | Statement of Operations |
17 | Statement of Changes in Net Assets |
18 | Financial Highlights |
19 | Notes to Financial Statements |
26 | Report of Independent Registered Public Accounting Firm |
27 | Important Tax Information |
28 | Information About the Review and Approval of the Fund’s Investment Management Agreement |
32 | Board Members Information |
34 | Officers of the Fund |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus BASIC
New York Municipal
Money Market Fund
The Fund
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A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this annual report for Dreyfus BASIC NY Municipal Money Market Fund, covering the 12-month period from July 1, 2009, through June 30, 2010.
After posting solid gains over the second half of 2009 and the first quarter of 2010, the financial markets encountered renewed volatility late in the reporting period, which caused world stocks and some of the bond market’s higher-yielding sectors to erase some of their previous gains. Conversely, traditional safe havens such as gold and U.S. Treasury securities rallied as investors became more risk-averse.
Despite recent headlines about the current state of the U.S. economy, we still believe that it is unlikely that we’ll encounter a “double-dip” recession. Instead, we expect current financial strains to ease and the domestic economy to expand at a moderate pace over the second half of the year. However, we currently see a number of downside risks that could result in volatility over the short term, which is why we still believe that a long-term investment focus with an emphasis on high quality investments may be suitable for many investors.
We believe that short-term and liquid asset mutual fund investments are an important part of a long-term investment focus. But if you have not recently reviewed your portfolio, perhaps now is a good time to talk to your financial advisor about the current market environment and about potential opportunities provided by the financial markets in this investment climate.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
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Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
July 15, 2010
2
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DISCUSSION OF FUND PERFORMANCE
For the period of July 1, 2009, through June 30, 2010, as provided by Joseph Irace, Senior Portfolio Manager
Fund and Market Performance Overview
For the 12-month period ended June 30, 2010, Dreyfus BASIC New York Municipal Money Market Fund produced a yield of 0.07%. Taking into account the effects of compounding, the fund produced an effective yield of 0.07%.1
With the overnight federal funds rate remaining unchanged in a range between 0% and 0.25% throughout the reporting period, yields of tax-exempt money market instruments stayed at historically low levels. Supply-and-demand factors also continued to contribute to low yields.
The Fund’s Investment Approach
The fund seeks to provide a high level of current income exempt from federal, New York state and New York city income taxes to the extent consistent with the preservation of capital and the maintenance of liquidity.To pursue this objective, we attempt to add value by selecting the individual tax-exempt money market instruments from high-quality NewYork tax-exempt issuers that we believe are most likely to provide tax-exempt income. We also actively manage the fund’s weighted average maturity in anticipation of interest-rate and supply-and-demand changes in NewYork’s short-term municipal marketplace.
The management of the fund’s weighted average maturity uses a more tactical approach. If we expect the supply of securities to increase temporarily, we may reduce the fund’s weighted average maturity to make cash available for the purchase of higher yielding securities, if such securities become available.This is due to the fact that yields tend to rise temporarily if issuers are competing for investor interest. If we expect demand to surge at a time when we anticipate little issuance and therefore lower yields, we may increase the fund’s weighted average maturity to maintain current yields for as long as we deem practical. At other times, we try to maintain a neutral weighted average maturity.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
Money Market Yields Hovered Near Historical Lows
The reporting period began near the start of an economic recovery. Although unemployment has remained stubbornly high, manufacturing activity rebounded, helping to bolster confidence among consumers, businesses and investors.
Still, the economic rebound has been milder than most previous recoveries. Indeed, new developments later in the reporting period, including turmoil in European debt markets and inflationary pressures in China, added to ongoing global economic concerns. In light of these challenges and their potentially dampening influence on the U.S. economy, the Federal Reserve Board (the“Fed”) retained the aggressively accommodative monetary policy it has maintained since December 2008.
In the national municipal securities market, the supply of variable-rate demand notes and tender option bonds remained relatively low, due mainly to tighter lending restrictions and credit-rating downgrades. Instead, issuers turned to longer-term bonds, including taxable securities through the federally subsidized Build America Bonds program. Meanwhile, demand for tax-exempt money market instruments remained robust, putting additional downward pressure on already low tax-exempt money market yields.
Finally, most states and municipalities have continued to face fiscal challenges stemming from lower-than-projected tax receipts and greater demand for services, further limiting the supply of instruments meeting our investment criteria. The State of New York has struggled with its revenues shortfalls, and the state legislature has so far been unable to enact a balanced budget for its current fiscal year.
In-House Research Supported Credit Quality
We proceeded cautiously in this challenging environment.The in-depth, independent research conducted by our credit analysts into the fiscal health of the issuers we consider led us to focus on direct, high-quality municipal obligations during the reporting period. We favored instruments backed by pledged tax appropriations or revenues from facilities providing essential services. We generally shied away from instruments issued by entities that depend heavily on state aid.
4
With interest rates remaining near historical lows, municipal money market funds generally have maintained short weighted average maturities compared to historical norms.The fund was no exception, as we set its weighted average maturity in a range that was roughly in line with industry averages. In addition, we prepared the fund for new government regulations that took effect during the second half of the reporting period, including a reduction in the fund’s maximum weighted average maturity from 90 days to 60 days.
Safety and Liquidity Remain Paramount
The Fed has repeatedly indicated that it is likely to keep short-term interest rates near historical lows for an extended period.Therefore, we believe the prudent course continues to be an emphasis on preservation of capital and liquidity.
However, we expect the supply of newly issued tax-exempt money market instruments to trend higher in the months ahead, which could support higher yields.We also are mindful that, when the Fed eventually begins to raise the federal funds rate, a relatively defensive maturity-management strategy may enable the fund to capture higher yields more quickly as they become available.
July 15, 2010
An investment in the fund is not insured or guaranteed by the FDIC or any other government | |
agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is | |
possible to lose money by investing in the fund. | |
Short-term municipal securities holdings (as applicable), while rated in the highest rating category | |
by one or more NRSRO (or unrated, if deemed of comparable quality by Dreyfus), involve credit | |
and liquidity risks and risk of principal loss. | |
1 | Effective yield is based upon dividends declared daily and reinvested monthly. Past performance is |
no guarantee of future results.Yields fluctuate. Income may be subject to state and local taxes for | |
non-NewYork residents, and some income may be subject to the federal alternative minimum tax | |
(AMT) for certain investors.Yields provided reflect the absorption of certain fund expenses by The | |
Dreyfus Corporation pursuant to an undertaking in effect that may be extended, terminated or | |
modified at any time. Had these expenses not been absorbed, fund yields would have been lower, | |
and in some cases, 7-day yields during the reporting period would have been negative absent the | |
expense absorption. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus BASIC New York Municipal Money Market Fund from January 1, 2010 to June 30, 2010. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment | |
assuming actual returns for the six months ended June 30, 2010 | |
Expenses paid per $1,000† | $ 1.93 |
Ending value (after expenses) | $1,000.00 |
COMPARING YOUR FUND’S EXPENSES |
WITH THOSE OF OTHER FUNDS (Unaudited) |
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment | |
assuming a hypothetical 5% annualized return for the six months ended June 30, 2010 | |
Expenses paid per $1,000† | $ 1.96 |
Ending value (after expenses) | $1,022.86 |
† Expenses are equal to the fund’s annualized expense ratio of .39%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
June 30, 2010 |
Short-Term | Coupon | Maturity | Principal | ||
Investments—98.9% | Rate (%) | Date | Amount ($) | Value ($) | |
New York—96.2% | |||||
Albany County Airport Authority, | |||||
Airport Revenue, Refunding | |||||
(LOC; Bank of America) | 0.33 | 7/7/10 | 4,100,000 | a | 4,100,000 |
Albany Housing Authority, | |||||
Revenue (Nutgrove Garden | |||||
Apartments Project) (LOC; | |||||
Citizens Bank of Massachusetts) | 0.60 | 7/7/10 | 1,390,000 | a | 1,390,000 |
Albany Industrial Development | |||||
Agency, Civic Facility Revenue | |||||
(Corning Preserve/Hudson | |||||
Riverfront Development | |||||
Project) (LOC; Key Bank) | 0.40 | 7/7/10 | 1,110,000 | a | 1,110,000 |
Belfast Central School District, | |||||
GO Notes, BAN | 1.75 | 5/17/11 | 1,660,000 | 1,669,337 | |
Broome County Industrial | |||||
Development Agency, Civic | |||||
Facility Revenue (James G. | |||||
Johnston Memorial Nursing Home | |||||
Project) (LOC; Banco Santander) | 0.65 | 7/7/10 | 1,620,000 | a | 1,620,000 |
Broome County Industrial | |||||
Development Agency, IDR | |||||
(Parlor City Paper Box | |||||
Company, Inc. Facility) | |||||
(LOC; U.S. Bank NA) | 0.43 | 7/7/10 | 2,710,000 | a | 2,710,000 |
Dutchess County Industrial | |||||
Development Agency, Civic | |||||
Facility Revenue, Refunding | |||||
(Lutheran Center at | |||||
Poughkeepsie, Inc. Project) | |||||
(LOC; Key Bank) | 0.40 | 7/7/10 | 1,700,000 | a | 1,700,000 |
East Rochester Housing Authority, | |||||
Housing Revenue (Park Ridge | |||||
Nursing Home, Inc. Project) | |||||
(LOC; JPMorgan Chase Bank) | 0.31 | 7/7/10 | 4,375,000 | a | 4,375,000 |
Elmira City School District, | |||||
GO Notes, BAN | 1.50 | 6/30/11 | 2,200,000 | 2,207,591 | |
Erie County Fiscal Stability | |||||
Authority, GO Notes, BAN | 1.25 | 7/30/10 | 1,770,000 | 1,770,954 | |
Erie County Industrial Development | |||||
Agency, IDR (Luminescent | |||||
System, Inc. Project) (LOC; | |||||
HSBC Bank USA) | 0.50 | 7/7/10 | 2,945,000 | a | 2,945,000 |
The Fund 7
STATEMENT OF INVESTMENTS (continued)
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
New York (continued) | |||||
Fort Ann, | |||||
GO Notes, BAN | 2.75 | 8/27/10 | 1,237,000 | 1,238,223 | |
Hamburg Central School District, | |||||
GO Notes, RAN | 1.25 | 11/18/10 | 1,600,000 | 1,603,027 | |
Lancaster Industrial Development | |||||
Agency, IDR (Jiffy-Tite | |||||
Company, Inc. Project) | |||||
(LOC; Key Bank) | 0.60 | 7/7/10 | 935,000 | a | 935,000 |
Long Island Power Authority, | |||||
Electric System Subordinated | |||||
Revenue (LOC: Bayerische | |||||
Landesbank and Westdeutsche | |||||
Landesbank) | 0.15 | 7/1/10 | 1,800,000 | a | 1,800,000 |
Long Island Power Authority, | |||||
Electric System Subordinated | |||||
Revenue (LOC; Westdeutsche | |||||
Landesbank) | 0.17 | 7/1/10 | 2,600,000 | a | 2,600,000 |
Mamaroneck Village, | |||||
GO Notes, BAN | 1.00 | 8/18/10 | 1,000,000 | 1,000,847 | |
Metropolitan Transportation | |||||
Authority, RAN | 2.00 | 12/31/10 | 3,000,000 | 3,024,176 | |
Metropolitan Transportation | |||||
Authority, Transportation | |||||
Revenue (LOC; Landesbank | |||||
Hessen-Thuringen Girozentrale) | 0.14 | 7/1/10 | 3,800,000 | a | 3,800,000 |
Metropolitan Transportation | |||||
Authority, Transportation | |||||
Revenue, Refunding (Insured; | |||||
Assured Guaranty Municipal | |||||
Corp. and Liquidity Facility; | |||||
Westdeutsche Landesbank) | 0.33 | 7/7/10 | 15,500,000 | a | 15,500,000 |
Monroe County Industrial | |||||
Development Agency, Civic | |||||
Facility Revenue (YMCA of | |||||
Greater Rochester Project) | |||||
(LOC; M&T Bank) | 0.36 | 7/7/10 | 2,400,000 | a | 2,400,000 |
Monroe County Industrial | |||||
Development Agency, Civic | |||||
Facility Revenue (YMCA of | |||||
Greater Rochester Project) | |||||
(LOC; M&T Bank) | 0.36 | 7/7/10 | 5,040,000 | a | 5,040,000 |
8
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
New York (continued) | |||||
Monroe County Industrial | |||||
Development Agency, IDR | |||||
(Mercury Print Productions, | |||||
Inc. Facility) (LOC; M&T Bank) | 1.35 | 7/7/10 | 105,000 | a | 105,000 |
Nassau County Industrial | |||||
Development Agency, Civic | |||||
Facility Revenue (North Shore | |||||
Hebrew Academy High School | |||||
Project) (LOC; Banco Santander) | 0.61 | 7/7/10 | 4,480,000 | a | 4,480,000 |
Nassau County Industrial | |||||
Development Agency, Housing | |||||
Revenue (Rockville Centre | |||||
Housing Associates, L.P. | |||||
Project) (LOC; M&T Bank) | 0.41 | 7/7/10 | 8,000,000 | a | 8,000,000 |
New York City, | |||||
GO Notes (Liquidity Facility; | |||||
Allied Irish Banks) | 0.95 | 7/1/10 | 10,350,000 | a | 10,350,000 |
New York City, | |||||
GO Notes (Liquidity Facility; | |||||
Wachovia Bank) | 0.10 | 7/1/10 | 2,200,000 | a | 2,200,000 |
New York City, | |||||
GO Notes (LOC; Bank of America) | 0.24 | 7/7/10 | 12,700,000 | a | 12,700,000 |
New York City, | |||||
GO Notes (LOC; Bayerische | |||||
Landesbank) | 0.13 | 7/1/10 | 1,500,000 | a | 1,500,000 |
New York City, | |||||
GO Notes (LOC; JPMorgan | |||||
Chase Bank) | 0.13 | 7/1/10 | 1,500,000 | a | 1,500,000 |
New York City Capital Resource | |||||
Corporation, Revenue (Loan | |||||
Enhanced Assistance Program) | |||||
(LOC; Bank of America) | 0.25 | 7/7/10 | 2,000,000 | a | 2,000,000 |
New York City Housing Development | |||||
Corporation, MFHR (Liquidity | |||||
Facility; Citibank NA) | 0.34 | 7/7/10 | 3,000,000 | a,b | 3,000,000 |
New York City Industrial | |||||
Development Agency, | |||||
IDR (Novelty Crystal | |||||
Corporation Project) | |||||
(LOC; Commerce Bank NA) | 0.51 | 7/7/10 | 3,385,000 | a | 3,385,000 |
The Fund 9
STATEMENT OF INVESTMENTS (continued)
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
New York (continued) | |||||
New York City Industrial | |||||
Development Agency, IDR | |||||
(Super-Tek Products, Inc. | |||||
Project) (LOC; Citibank NA) | 0.51 | 7/7/10 | 4,615,000 | a | 4,615,000 |
New York City Municipal Water | |||||
Finance Authority, CP (Liquidity | |||||
Facility: Bayerische Landesbank | |||||
and Westdeutsche Landesbank) | 0.41 | 7/6/10 | 2,000,000 | 2,000,000 | |
New York City Transitional Finance | |||||
Authority, Revenue (New York | |||||
City Recovery) (Liquidity | |||||
Facility; Landesbank | |||||
Hessen-Thuringen Girozentrale) | 0.13 | 7/1/10 | 2,000,000 | a | 2,000,000 |
New York Liberty Development | |||||
Corporation, Multi-Modal | |||||
Liberty Revenue (World Trade | |||||
Center Project) | 0.50 | 1/18/11 | 8,000,000 | 8,000,000 | |
New York Local Government | |||||
Assistance Corporation, GO | |||||
Notes (LOC: Bayerische Landesbank | |||||
and Westdeutsche Landesbank) | 0.29 | 7/7/10 | 6,325,000 | a | 6,325,000 |
New York State Dormitory | |||||
Authority, Consolidated Service | |||||
Contract Revenue, Refunding | 1.50 | 7/1/10 | 2,505,000 | 2,505,000 | |
New York State Dormitory | |||||
Authority, Revenue (Mount | |||||
Saint Mary College) (LOC; | |||||
JPMorgan Chase Bank) | 0.33 | 7/7/10 | 8,700,000 | a | 8,700,000 |
New York State Dormitory | |||||
Authority, Revenue (Park Ridge | |||||
Hospital, Inc.) (LOC; JPMorgan | |||||
Chase Bank) | 0.31 | 7/7/10 | 7,225,000 | a | 7,225,000 |
New York State Housing Finance | |||||
Agency, Housing Revenue | |||||
(Baisley Park Gardens) | |||||
(LOC; Citibank NA) | 0.27 | 7/7/10 | 4,700,000 | a | 4,700,000 |
New York State Housing Finance | |||||
Agency, Housing Revenue | |||||
(Gateway to New Cassel Project) | |||||
(LOC; JPMorgan Chase Bank) | 0.30 | 7/7/10 | 3,800,000 | a | 3,800,000 |
10
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
New York (continued) | |||||
Newburgh Industrial Development | |||||
Agency, Civic Facility Revenue | |||||
(Community Development | |||||
Properties Dubois Street II, | |||||
Inc. Project) (LOC; Key Bank) | 0.40 | 7/7/10 | 9,990,000 | a | 9,990,000 |
Otsego County Industrial | |||||
Development Agency, Civic | |||||
Facility Revenue (Noonan | |||||
Community Service Corporation | |||||
Project) (LOC; FHLB) | 0.37 | 7/7/10 | 1,685,000 | a | 1,685,000 |
Otsego County Industrial | |||||
Development Agency, Civic | |||||
Facility Revenue (Saint James | |||||
Retirement Community Project) | |||||
(LOC; M&T Bank) | 0.36 | 7/7/10 | 1,940,000 | a | 1,940,000 |
Port Authority of New York and | |||||
New Jersey, Equipment Notes | 0.37 | 7/7/10 | 4,000,000 | a | 4,000,000 |
Ravena-Coeymans-Selkirk Central | |||||
School District, GO Notes, RAN | 1.00 | 10/15/10 | 1,240,000 | 1,240,889 | |
Rockland County Industrial | |||||
Development Agency, IDR | |||||
(Intercos America, Inc. | |||||
Project) (LOC; HSBC Bank USA) | 0.50 | 7/7/10 | 3,200,000 | a | 3,200,000 |
Rockland County Industrial | |||||
Development Authority, Revenue | |||||
(Northern Manor Multicare | |||||
Center, Inc. Project) | |||||
(LOC; M&T Bank) | 0.41 | 7/7/10 | 2,870,000 | a | 2,870,000 |
Saint Lawrence County Industrial | |||||
Development Agency, | |||||
Civic Facility Revenue | |||||
(Canton-Potsdam Hospital | |||||
Project) (LOC; Key Bank) | 0.40 | 7/7/10 | 9,945,000 | a | 9,945,000 |
Schenectady, | |||||
GO Notes, BAN | 1.50 | 5/20/11 | 5,000,000 | 5,010,872 | |
South Jefferson Central School | |||||
District, GO Notes, BAN | 1.50 | 7/2/10 | 1,000,000 | 1,000,022 | |
Sullivan County, | |||||
GO Notes, BAN | 1.50 | 3/10/11 | 2,295,000 | 2,306,008 |
The Fund 11
STATEMENT OF INVESTMENTS (continued)
Short-Term | Coupon | Maturity | Principal | ||
Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
New York (continued) | |||||
Susquehanna Valley Central School | |||||
District, GO Notes, BAN | 1.50 | 7/30/10 | 1,000,000 | 1,000,635 | |
Tompkins County Industrial | |||||
Development Agency, Civic | |||||
Facility Revenue (Tompkins | |||||
Cortland Community College | |||||
Foundation, Inc. Project) | |||||
(LOC; Citizens Bank of | |||||
Massachusetts) | 0.49 | 7/7/10 | 3,520,000 | a | 3,520,000 |
Triborough Bridge and Tunnel | |||||
Authority, General Revenue | |||||
(Liquidity Facility; Dexia | |||||
Credit Locale) | 0.28 | 7/7/10 | 1,000,000 | a | 1,000,000 |
Westchester County Health Care | |||||
Corporation, CP (Liquidity | |||||
Facility; JP Morgan Chase Bank | |||||
and LOC; Westchester County) | 0.43 | 7/8/10 | 1,000,000 | 1,000,000 | |
U.S. Related—2.7% | |||||
Puerto Rico Industrial, Tourist, | |||||
Educational, Medical and | |||||
Environmental Control | |||||
Facilities Financing Authority, | |||||
Environmental Control Facilities | |||||
Revenue (Bristol-Myers Squibb | |||||
Company Project) | 0.41 | 7/7/10 | 4,400,000 | a | 4,400,000 |
Puerto Rico Sales Tax Financing | |||||
Corporation, Sales Tax Revenue | |||||
(Liquidity Facility; Citibank NA) | 0.33 | 7/7/10 | 1,550,000 | a,b | 1,550,000 |
Total Investments (cost $219,287,581) | 98.9% | 219,287,581 | |||
Cash and Receivables (Net) | 1.1% | 2,334,424 | |||
Net Assets | 100.0% | 221,622,005 |
a Variable rate demand note—rate shown is the interest rate in effect at June 30, 2010. Maturity date represents the |
next demand date, or the ultimate maturity date if earlier. |
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 June 30, 2010, these securities |
amounted to $4,550,000 or 2.1% of net assets. |
12
Summary of Abbreviations | |||
ABAG | Association of Bay Area Governments | ACA | American Capital Access |
AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
AMBAC | American Municipal Bond | ARRN | Adjustable Rate Receipt Notes |
Assurance Corporation | |||
BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
CP | Commercial Paper | EDR | Economic Development Revenue |
EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
Company | |||
FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
Corporation | Mortgage Association | ||
GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
GNMA | Government National | GO | General Obligation |
Mortgage Association | |||
HR | Hospital Revenue | IDB | Industrial Development Board |
IDC | Industrial Development Corporation | IDR | Industrial Development Revenue |
LOC | Letter of Credit | LOR | Limited Obligation Revenue |
LR | Lease Revenue | MFHR | Multi-Family Housing Revenue |
MFMR | Multi-Family Mortgage Revenue | PCR | Pollution Control Revenue |
PILOT | Payment in Lieu of Taxes | PUTTERS Puttable Tax-Exempt Receipts | |
RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
RAW | Revenue Anticipation Warrants | RRR | Resources Recovery Revenue |
SAAN | State Aid Anticipation Notes | SBPA | Standby Bond Purchase Agreement |
SFHR | Single Family Housing Revenue | SFMR | Single Family Mortgage Revenue |
SONYMA | State of New York Mortgage Agency | SWDR | Solid Waste Disposal Revenue |
TAN | Tax Anticipation Notes | TAW | Tax Anticipation Warrants |
TRAN | Tax and Revenue Anticipation Notes | XLCA | XL Capital Assurance |
The Fund 13
STATEMENT OF INVESTMENTS (continued)
Summary of Combined Ratings (Unaudited) | |||||
Fitch | or | Moody’s | or | Standard & Poor’s | Value (%)† |
F1+,F1 | VMIG1,MIG1,P1 | SP1+,SP1,A1+,A1 | 84.4 | ||
AAA,AA,Ac | Aaa,Aa,Ac | AAA,AA,Ac | 3.1 | ||
Not Ratedd | Not Ratedd | Not Ratedd | 12.5 | ||
100.0 |
† | Based on total investments. |
c | Notes which are not F, MIG and SP rated are represented by bond ratings of the issuers. |
d | 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. |
14
STATEMENT OF ASSETS AND LIABILITIES |
June 30, 2010 |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments | 219,287,581 | 219,287,581 |
Cash | 3,351,745 | |
Interest receivable | 198,234 | |
222,837,560 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 2 | 84,990 | |
Dividend payable | 4,091 | |
Payable for shares of Beneficial Interest redeemed | 1,126,474 | |
1,215,555 | ||
Net Assets ($) | 221,622,005 | |
Composition of Net Assets ($): | ||
Paid-in capital | 221,622,005 | |
Net Assets ($) | 221,622,005 | |
Shares Outstanding | ||
(unlimited number of shares of Beneficial Interest authorized) | 221,622,015 | |
Net Asset Value, offering and redemption price per share ($) | 1.00 | |
See notes to financial statements. |
The Fund 15
STATEMENT OF OPERATIONS |
Year Ended June 30, 2010 |
Investment Income ($): | |
Interest Income | 1,378,569 |
Expenses: | |
Management fee—Note 2 | 1,238,887 |
Treasury insurance expense—Note 1(f) | 29,437 |
Trustees’ fees—Note 2 | 18,106 |
Total Expenses | 1,286,430 |
Less—reduction in expenses due to undertaking—Note 2 | (96,065) |
Less—Trustees’ fees reimbursed by the Manager—Note 2 | (18,106) |
Net Expenses | 1,172,259 |
Investment Income—Net, representing net increase | |
in net assets resulting from operations | 206,310 |
See notes to financial statements. |
16
STATEMENT OF CHANGES IN NET ASSETS
Year Ended June 30, | ||
2010 | 2009 | |
Operations ($): | ||
Investment Income-Net, representing net increase | ||
in net assets resulting from operations | 206,310 | 4,422,312 |
Dividends to Shareholders from ($): | ||
Investment income—net | (206,310) | (4,446,801) |
Beneficial Interest Transactions ($1.00 per share): | ||
Net proceeds from shares sold | 216,031,548 | 300,382,134 |
Dividends reinvested | 155,963 | 3,316,910 |
Cost of shares redeemed | (298,004,079) | (364,356,807) |
Increase (Decrease) in Net Assets from | ||
Beneficial Interest Transactions | (81,816,568) | (60,657,763) |
Total Increase (Decrease) in Net Assets | (81,816,568) | (60,682,252) |
Net Assets ($): | ||
Beginning of Period | 303,438,573 | 364,120,825 |
End of Period | 221,622,005 | 303,438,573 |
See notes to financial statements. |
The Fund 17
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.
Year Ended June 30, | |||||
2010 | 2009 | 2008 | 2007 | 2006 | |
Per Share Data ($): | |||||
Net asset value, beginning of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Investment Operations: | |||||
Investment income—net | .001 | .013 | .026 | .032 | .025 |
Distributions: | |||||
Dividends from investment income—net | (.001) | (.013) | (.026) | (.032) | (.025) |
Net asset value, end of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Total Return (%) | .07 | 1.35 | 2.67 | 3.25 | 2.52 |
Ratios/Supplemental Data (%): | |||||
Ratio of total expenses | |||||
to average net assets | .47 | .49 | .46 | .45 | .45 |
Ratio of net expenses | |||||
to average net assets | .43 | .48 | .45 | .45 | .45 |
Ratio of net investment income | |||||
to average net assets | .07 | 1.37 | 2.61 | 3.21 | 2.49 |
Net Assets, end of period ($ x 1,000) | 221,622 | 303,439 | 364,121 | 321,893 | 286,993 |
See notes to financial statements. |
18
NOTES TO FINANCIAL STATEMENTS
NOTE 1—Significant Accounting Policies:
Dreyfus BASIC New York Municipal Money Market Fund (the “fund”) is a separate non-diversified series of The Dreyfus/Laurel Tax-Free Municipal Funds (the “Trust”) which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company, currently offering three series including the fund.The fund’s investment objective is to provide a high level of current income exempt from federal, New York state and New York city personal income taxes to the extent consistent with the preservation of capital and the maintenance of liquidity. The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.
It is the fund’s policy to maintain a continuous net asset value per share of $1.00 for the fund; the fund has adopted certain investment, portfolio valuation and dividend and distribution policies to enable it to do so. There is no assurance, however, that the fund will be able to maintain a stable net asset value per share of $1.00.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) has become the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The ASC has superseded all existing non-SEC accounting and reporting standards. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (continued)
(a) Portfolio valuation: Investments in securities are valued at amortized cost in accordance with Rule 2a-7 of the Act, which has been determined by the Board of Trustees to represent the fair value of the fund’s investments.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the Act. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2.
20
The following is a summary of the inputs used as of June 30, 2010 in valuing the fund’s investments:
Short-Term | |
Valuation Inputs | Investments ($)† |
Level 1—Unadjusted Quoted Prices | — |
Level 2—Other Significant Observable Inputs | 219,287,581 |
Level 3—Significant Unobservable Inputs | — |
Total | 219,287,581 |
† See Statement of Investments for additional detailed categorizations. |
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Cost of investments represents amortized cost.
(c) Concentration of risk: The fund follows an investment policy of investing primarily in municipal obligations of one state. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the fund.
All cash balances were maintained with the Custodian,The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus.
(d) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net; such dividends are paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended, (the “Code”).To the extent that net realized capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains.
(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
The Fund 21
NOTES TO FINANCIAL STATEMENTS (continued)
Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended June 30, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the four-year period ended June 30, 2010 remains subject to examination by the Internal Revenue Service and state taxing authorities.
At June 30, 2010, the components of accumulated earnings on a tax basis were substantially the same as for financial reporting purposes.
The tax character of distributions paid to shareholders during the fiscal periods ended June 30, 2010 and June 30, 2009 were as follows: tax-exempt income $206,310 and $4,422,312 and ordinary income $0 and $24,489, respectively.
At June 30, 2010, 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).
(f) Treasury’s Temporary Guarantee Program: The fund entered into a Guarantee Agreement with the United States Department of the Treasury (the “Treasury”) to participate in the Treasury’s Temporary Guarantee Program for Money Market Funds (the “Program”).
Under the Program, the Treasury guaranteed the share price of shares of the fund held by shareholders as of September 19, 2008 at $1.00 per share if the fund’s net asset value per share fell below $0.995 (a “Guarantee Event”) and the fund liquidated. Recovery under the Program was subject to certain conditions and limitations.
Fund shares acquired by investors after September 19, 2008 that increased the number of fund shares the investor held at the close of
22
business on September 19, 2008 were not eligible for protection under the Program. In addition, fund shares acquired by investors who did not hold fund shares at the close of business on September 19, 2008 were not eligible for protection under the Program.
The Program, which was originally set to expire on December 18, 2008, was initially extended by the Treasury until April 30, 2009 and had been further extended by the Treasury until September 18, 2009, at which time the Secretary of the Treasury terminated the Program.As such, the fund is no longer eligible for protection under the Program. Participation in the initial term and the two extended periods of the Program required payments to the Treasury in the amounts of .01%, .015% and .015%, respectively, of the fund’s shares outstanding as of September 19, 2008 (valued at $1.00 per share).This expense was borne by the fund without regard to any expense limitation in effect.
NOTE 2—Investment Management Fee and Other Transactions with Affiliates:
Pursuant to an investment management agreement with the Manager, the Manager provides or arranges for one or more third parties and/or affiliates to provide investment advisory, administrative, custody, fund accounting and transfer agency services to the fund.The Manager also directs the investments of the fund in accordance with its investment objective, policies and limitations. For these services, the fund is contractually obligated to pay the Manager a fee, calculated daily and paid monthly, at the annual rate of .45% of the value of the fund’s average daily net assets. Out of its fee, the Manager pays all of the expenses of the fund except brokerage fees, taxes, interest, fees and expenses of non-interested Trustees (including counsel fees) and extraordinary expenses. In addition, the Manager is required to reduce its fee in an amount equal to the fund’s allocable portion of fees and expenses of the non-interested Trustees (including counsel fees). Prior to January 1, 2010, each Board member received $45,000 per year, plus $6,000 for each joint Board meeting of the Trust, The Dreyfus/Laurel Funds Trust, The
The Fund 23
NOTES TO FINANCIAL STATEMENTS (continued)
Dreyfus/Laurel Funds, Inc., Dreyfus Investment Funds and Dreyfus Funds,Inc.(collectively,the“Board Group Open-End Funds”) attended, $2,000 for separate in-person committee meetings attended which were not held in conjunction with a regularly scheduled Board meeting and $1,500 for Board meetings and separate committee meetings attended that were conducted by telephone. Effective January 1, 2010, the Board Group Open-End Funds pay each Board member who is not an “interested person” of the Trust (as defined in the Act) $60,000 per annum, plus $7,000 per joint Board Group Open-End Funds Board meeting attended, $2,500 for separate in-person committee meetings attended which are not held in conjunction with a regularly scheduled Board meeting and $2,000 for Board meetings and separate committee meetings attended that are conducted by telephone.The Board Group Open-End Funds also reimburse each Board member who is not an “interested person” of the Trust (as defined in the Act) for travel and out-of-pocket expenses.With respect to Board meetings, the Chairman of the Board receives an additional 25% of such compensation (with the exception of reimbursable amounts). With respect to compensation committee meetings prior to January 1, 2010, the Chair of the compensation committee received $900 per compensation committee meeting. Effective January 1, 2010, the Chair of each of the Board’s committees, unless the Chair also serves as Chair of the Board, receives $1,350 per applicable committee meeting. In the event that there is an in-person joint committee meeting or a joint telephone meeting of the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund, the $2,000 or $1,500 fee (prior to January 1, 2010) or the $2,500 or $2,000 fee (effective January 1, 2010), as applicable, is allocated between the Board Group Open-End Funds and Dreyfus High Yield Strategies Fund.The Trust’s portion of these fees and expenses are charged and allocated to each series based on net assets.Amounts required to be paid by theTrust directly to the non-interested Trustees, that would be applied to offset a portion of the management fee payable to the Manager, are in fact paid directly by the Manager to the non-interested Trustees.
24
The Manager has undertaken to reimburse expenses in the event that current yields drop below a certain level. Such limitations may fluctuate daily, is voluntary and not contractual and may be terminated at any time. The reduction in expenses, pursuant to the undertaking, amounted to $96,065 during the period ended June 30, 2010.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $84,990.
NOTE 3—Securities Transactions:
The fund is permitted to purchase or sell securities from or to certain related affiliated funds under specified conditions outlined in procedures adopted by the Board ofTrustees.The procedures have been designed to ensure that any purchase or sale of securities by the fund from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment adviser), commonTrustee and/or common officers, complies with Rule 17a-7 of the Act. During the period ended June 30, 2010, the fund engaged in purchases and sales of securities pursuant to Rule 17a-7 of the Act amounting to $102,075,000 and $124,550,000, respectively.
The Fund 25
REPORT OF INDEPENDENT REGISTERED |
PUBLIC ACCOUNTING FIRM |
The Board of Trustees and Shareholders The Dreyfus/Laurel Tax-Free Municipal Funds
We have audited the accompanying statement of assets and liabilities of Dreyfus BASIC New York Municipal Money Market Fund (the “Fund”), a series of The Dreyfus/Laurel Tax-Free Municipal Funds, including the statement of investments, as of June 30, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. 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 the standards of the Public Company Accounting Oversight Board (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. Our procedures included confirmation of securities owned as of June 30, 2010, by correspondence with the custodian.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 BASIC New York Municipal Money Market Fund of The Dreyfus/Laurel Tax-Free Municipal Funds as of June 30, 2010, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
August 25, 2010
26
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 June 30, 2010 as “exempt-interest dividends” (not subject to regular federal and, for individuals who are New York residents, New York state and New York city personal income taxes).Where required by federal tax law rules, shareholders will receive notification of their portion of the fund’s exempt-interest dividends paid for the 2010 calendar year on Form 1099-INT, which will be mailed by early 2011.
The Fund 27
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
FUND’S INVESTMENT MANAGEMENT AGREEMENT (Unaudited) |
At a meeting of the fund’s Board of Trustees held on February 9, 2010, the Board considered the re-approval of the fund’s Investment Management Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and administrative services. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent and Quality of Services Provided to the Fund.The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information.The Board also discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement. The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund, as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund.The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.
The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting and compliance infrastructure.
28
Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and comparisons to a group of retail, no-load NewYork tax-exempt money market funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional New York tax-exempt money market funds (the “Performance Universe”) selected and provided by Lipper, Inc., an independent provider of investment company data.The Board was provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe, as well as the Expense Group and Expense Universe (discussed below).The Board members discussed the results of the comparisons for various periods ended December 31, 2009, and noted that the fund’s total return performance was above the Performance Group and Performance Universe medians for each of the periods.
The Board members also discussed the fund’s contractual and actual management fees and expense ratio and reviewed the range of management fees and expense ratios of a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”), each selected and provided by Lipper. Noting the fund’s “unitary fee” structure, the Board noted that the fund’s contractual management fee was below the Expense Group median, the fund’s actual management fee was above the Expense Group and Expense Universe medians and the fund’s expense ratio was below the Expense Group and Expense Universe medians.
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category as the fund (the “Similar Funds”).They also noted that there were no other accounts managed by the Manager or its affiliates with similar invest-
The Fund 29
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S |
INVESTMENT MANAGEMENT AGREEMENT (Unaudited) (continued) |
ment objectives, policies and strategies as the fund.The Board analyzed differences in fees paid to the Manager and discussed the relationship of the fees paid in light of the services provided, noting the fund’s “unitary fee” structure.The Board members considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the fund’s management fee.
Analysis of Profitability and Economies of Scale.The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also was informed that the methodology had also been reviewed by an independent registered public accounting firm which,like the con-sultant,found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund. The Board members also considered potential benefits to the Manager from acting as investment adviser and noted there were no soft dollar arrangements with respect to trading the fund’s portfolio.
It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent and quality of such services, and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It also was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager.
30
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Management Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent and quality of the services provided by the Manager are adequate and appropriate.
The Board was satisfied with the fund’s relative performance.
The Board concluded that the fee paid by the fund to the Manager was reasonable in light of the services provided, comparative per- formance, expense and management fee information, costs of the services provided and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.
The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in con- nection with the management fee rate charged to the fund and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.
The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Management Agreement was in the best interests of the fund and its shareholders.
The Fund 31
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OFFICERS OF THE FUND (Unaudited)
BRADLEY J. SKAPYAK, President since January 2010.
Chief Operating Officer and a director of the Manager since June 2009. From April 2003 to June 2009, Mr. Skapyak was the head of the Investment Accounting and Support Department of the Manager. He is an officer of 76 investment companies (comprised of 170 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since February 1988.
PHILLIP N. MAISANO, Executive Vice President since July 2007.
Chief Investment Officer,Vice Chair and a director of the Manager, and an officer of 76 investment companies (comprised of 170 portfolios) managed by the Manager. Mr. Maisano also is an officer and/or Board member of certain other investment management subsidiaries of The Bank of New York Mellon Corporation, each of which is an affiliate of the Manager. He is 63 years old and has been an employee of the Manager since November 2006. Prior to joining the Manager, Mr. Maisano served as Chairman and Chief Executive Officer of EACM Advisors, an affiliate of the Manager, since August 2004.
MICHAEL A. ROSENBERG, Vice President and Secretary since August 2005.
Assistant General Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 50 years old and has been an employee of the Manager since October 1991.
KIESHA ASTWOOD, Vice President and Assistant Secretary since January 2010.
Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 37 years old and has been an employee of the Manager since July 1995.
JAMES BITETTO, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon and Secretary of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since December 1996.
JONI LACKS CHARATAN, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 54 years old and has been an employee of the Manager since October 1988.
JOSEPH M. CHIOFFI, Vice President and Assistant Secretary since August 2005.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 48 years old and has been an employee of the Manager since June 2000.
KATHLEEN DENICHOLAS, Vice President and Assistant Secretary since January 2010.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 35 years old and has been an employee of the Manager since February 2001.
JANETTE E. FARRAGHER, Vice President and Assistant Secretary since August 2005.
Assistant General Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 47 years old and has been an employee of the Manager since February 1984.
34
JOHN B. HAMMALIAN, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 46 years old and has been an employee of the Manager since February 1991.
M. CRISTINA MEISER, Vice President and Assistant Secretary since January 2010.
Senior Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. She is 40 years old and has been an employee of the Manager since August 2001.
ROBERT R. MULLERY, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 58 years old and has been an employee of the Manager since May 1986.
JEFF PRUSNOFSKY, Vice President and Assistant Secretary since August 2005.
Managing Counsel of BNY Mellon, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 45 years old and has been an employee of the Manager since October 1990.
JAMES WINDELS, Treasurer since November 2001.
Director – Mutual Fund Accounting of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since April 1985.
RICHARD CASSARO, Assistant Treasurer since January 2008.
Senior Accounting Manager – Money Market and Municipal Bond Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 51 years old and has been an employee of the Manager since September 1982.
GAVIN C. REILLY, Assistant Treasurer since December 2005.
Tax Manager of the Investment Accounting and Support Department of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 41 years old and has been an employee of the Manager since April 1991.
ROBERT ROBOL, Assistant Treasurer since August 2003.
Senior Accounting Manager – Fixed Income Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 46 years old and has been an employee of the Manager since October 1988.
ROBERT SALVIOLO, Assistant Treasurer since July 2007.
Senior Accounting Manager – Equity Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since June 1989.
The Fund 35
OFFICERS OF THE FUND (Unaudited) (continued)
ROBERT SVAGNA, Assistant Treasurer since August 2005.
Senior Accounting Manager – Equity Funds of the Manager, and an officer of 77 investment companies (comprised of 193 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.
Chief Compliance Officer of the Manager and The Dreyfus Family of Funds (77 investment companies, comprised of 193 portfolios). From November 2001 through March 2004, Mr. Connolly was first Vice-President, Mutual Fund Servicing for Mellon Global Securities Services. In that capacity, Mr. Connolly was responsible for managing Mellon’s Custody, Fund Accounting and Fund Administration services to third-party mutual fund clients. He is 53 years old and has served in various capacities with the Manager since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.
NATALIA GRIBAS, Anti-Money Laundering Compliance Officer since July 2010.
Anti-Money Laundering Compliance Officer of the Distributor, and the Anti-Money Laundering Compliance Officer of 73 investment companies (comprised of 189 portfolios) managed by the Manager. She is 40 years old and has been an employee of the Distributor since September 2008.
36
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Item 2. Code of Ethics.
The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. There have been no amendments to, or waivers in connection with, the Code of Ethics during the period covered by this Report.
Item 3. Audit Committee Financial Expert.
The Registrant's Board has determined that Joseph S. DiMartino, a member of the Audit Committee of the Board, is an audit committee financial expert as defined by the Securities and Exchange Commission (the "SEC"). Joseph S. DiMartino is "independent" as defined by the SEC for purposes of audit committee financial expert determinations.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant (the "Auditor") for the audit of the Registrant's annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $78,330 in 2009 and $78,330 in 2010.
(b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $6,645 in 2009 and $6,780 in 2010. These services consisted of one or more of the following: (i) agreed upon procedures related to compliance with Internal Revenue Code section 817(h), (ii) security counts required by Rule 17f-2 under the Investment Company Act of 1940, as amended, (iii) advisory services as to the accounting or disclosure treatment of Registrant transactions or events and (iv) advisory services to the accounting or disclosure treatment of the actual or potential impact to the Registrant of final or proposed rules, standards or interpretations by the Securities and Exchange Commission, the Financial Accounting Standards Boards or other regulatory or standard-setting bodies.
The aggregate fees billed in the Reporting Periods for non-audit assurance and related services by the Auditor to the Registrant's investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant ("Service Affiliates"), that were reasonably related to the performance of the annual audit of the Service Affiliate, which required pre-approval by the Audit Committee were $0 in 2009 and $0 in 2010.
(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning ("Tax Services") were $6,645 in 2009 and $6,780 in 2010. These services consisted of review or preparation of U.S. federal, state, local and excise tax returns. The aggregate fees billed in the Reporting Periods for Tax Services by the Auditor to Service Affiliates which required pre-approval by the Audit Committee were $0 in 2009 and $0 in 2010.
(d) All Other Fees. The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2009 and $0 in 2010.
The aggregate fees billed in the Reporting Periods for Non-Audit Services by the Auditor to Service Affiliates, other than the services reported in paragraphs (b) through (c) of this Item, which required pre-approval by the Audit Committee were $0 in 2009 and $0 in 2010.
(e)(1) Audit Committee Pre-Approval Policies and Procedures. The Registrant's Audit Committee has established policies and procedures (the "Policy") for pre-approval (within specified fee limits) of the Auditor's engagements for non-audit services to the Registrant and Service Affiliates without specific case-by-case consideration. The pre-approved services in the Policy can include pre-approved audit services, pre-approved audit-related services, pre-approved tax services and pre-approved all other services. Pre-approval considerations include whether the proposed services are compatible with maintaining the Auditor's independence. Pre-approvals pursuant to the Policy are considered annually.
(e)(2) Note: None of the services described in paragraphs (b) through (d) of this Item 4 were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) None of the hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal account's full-time, permanent employees.
Non-Audit Fees. The aggregate non-audit fees billed by the Auditor for services rendered to the Registrant, and rendered to Service Affiliates, for the Reporting Periods were $5,2372,392 in 2009 and $5,547,515 in 2010.
Auditor Independence. The Registrant's Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates which were not pre-approved (not requiring pre-approval) is compatible with maintaining the Auditor's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures applicable to Item 10.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics referred to in Item 2.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not applicable.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Dreyfus/Laurel Tax-Free Municipal Funds
By: /s/ Bradley J. Skapyak | |
Bradley J. Skapyak, President
| |
Date: | 08/23/2010 |
| |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. | |
| |
By: /s/ Bradley J. Skapyak | |
Bradley J. Skapyak, President
| |
Date: | 08/23/2010 |
| |
By: /s/ James Windels | |
James Windels Treasurer
| |
Date: | 08/23/2010 |
|
EXHIBIT INDEX
(a)(1) Code of ethics referred to in Item 2.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940. (EX-99.CERT)
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)