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 | 811-3940 |
Strategic Funds, Inc
(Exact name of Registrant as specified in charter)
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
(Address of principal executive offices) (Zip code)
Michael A. Rosenberg, Esq.
200 Park Avenue
New York, New York 10166
(Name and address of agent for service)
Registrant's telephone number, including area code: | (212) 922-6000 |
Date of fiscal year end: | 11/30 |
Date of reporting period: | 5/31/10 |
The following N-CSR relates only to the Registrant’s series listed below and does not affect the other series of the Registrant, which have different fiscal year ends and, therefore, different N-CSR reporting requirements. Separate N-CSR Forms will be filed for these series, as appropriate.
Dreyfus Select Managers Small Cap Value Fund
Dreyfus U.S. Equity Fund
Global Stock Fund
International Stock Fund
FORM N-CSR
Item 1. | Reports to Stockholders. |
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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 |
16 | Statement of Assets and Liabilities |
17 | Statement of Operations |
18 | Statement of Changes in Net Assets |
20 | Financial Highlights |
23 | Notes to Financial Statements |
32 | Information About the Review and Approval of an Additional Sub-Investment Advisory Agreement |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus Select Managers
Small Cap Value Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus Select Managers Small CapValue Fund, covering the six-month period from December 1, 2009, through May 31, 2010.
Psychology historically has played an important role in how investors—especially individual investors—perceive the financial markets and make asset allocation decisions. Unlike the purely rational investor who, in an ideal world, would seek investments that potentially can deliver the best risk/return characteristics, the everyday investor typically has been influenced by emotions. Currently, investors’ emotions appear to be deeply divided, with a large number still seeking low risk investments (such as cash instruments), and others favoring higher risk investments (such as smaller-cap and emerging market stocks). Meanwhile, investment classes in the middle of the risk spectrum seemingly have been largely avoided.
It is important to note that investor sentiment often lags the economic cycle.That’s why we continue to stress the importance of a long-term, well balanced asset allocation strategy that can help cushion the volatility produced by the emotional swings of the financial markets. If you have not revisited your investment portfolio recently, we urge you to speak with your financial advisor about taking advantage of long-term market fundamentals rather than remaining susceptible to the effects of emotional reactions to short-term developments.
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.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
June 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of December 1, 2009, through May 31, 2010, as provided by Keith L. Stransky and Robert B. Mayerick, Portfolio Allocation Managers
Fund and Market Performance Overview
For the six-month period ended May 31,2010,Dreyfus Select Managers Small CapValue Fund’s Class A shares produced a total return of 16.75%, Class C shares returned 16.35% and Class I shares returned 16.86%.1 In comparison, the Russell 2000 Value Index (the “Index”), the fund’s benchmark, achieved a total return of 15.93% for the same period.2 Small-cap stocks generally advanced over the reporting period in the midst of a sustained U.S. economic recovery. Although the market suffered bouts of weakness later in the reporting period, it was not enough to fully offset previous gains.The fund produced returns that were higher than its benchmark, due to the success of the sub-advis ers’ security selection strategies in seven of the benchmark’s ten economic sectors.
The Fund’s Investment Approach
The fund seeks capital appreciation.To pursue its goal, the fund normally invests at least 80% of its assets in the stocks of small-cap companies. The fund uses a “multi-manager” approach by selecting one or more sub-advisers to manage its assets. As the fund’s portfolio allocation managers, we seek sub-advisers that complement one another’s style of investing, consistent with the fund’s investment goal. We monitor and evaluate the performance of the sub-advisers and will recommend to Dreyfus and the fund’s board any changes based on our evaluations.
The fund’s assets currently are allocated among four sub-advisers, each acting independently of one another and using its own methodology to select portfolio investments. Currently 30% of the fund’s assets are allocated to Thompson, Siegel and Walmsley, LLC, which employs a combination of quantitative and qualitative security selection methods based on a four-factor valuation model. Another 30% are allocated to Walthausen & Co., LLC, which uses a proprietary valuation model to identify companies that are trading at a discount to their intrinsic values.Another 30% are allocated to Neuberger Berman Management LLC, which uses fundamental analysis and a bottom-up stock selection process to identify publicly traded small cap companies selling at a
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
material discount to their intrinsic value. The remaining 10% of the fund’s assets are allocated to Riverbridge Partners, LLC, which focuses on companies that are building their earnings power and intrinsic value over long periods of time.
Stocks Encountered Heightened Volatility
The reporting period began in the midst of an economic recovery as improved manufacturing activity and an apparent bottoming of housing prices helped boost confidence among businesses, consumers and investors. However, in the spring of 2010, several developments appeared to threaten the global economic rebound. First, Europe was roiled by a sovereign debt crisis when Greece and other peripheral members of the European Union found themselves unable to finance heavy debt burdens. Meanwhile, robust economic growth in China seemed to spark inflationary pressures,and investors grew worried that remedial measures might dampen growth in Asia. Finally, stubbornly high unemployment and ongoing troubles in domestic housing markets produced economic headwinds in the United States.
Consequently, small-cap stocks generally rallied early in the reporting period, but subsequently gave back a portion of those gains. Still, because small-cap companies tend to have less exposure to international markets, U.S. small-cap stocks produced significantly higher returns than their large-cap counterparts for the reporting period overall.
Industrials Sector Helped Drive Fund Performance
In this volatile environment, the fund’s sub-advisers produced especially strong relative performance, on average, in the economically-sensitive industrials sector.Top industrial performers during the reporting period included jet engine components manufacturer Ladish, which posted a four-fold increase in quarterly earnings compared to the previous year. Welding products maker Thermadyne Holdings gained value after reporting an increase in sales, particularly in the United States. The energy sector also produced strong relative results, with natural gas exploration companies gaining value when concerns intensified regarding deep-water oil drilling.The fund’s top individual performer for the reporting period came from the consumer discretionary sector, where kitchenware producer Lifetime Brands benefited from strong sales amid a revival in consumer demand.
4
Laggards during the reporting period were found primarily in the information technology sector. Wireless and satellite communications equipment provider TeleCommunication Systems encountered government project delays that dampened quarterly earnings. Money transfer services company Euronet Worldwide was hurt by revenue shortfalls and the European sovereign debt crisis.
Finding Opportunities Among Quality Companies
Although the U.S. stock market has largely recovered from the impacts of the 2008 recession and financial crisis, a number of headwinds remain, including uncertainty regarding proposed financial regulatory reform. Therefore, as of the reporting period’s end, we have favored higher-quality companies over more speculative ones, and we have emphasized domestic-oriented companies over those with a substantial presence in international markets. Our sub-advisers have found relatively few stocks meeting these criteria in the financials sector, but we have adopted a more constructive posture with regard to potential growth opportunities in most other market segments. In our judgment, this investment posture helps the fund to weather potential volatility while participating to a significant degree in any gains produced by small-cap stocks.
June 15, 2010
Equity funds are subject generally to market, market sector, market liquidity, issuer and investment | |
style risks, among other factors, to varying degrees, all of which are more fully described in the | |
fund’s prospectus. | |
The prices of small company stocks tend to be more volatile than the prices of large company | |
stocks, mainly because these companies have less established and more volatile earnings histories. | |
They also tend to be less liquid than larger company stocks. | |
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into |
consideration the maximum initial sales charge in the case of Class A shares, or the applicable | |
contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these | |
charges been reflected, returns would have been lower. Past performance is no guarantee of future | |
results. Share price and investment return fluctuate such that upon redemption, fund shares may be | |
worth more or less than their original cost. Return figures provided reflect the absorption of certain | |
fund expenses by The Dreyfus Corporation pursuant to an undertaking in effect through April 1, | |
2011, at which time it may be extended, terminated or modified. Had these expenses not been | |
absorbed, the fund’s returns would have been lower. | |
2 | SOURCE: Bloomberg — Reflects the reinvestment of dividends and, where applicable, capital |
gain distributions.The Russell 2000 Value Index is an unmanaged index, which measures the | |
performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted | |
growth values. Investors cannot invest directly in any index. |
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 Select Managers Small CapValue Fund from December 1, 2009 to May 31, 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 May 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 7.40 | $ 11.49 | $ 6.06 |
Ending value (after expenses) | $1,167.50 | $1,163.50 | $1,168.60 |
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 May 31, 2010 | |||
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.89 | $ 10.70 | $ 5.64 |
Ending value (after expenses) | $1,018.10 | $1,014.31 | $1,019.35 |
Expenses are equal to the fund’s annualized expense ratio of 1.37% for Class A, 2.13% for Class C and 1.12% for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
6
STATEMENT OF INVESTMENTS |
May 31, 2010 (Unaudited) |
Common Stocks—96.8% | Shares | Value ($) |
Consumer Discretionary—14.9% | ||
Aaron’s | 27,950 | 558,441 |
Advance Auto Parts | 23,100 | 1,195,656 |
Ambassadors Group | 29,825 | 348,654 |
Cabela’s | 45,825 a | 788,648 |
Capella Education | 1,682 a | 144,501 |
Carter’s | 34,400 a | 1,051,264 |
Cheesecake Factory | 14,050 a | 358,275 |
Cinemark Holdings | 43,900 | 701,961 |
Cogent | 68,400 a | 610,128 |
Convergys | 37,300 a | 407,316 |
Corinthian Colleges | 68,900 a | 922,571 |
CSS Industries | 34,500 | 651,705 |
Delta Apparel | 6,990 a | 117,781 |
Diebold | 21,400 | 620,172 |
Digital River | 16,300 a | 448,902 |
Dollar Thrifty Automotive Group | 14,300 a | 667,810 |
Drew Industries | 48,900 a | 1,072,866 |
FTI Consulting | 16,000 a | 684,160 |
Gentex | 25,100 | 493,968 |
Grand Canyon Education | 6,150 a | 151,044 |
Gymboree | 17,200 a | 766,776 |
Hawk, Cl. A | 50,200 a | 1,149,078 |
Hillenbrand | 21,500 | 522,235 |
Interval Leisure Group | 70,800 a | 957,216 |
Isle of Capri Casinos | 49,700 a | 495,012 |
Jo-Ann Stores | 1,075 a | 49,106 |
JOS. A. Bank Clothiers | 13,200 a | 800,976 |
Lifetime Brands | 83,200 a | 1,163,136 |
LKQ | 19,650 a | 361,953 |
Lumber Liquidators Holdings | 32,000 a | 944,320 |
Nobel Learning Communities | 45,600 a | 301,416 |
OfficeMax | 36,800 a | 656,144 |
PEP Boys-Manny Moe & Jack | 43,100 | 531,423 |
Polaris Industries | 15,600 | 915,720 |
Rent-A-Center | 35,900 a | 869,498 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Consumer Discretionary (continued) | ||
Ryder System | 26,800 | 1,204,392 |
Sally Beauty Holdings | 110,300 a | 1,037,923 |
Scholastic | 29,200 | 763,580 |
Shuffle Master | 73,300 a | 608,390 |
Shutterfly | 27,200 a | 628,320 |
True Religion Apparel | 32,000 a | 883,520 |
Universal Technical Institute | 5,700 a | 139,935 |
Valassis Communications | 14,500 a | 529,540 |
Warner Music Group | 115,200 a | 699,264 |
28,974,696 | ||
Consumer Staples—3.0% | ||
Andersons | 28,300 | 926,259 |
Constellation Brands, Cl. A | 85,600 a | 1,426,096 |
Cooper | 35,400 | 1,304,844 |
Flowers Foods | 26,300 | 649,873 |
Landec | 136,350 a | 844,007 |
Overhill Farms | 41,025 a | 251,893 |
United Natural Foods | 16,900 a | 524,745 |
5,927,717 | ||
Energy—6.0% | ||
American Oil and Gas | 153,900 a | 991,116 |
Brigham Exploration | 96,000 a | 1,649,280 |
CenterPoint Energy | 63,400 | 863,508 |
Covanta Holding | 57,200 a | 882,596 |
Global Industries | 80,400 a | 419,688 |
GMX Resources | 47,300 a | 322,586 |
Gulfport Energy | 47,950 a | 629,583 |
Holly | 24,100 | 624,190 |
McMoRan Exploration | 37,500 a | 403,125 |
Northern Oil and Gas | 63,600 a | 917,748 |
Ormat Technologies | 15,000 | 427,350 |
Southern Union | 37,700 | 820,729 |
Tetra Technologies | 109,100 a | 1,097,546 |
Venoco | 36,800 a | 532,496 |
Whiting Petroleum | 13,300 a | 1,113,343 |
11,694,884 |
8
Common Stocks (continued) | Shares | Value ($) |
Financial—16.8% | ||
Alterra Capital Holdings | 36,200 | 677,302 |
Altisource Portfolio Solutions | 28,033 a | 751,565 |
American Equity Investment Life Holding | 58,800 | 553,308 |
American Physicians Capital | 18,500 | 573,685 |
Baldwin & Lyons, Cl. B | 5,075 | 114,543 |
BioMed Realty Trust | 43,400 | 738,234 |
Brandywine Realty Trust | 34,150 | 395,798 |
Broadridge Financial Solutions | 39,200 | 749,504 |
Bryn Mawr Bank | 36,800 | 643,264 |
Capstead Mortgage | 52,400 | 598,408 |
Cash America International | 18,500 | 683,575 |
City Holding | 24,000 | 770,160 |
CNA Surety | 35,375 a | 580,857 |
Columbia Banking System | 66,625 | 1,487,736 |
Community Bank System | 34,875 | 796,894 |
Euronet Worldwide | 35,000 a | 460,250 |
First American | 38,800 | 1,320,364 |
First Bancorp/NC | 20,700 | 334,098 |
First Cash Financial Services | 33,400 a | 702,402 |
First Niagara Financial Group | 34,800 | 459,708 |
Global Cash Access Holdings | 55,000 a | 439,450 |
Hallmark Financial Services | 79,400 a | 807,498 |
Horace Mann Educators | 42,100 | 647,077 |
Huntington Bancshares | 94,200 | 580,272 |
IBERIABANK | 13,600 | 747,048 |
LaSalle Hotel Properties | 31,700 | 713,250 |
MGIC Investment | 25,000 a | 234,000 |
National Western Life Insurance | 5,300 | 885,100 |
Net 1 UEPS Technologies | 43,300 | 620,056 |
Ocwen Financial | 221,800 a | 2,697,088 |
Omega Healthcare Investors | 51,600 | 1,024,776 |
Platinum Underwriters Holdings | 16,100 | 592,641 |
Portfolio Recovery Associates | 9,550 a | 653,793 |
PS Business Parks | 13,000 | 700,830 |
RLI | 10,600 | 584,272 |
SLM | 96,100 a | 1,067,671 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Financial (continued) | ||
Sterling Bancorp | 21,000 | 200,970 |
Sterling Bancshares | 185,500 | 992,425 |
Suffolk Bancorp | 14,900 | 469,648 |
SVB Financial Group | 16,100 a | 722,246 |
TCF Financial | 27,300 | 440,622 |
Texas Capital Bancshares | 17,400 a | 317,898 |
Tower Group | 34,300 | 751,513 |
Umpqua Holdings | 42,000 | 527,520 |
Walter Investment Management | 74,500 | 1,214,350 |
Wintrust Financial | 19,900 | 709,634 |
32,733,303 | ||
Health Care—9.5% | ||
Abaxis | 7,950 a | 178,955 |
Allscripts-Misys Healthcare Solutions | 18,800 a | 353,628 |
Amedisys | 15,600 a | 775,632 |
AngioDynamics | 21,000 a | 310,170 |
Beckman Coulter | 14,000 | 804,160 |
Bio-Reference Laboratories | 10,800 a | 246,996 |
Bruker | 21,900 a | 278,896 |
Cambrex | 158,682 a | 661,704 |
Celera | 59,600 a | 421,372 |
Cepheid | 35,186 a | 629,126 |
Charles River Laboratories International | 42,500 a | 1,425,450 |
Chemed | 32,100 | 1,826,811 |
Health Management Associates, Cl. A | 103,000 a | 957,900 |
HealthSpring | 37,600 a | 653,112 |
Hill-Rom Holdings | 35,200 | 981,376 |
IPC The Hospitalist | 7,100 a | 207,817 |
Magellan Health Services | 32,900 a | 1,338,701 |
Mednax | 7,400 a | 418,470 |
MEDTOX Scientific | 5,800 a | 68,962 |
NBTY | 24,500 a | 838,880 |
Neogen | 12,550 a | 322,660 |
PDL BioPharma | 84,100 | 451,617 |
PharMerica | 26,100 a | 428,040 |
Quality Systems | 3,200 | 188,928 |
10
Common Stocks (continued) | Shares | Value ($) |
Health Care (continued) | ||
Questcor Pharmaceuticals | 79,500 a | 752,865 |
SXC Health Solutions | 12,400 a | 912,144 |
Techne | 4,800 | 290,640 |
Theragenics | 179,200 a | 209,664 |
USANA Health Sciences | 2,560 a | 95,872 |
Vital Images | 32,950 a | 452,074 |
West Pharmaceutical Services | 27,500 | 1,082,125 |
18,564,747 | ||
Industrial—13.3% | ||
AAON | 24,675 | 608,979 |
Allegiant Travel | 11,250 | 622,012 |
Beacon Roofing Supply | 18,150 a | 381,150 |
Ceradyne | 28,200 a | 607,710 |
Corporate Executive Board | 16,300 | 527,957 |
CoStar Group | 4,200 a | 171,234 |
Danaos | 65,000 a | 261,950 |
Dresser-Rand Group | 24,400 a | 776,652 |
Dynamex | 6,400 a | 98,432 |
ESCO Technologies | 13,700 | 358,529 |
Forward Air | 6,800 | 186,116 |
Global Power Equipment Group | 157,500 a | 330,750 |
Granite Construction | 9,300 | 275,745 |
Hexcel | 55,975 a | 893,921 |
Hubbell, Cl. B | 20,800 | 887,120 |
Innerworkings | 27,050 a | 187,456 |
John Bean Technologies | 43,400 | 746,046 |
KBR | 36,000 | 791,280 |
Knoll | 52,250 | 772,777 |
L.B. Foster, Cl. A | 9,400 a | 263,858 |
Ladish | 73,100 a | 1,847,968 |
Lydall | 132,400 a | 1,067,144 |
McGrath Rentcorp | 28,700 | 670,432 |
Miller Industries | 12,750 | 191,250 |
Mobile Mini | 8,400 a | 134,400 |
Navistar International | 24,800 a | 1,343,664 |
NN | 111,350 a | 689,256 |
The Fund 11
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Industrial (continued) | ||
Pall | 25,900 | 881,895 |
Resources Connection | 18,000 a | 290,520 |
Ritchie Brothers Auctioneers | 12,950 | 263,921 |
Rollins | 23,500 | 499,610 |
School Specialty | 43,700 a | 939,113 |
Seaspan | 27,100 | 289,699 |
Standex International | 70,500 | 1,833,705 |
Tecumseh Products, Cl. A | 55,600 a | 726,692 |
Teledyne Technologies | 19,900 a | 782,269 |
Textron | 62,900 | 1,300,143 |
Thermadyne Holdings | 120,100 a | 1,363,135 |
Thomas & Betts | 13,550 a | 519,507 |
Xerium Technologies | 32,990 a | 517,613 |
Xerium Technologies (Warrants 5/24/14) | 17,149 a | 0 |
25,901,610 | ||
Information Technology—18.4% | ||
Accelrys | 90,300 a | 620,361 |
American Science & Engineering | 6,100 | 427,427 |
ANSYS | 7,600 a | 332,348 |
ArcSight | 5,636 a | 122,076 |
Arris Group | 140,200 a | 1,537,994 |
Astro-Med | 12,850 | 87,444 |
Brocade Communications Systems | 190,400 a | 1,037,680 |
Cabot Microelectronics | 34,825 a | 1,278,077 |
Cadence Design Systems | 78,600 a | 526,620 |
Cass Information Systems | 6,450 | 204,594 |
Ciena | 40,000 a | 622,800 |
Comtech Telecommunications | 22,800 a | 656,868 |
Comverse Technology | 73,200 a | 625,128 |
Concur Technologies | 3,900 a | 164,970 |
Constant Contact | 6,636 a | 142,409 |
CSG Systems International | 46,700 a | 958,284 |
CTS | 59,800 | 629,694 |
DealerTrack Holdings | 12,600 a | 201,978 |
Digi International | 29,500 a | 272,580 |
DST Systems | 26,200 | 1,003,984 |
12
Common Stocks (continued) | Shares | Value ($) |
Information Technology (continued) | ||
Echelon | 14,500 a | 123,395 |
F5 Networks | 3,558 a | 250,234 |
Fair Isaac | 74,700 | 1,733,040 |
FARO Technologies | 6,650 a | 159,002 |
Forrester Research | 8,600 a | 269,782 |
GeoEye | 20,200 a | 641,754 |
Guidance Software | 13,850 a | 81,438 |
Hutchinson Technology | 188,000 a | 1,028,360 |
Ikanos Communications | 98,600 a | 208,046 |
Intersil, Cl. A | 43,900 | 584,309 |
ION Geophysical | 127,300 a | 691,239 |
Keynote Systems | 52,400 | 519,284 |
MAXIMUS | 5,700 | 341,430 |
MEMC Electronic Materials | 58,900 a | 668,515 |
Mercury Computer Systems | 34,200 a | 401,850 |
MTS Systems | 10,200 | 298,350 |
Multi-Fineline Electronix | 18,100 a | 478,383 |
Napco Security Technologies | 11,250 a | 22,725 |
National Instruments | 15,900 | 511,821 |
NCI, Cl. A | 14,500 a | 318,130 |
Plantronics | 23,300 | 697,602 |
Power Integrations | 9,750 | 331,305 |
RADWARE | 28,700 a | 542,717 |
RF Micro Devices | 119,700 a | 574,560 |
Rudolph Technologies | 7,425 a | 65,934 |
S1 | 241,900 a | 1,482,847 |
Scientific Games, Cl. A | 44,900 a | 458,878 |
SeaChange International | 54,000 a | 450,900 |
Semtech | 21,800 a | 383,898 |
Sierra Wireless | 38,500 | 301,070 |
Standard Microsystems | 33,400 a | 764,192 |
Stratasys | 12,800 a | 297,728 |
Syniverse Holdings | 45,000 a | 890,550 |
Tekelec | 61,500 | 881,603 |
TeleCommunication Systems, Cl. A | 82,600 a | 413,826 |
Telvent GIT | 6,750 | 156,465 |
The Fund 13
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Information Technology (continued) | ||
TIBCO Software | 157,450 a | 1,796,505 |
Ultimate Software Group | 12,300 a | 420,783 |
Ultratech | 38,400 a | 535,296 |
Verint Systems | 64,500 a | 1,669,260 |
Vishay Intertechnology | 218,500 a | 1,977,425 |
35,877,747 | ||
Materials—7.5% | ||
Arch Chemicals | 34,100 | 1,168,266 |
Bemis | 6,150 | 176,382 |
Boise | 112,700 a | 691,978 |
Crown Holdings | 51,900 a | 1,220,169 |
Harry Winston Diamond | 36,500 a | 455,520 |
Horsehead Holding | 59,100 a | 616,413 |
KapStone Paper and Packaging | 52,725 a | 582,611 |
LSB Industries | 34,894 a | 570,517 |
Mercer International | 185,135 a | 907,162 |
Olin | 39,800 | 762,966 |
Omnova Solutions | 146,975 a | 1,180,209 |
Royal Gold | 9,300 | 466,302 |
RTI International Metals | 49,600 a | 1,314,896 |
Schulman (A.) | 24,900 | 553,403 |
Schweitzer-Mauduit International | 15,700 | 866,640 |
Solutia | 152,600 a | 2,311,890 |
Thompson Creek Metals | 65,100 a | 641,235 |
Zoltek | 13,200 a | 126,324 |
14,612,883 | ||
Producer Durables—5.7% | ||
Actuant, Cl. A | 35,400 | 715,788 |
Atlas Air Worldwide Holdings | 18,900 a | 987,903 |
Avery Dennison | 30,300 | 1,035,655 |
Brink’s | 28,400 | 643,828 |
Bristow Group | 21,400 a | 695,500 |
Curtiss-Wright | 18,700 | 619,344 |
EnerSys | 31,600 a | 711,000 |
Force Protection | 106,300 a | 472,504 |
Hawaiian Holdings | 101,800 a | 724,816 |
14
Common Stocks (continued) | Shares | Value ($) | |
Producer Durables (continued) | |||
Intermec | 30,500 a | 336,720 | |
Old Dominion Freight Line | 18,300 a | 652,212 | |
Orbital Sciences | 44,784 a | 710,722 | |
Orion Marine Group | 29,600 a | 449,920 | |
Sealed Air | 52,800 | 1,100,352 | |
Sterling Construction | 21,900 a | 360,036 | |
Team | 26,500 a | 398,560 | |
Tennant | 13,000 | 435,370 | |
11,050,230 | |||
Utilities—1.7% | |||
Cleco | 31,700 | 839,099 | |
CMS Energy | 37,400 | 549,032 | |
OGE Energy | 12,900 | 470,076 | |
Southwest Gas | 20,800 | 616,096 | |
Zoran | 81,400 a | 786,324 | |
3,260,627 | |||
Total Investments (cost $173,698,077) | 96.8% | 188,598,444 | |
Cash and Receivables (Net) | 3.2% | 6,223,735 | |
Net Assets | 100.0% | 194,822,179 | |
a Non-income producing security. | |||
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Information Technology | 18.4 | Energy | 6.0 |
Financial | 16.8 | Producer Durables | 5.7 |
Consumer Discretionary | 14.9 | Consumer Staples | 3.0 |
Industrial | 13.3 | Utilities | 1.7 |
Health Care | 9.5 | ||
Materials | 7.5 | 96.8 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 15
STATEMENT OF ASSETS AND LIABILITIES |
May 31, 2010 (Unaudited) |
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments | 173,698,077 | 188,598,444 | |
Cash | 4,659,337 | ||
Receivable for investment securities sold | 2,739,306 | ||
Receivable for shares of Common Stock subscribed | 318,275 | ||
Dividends receivable | 195,068 | ||
Prepaid expenses | 18,505 | ||
196,528,935 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 228,791 | ||
Payable for investment securities purchased | 1,403,513 | ||
Payable for shares of Common Stock redeemed | 16,990 | ||
Accrued expenses | 57,462 | ||
1,706,756 | |||
Net Assets ($) | 194,822,179 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 175,548,632 | ||
Accumulated distribution in excess of investment income—net | (101,656) | ||
Accumulated net realized gain (loss) on investments | 4,474,836 | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | 14,900,367 | ||
Net Assets ($) | 194,822,179 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 7,457,494 | 888,379 | 186,476,306 |
Shares Outstanding | 419,969 | 50,581 | 10,467,375 |
Net Asset Value Per Share ($) | 17.76 | 17.56 | 17.82 |
See notes to financial statements. |
16
STATEMENT OF OPERATIONS |
Six Months Ended May 31, 2010 (Unaudited) |
Investment Income ($): | |
Income: | |
Cash dividends (net of $389 foreign taxes withheld at source) | 745,694 |
Expenses: | |
Management fee—Note 3(a) | 674,528 |
Custodian fees—Note 3(c) | 89,776 |
Professional fees | 36,469 |
Registration fees | 33,598 |
Prospectus and shareholders’ reports | 16,413 |
Shareholder servicing costs—Note 3(c) | 10,763 |
Directors’ fees and expenses—Note 3(d) | 4,112 |
Distribution fees—Note 3(b) | 2,898 |
Loan commitment fees—Note 2 | 771 |
Miscellaneous | 9,086 |
Total Expenses | 878,414 |
Less—reduction in management fee due to undertaking—Note 3(a) | (27,373) |
Less—reduction in fees due to earnings credits—Note 1(b) | (2) |
Net Expenses | 851,039 |
Investment (Loss)—Net | (105,345) |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | 4,633,563 |
Net unrealized appreciation (depreciation) on investments | 12,146,149 |
Net Realized and Unrealized Gain (Loss) on Investments | 16,779,712 |
Net Increase in Net Assets Resulting from Operations | 16,674,367 |
See notes to financial statements. |
The Fund 17
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
May 31, 2010 | Year Ended | |
(Unaudited) | November 30, 2009 | |
Operations ($): | ||
Investment income (loss)—net | (105,345) | 31,580 |
Net realized gain (loss) on investments | 4,633,563 | 41,230 |
Net unrealized appreciation | ||
(depreciation) on investments | 12,146,149 | 2,754,218 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | 16,674,367 | 2,827,028 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class I Shares | (30,748) | — |
Net realized gain on investments: | ||
Class A Shares | (12,873) | — |
Class C Shares | (1,273) | — |
Class I Shares | (185,975) | — |
Total Dividends | (230,869) | — |
Capital Stock Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 151,521 | 5,163,231 |
Class C Shares | 215,393 | 512,567 |
Class I Shares | 119,450,671 | 62,682,484 |
Dividends reinvested: | ||
Class A Shares | 393 | — |
Class C Shares | 25 | — |
Class I Shares | 93,789 | — |
Cost of shares redeemed: | ||
Class A Shares | (14,338) | — |
Class C Shares | (40,035) | — |
Class I Shares | (11,763,850) | (900,198) |
Increase (Decrease) in Net Assets | ||
from Capital Stock Transactions | 108,093,569 | 67,458,084 |
Total Increase (Decrease) in Net Assets | 124,537,067 | 70,285,112 |
Net Assets ($): | ||
Beginning of Period | 70,285,112 | — |
End of Period | 194,822,179 | 70,285,112 |
Undistributed (distribution in excess of) | ||
investment income—net | (101,656) | 34,437 |
18
Six Months Ended | ||
May 31, 2010 | Year Ended | |
(Unaudited) | November 30, 2009 | |
Capital Share Transactions: | ||
Class A | ||
Shares sold | 8,165 | 412,597 |
Shares issued for dividends reinvested | 24 | — |
Shares redeemed | (817) | — |
Net Increase (Decrease) in Shares Outstanding | 7,372 | 412,597 |
Class C | ||
Shares sold | 11,894 | 40,791 |
Shares issued for dividends reinvested | 1 | — |
Shares redeemed | (2,105) | — |
Net Increase (Decrease) in Shares Outstanding | 9,790 | 40,791 |
Class I | ||
Shares sold | 6,974,628 | 4,211,462 |
Shares issued for dividends reinvested | 5,573 | — |
Shares redeemed | (661,888) | (62,400) |
Net Increase (Decrease) in Shares Outstanding | 6,318,313 | 4,149,062 |
See notes to financial statements. |
The Fund 19
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.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.
Six Months Ended | ||
May 31, 2010 | Year Ended | |
Class A Shares | (Unaudited) | November 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 15.24 | 12.50 |
Investment Operations: | ||
Investment (loss)—netb | (.03) | (.00)c |
Net realized and unrealized | ||
gain (loss) on investments | 2.58 | 2.74 |
Total from Investment Operations | 2.55 | 2.74 |
Distributions: | ||
Dividends from net realized gain on investments | (.03) | — |
Net asset value, end of period | 17.76 | 15.24 |
Total Return (%)d,e | 16.75 | 21.92 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetsf | 1.41 | 2.94 |
Ratio of net expenses to average net assetsf | 1.37 | 1.40 |
Ratio of net investment (loss) | ||
to average net assetsf | (.39) | (.02) |
Portfolio Turnover Ratee | 28.76 | 48.43 |
Net Assets, end of period ($ x 1,000) | 7,457 | 6,289 |
a | From December 17, 2008 (commencement of operations) to November 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Exclusive of sales charge. |
e | Not annualized. |
f | Annualized. |
See notes to financial statements. |
20
Six Months Ended | ||
May 31, 2010 | Year Ended | |
Class C Shares | (Unaudited) | November 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 15.13 | 12.50 |
Investment Operations: | ||
Investment (loss)—netb | (.10) | (.10) |
Net realized and unrealized | ||
gain (loss) on investments | 2.56 | 2.73 |
Total from Investment Operations | 2.46 | 2.63 |
Distributions: | ||
Dividends from net realized gain on investments | (.03) | — |
Net asset value, end of period | 17.56 | 15.13 |
Total Return (%)c,d | 16.35 | 21.04 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | 2.18 | 3.70 |
Ratio of net expenses to average net assetse | 2.13 | 2.15 |
Ratio of net investment (loss) | ||
to average net assetse | (1.15) | (.77) |
Portfolio Turnover Rated | 28.76 | 48.43 |
Net Assets, end of period ($ x 1,000) | 888 | 617 |
a | From December 17, 2008 (commencement of operations) to November 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements. |
The Fund 21
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||
May 31, 2010 | Year Ended | |
Class I Shares | (Unaudited) | November 30, 2009a |
Per Share Data ($): | ||
Net asset value, beginning of period | 15.28 | 12.50 |
Investment Operations: | ||
Investment income (loss)—netb | (.01) | .03 |
Net realized and unrealized | ||
gain (loss) on investments | 2.58 | 2.75 |
Total from Investment Operations | 2.57 | 2.78 |
Distributions: | ||
Dividends from investment income—net | (.00)c | — |
Dividends from net realized gain on investments | (.03) | — |
Total Distributions | (.03) | — |
Net asset value, end of period | 17.82 | 15.28 |
Total Return (%)d | 16.86 | 22.24 |
Ratios/Supplemental Data (%): | ||
Ratio of total expenses to average net assetse | 1.15 | 1.91 |
Ratio of net expenses to average net assetse | 1.12 | 1.15 |
Ratio of net investment income | ||
(loss) to average net assetse | (.12) | .26 |
Portfolio Turnover Rated | 28.76 | 48.43 |
Net Assets, end of period ($ x 1,000) | 186,476 | 63,379 |
a | From December 17, 2008 (commencement of operations) to November 30, 2009. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements. |
22
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus Select Managers Small Cap Value Fund (the “fund”) is a separate diversified series of Strategic Funds, Inc. (the “Company”) 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 eleven series, including the fund. The fund’s investment objective seeks capital appreciation.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary ofThe Bank of NewYork Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. EACM Advisors LLC (“EACM”), a subsidiary of BNY Mellon and an affiliate of Dreyfus, serves as the fund’s portfolio allocation manager. Thompson, Seigel and Walmsley, LLC (“TS&W”), Walthausen & Co., LLC (“Walthausen”), Riverbridge Partners, L LC (“Riverbridge”), and Neuberger Berman Management LLC (“Neuberger Berman”) serve as the fund’s sub-investment advisers, each managing an allocated portion of the fund’s portfolio.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares.The fund is authorized to issue 100 million shares of $.001 par value Common Stock in each of the following classes of shares: Class A, Class C and Class I. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class C shares redeemed within one year of purchase. Class I shares are sold at net asset value per share only to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated t o each class of shares based on its relative net assets.
As of May 31, 2010, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held 400,000 Class A and 40,000 Class C shares.
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is 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 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 Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value. When market quotations or offici al closing prices are not readily available, or are determined not to reflect
24
accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market),but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Directors. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts. For other securities that are fair valued by the Board of Directors, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price.
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.
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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.
The following is a summary of the inputs used as of May 31, 2010, in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic† | 184,158,649 | — | — | 184,158,649 |
Equity Securities— | ||||
Foreign† | 4,439,795 | — | — | 4,439,795 |
† See Statement of Investments for industry classification. |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in
26
the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
(c) Affiliated issuers: Investments in other investment companies advised by Dreyfus are defined as “affiliated” in the Act.
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and 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. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
The Fund 27
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended May 31, 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.
The period ended November 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended May 31, 2010, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement (“Agreement”) with Dreyfus, the management fee is computed at the annual rate of .90% of the value of the fund’s average daily net assets and is payable monthly. Dreyfus has contractually agreed, until April 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that annual fund operating
28
expenses (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, commitment fees on borrowings and extraordinary expenses) do not exceed 1.15% of the value of the fund’s average daily net assets.The reduction in management fee, pursuant to the undertaking, amounted to $27,373 during the period ended May 31, 2010.
Pursuant to separate Sub-Investment Advisory Agreements (each, a “Sub-Investment Advisory Agreement”) between Dreyfus and each of TS&W, Walthausen, Riverbridge, and Neuberger Berman, each Sub-Investment Advisory Agreement will continue for successive annual periods ended November 30, 2010 except the Sub-Investment Advisory Agreement with Neuberger Berman which has an initial term extending to November 30, 2011. Dreyfus pays TS&W, Walthausen, Riverbridge, and Neuberger Berman separate monthly fees at an annual percentage rate based on the average daily net assets of the fund under the Sub-Adviser’s Management.
During the period ended May 31, 2010, the Distributor retained $292 from commissions earned on sales of the fund’s Class A shares and $31 from CDSCs on redemptions of the fund’s Class C Shares.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended May 31, 2010, Class C shares were charged $2,898 pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class A and Class C shares and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these
The Fund 29
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
services.The Distributor determines the amounts to be paid to Service Agents. During the period ended May 31, 2010, Class A and Class C shares were charged $9,013 and $966, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended May 31, 2010, the fund was charged $335 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended May 31, 2010, the fund was charged $31 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were partially offset by earnings credits of $2.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended May 31, 2010, the fund was charged $89,776 pursuant to the custody agreement.
During the period ended May 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $148,663, Rule 12b-1 distribution plan fees $574, shareholder services plan fees $1,800, custodian fees $74,008, chief compliance officer fees $3,656 and transfer agency per account fees $90.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
30
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended May 31, 2010, amounted to $145,039,877 and $40,471,371, respectively.
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.The fund held no derivatives during the period ended May 31, 2010. These disclosures did not impact the notes to the financial statements.
At May 31, 2010, accumulated net unrealized appreciation on investments was $14,900,367, consisting of $22,113,097 gross unrealized appreciation and $7,212,730 gross unrealized depreciation.
At May 31, 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).
NOTE 5—Subsequent Event:
On July 19, 2010, the fund’s board approved Lombardia Capital Partners, LLC as an additional sub-adviser to the fund, effective on or about July 30, 2010.
The Fund 31
INFORMATION ABOUT THE REVIEW AND APPROVAL OF AN |
ADDITIONAL SUB-INVESTMENT ADVISORY AGREEMENT |
At a meeting of the fund’s Board of Directors held on November 9-10, 2009, the Board considered, through the initial renewal date of November 30, 2011, the initial approval of a Sub-Investment Advisory Agreement with Neuberger Berman Management LLC (“Neuberger” or the “Sub-Adviser”), pursuant to which the Sub-Adviser would serve as an additional sub-investment adviser to the fund and provide day-today management of a percentage of the fund’s portfolio. 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 to be Provided to the Fund. The Board members received a presentation from representatives of the Sub-Adviser, regarding services to be provided to the fund and discussed the nature, extent, and quality of the services provided to the fund pursuant to Dreyfus’ Sub-Investment Advisory Agreement with Neuberger. The Board members considered the Sub-Adviser’s research, portfolio management capabilities and performance history.
Comparative Analysis of the Fund’s Sub-Advisory Fee. The Board discussed with representatives of the Manager, EACM, the fund’s Portfolio Allocation Manager, and the Sub-Adviser the investment strategy to be employed by the Sub-Adviser in the management of its portion of the fund’s assets.The Board members were provided with information regarding the Sub-Adviser’s experience, philosophy and process with respect to small cap value equity investing.
The Manager’s representatives also provided information regarding the fees charged to institutional separate accounts and commingled funds managed by the Sub-Adviser (the “Similar Accounts”) that have similar investment objectives and policies as the fund. These fees were higher than the fees proposed to be charged for the fund.
32
Potential Benefits; Profitability.The Board members considered potential benefits to the Sub-Adviser from acting in its capacity. Since the Manager, and not the fund, will pay the Sub-Adviser pursuant to the Sub-Investment Advisory Agreement, the Board did not consider the Sub-Adviser’s profitability to be relevant.
At the conclusion of these discussions, each of the Board members expressed the opinion that he or she had been furnished with sufficient information to make an informed business decision with respect to the approval of fund’s Sub-Investment Advisory Agreement. Based on the discussions and considerations of the Board members as described above, the Board made the following conclusions and determinations.
The Board concluded that the nature, extent, and quality of the services to be provided by the Sub-Adviser are adequate and appropriate in light of Neuberger’s experience in managing small cap value equity assets, Neuberger’s portfolio management and credit research resources to be applied in managing the fund’s portfolio, and EACM’s recommendation to engage Neuberger.
The Board concluded that the fee to be paid by Dreyfus to Neuberger is reasonable and appropriate and that considerations of profitability and economies of scale were not relevant to this determination.
The Board members considered these conclusions and determinations and, without any one factor being dispositive, determined that approval of the fund’s Sub-Investment Advisory Agreement was in the best interests of the fund and its shareholders.
The Fund 33
Dreyfus
U.S. Equity Fund
SEMIANNUAL REPORT May 31, 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.
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 |
10 | Statement of Assets and Liabilities |
11 | Statement of Operations |
12 | Statement of Changes in Net Assets |
14 | Financial Highlights |
17 | Notes to Financial Statements |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus
U.S. Equity Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus U.S. Equity Fund, covering the six-month period from December 1, 2009, through May 31, 2010.
Psychology historically has played an important role in how investors—especially individual investors—perceive the financial markets and make asset allocation decisions. Unlike the purely rational investor who, in an ideal world, would seek investments that potentially can deliver the best risk/return characteristics, the everyday investor typically has been influenced by emotions. Currently, investors’ emotions appear to be deeply divided, with a large number still seeking low risk investments (such as cash instruments), and others favoring higher risk investments (such as smaller-cap and emerging market stocks). Meanwhile, investment classes in the middle of the risk spectrum seemingly have been largely avoided.
It is important to note that investor sentiment often lags the economic cycle.That’s why we continue to stress the importance of a long-term, well balanced asset allocation strategy that can help cushion the volatility produced by the emotional swings of the financial markets. If you have not revisited your investment portfolio recently, we urge you to speak with your financial advisor about taking advantage of long-term market fundamentals rather than remaining susceptible to the effects of emotional reactions to short-term developments.
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.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
June 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of December 1, 2009, through May 31, 2010, as provided by Jane Henderson and Roy Leckie of Walter Scott & Partners Limited (Walter Scott), Sub-investment adviser
Fund and Market Performance Overview
For the six-month period ended May 31, 2010, Dreyfus U.S. Equity Fund’s Class A shares achieved a return of 0.92%, Class C shares returned 0.52% and Class I shares returned 1.03%.1 In comparison, the fund’s benchmark index, the Morgan Stanley Capital International USA Index (the “MSCI USA Index”), achieved a 0.22% return over the same period.2
The U.S. stock market achieved modest gains amid a subpar economic recovery during the reporting period. The fund produced returns that were slightly higher than its benchmark, mainly because our bottom-up security selection strategy allowed us to avoid some of the market volatility.
The Fund’s Investment Approach
The fund seeks long-term real return by investing in stocks of companies that are located in the United States.When selecting stocks,Walter Scott seeks companies with fundamental strengths that indicate the potential for sustainable growth. The firm focuses on individual stock selection through extensive fundamental research. Candidates are initially selected for research if they meet certain broad absolute and trend criteria. Financial statements are analyzed in an effort to identify the nature of their operating margins and to understand the variables that add value to their businesses. Companies meeting the financial criteria are subjected to a detailed investigation of their products, costs and pricing, competition, industry position and outlook.
U.S. Stocks Produced Modest Gains
The reporting period began in the midst of an economic recovery and stock market rally as improved manufacturing activity and an apparent bottoming of residential housing prices helped boost confidence among
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
businesses, consumers and investors. However, in early 2010, several developments appeared to threaten the economic rebound. First, Europe was roiled by a sovereign debt crisis when Greece and other peripheral members of the European Union found themselves unable to finance heavy debt burdens. Meanwhile, robust economic growth in China, one of the primary engines of the global economic recovery,seemed to spark local inflationary pressures, and investors grew worried that remedial measures might dampen the region’s growth. Finally, a stubbornly high unemployment rate and ongoing troubles in domestic housing markets produced economic headwinds in the United States. Consequently, by the end of the reporting period, U.S. stocks gave back most of the gains made during the rally from early February to mid-April.
Lack of Financial Stocks Undermined Fund Performance
In the midst of heightened market volatility, our bottom-up security selection process led us to those areas of the market where companies and industry groups displayed sound business fundamentals and proved relatively resistant to economic headwinds.We found very few opportunities meeting these criteria in the U.S. financial sector, which in the year prior to the reporting period had suffered the bankruptcies or distressed acquisitions of several major financial institutions. However,lack of exposure to financial companies prevented the fund from participating in the rebound of many of the sector’s surviving members. Despite a number of ongoing challenges, including uncertainty surrounding proposed regulatory reforms, a number of previously hard-hit U.S. banks and brokerage firms advanced relatively strongly during the reporting period.
The fund also suffered from its overweight exposure to the health care sector. However, the adverse effects of this allocation position were offset to a substantial degree by better-than-average results from our security selection strategy, as fund holdings such as cancer therapy and X-ray products provider Varian Medical Systems and respiratory equipment maker Resmed gained value. Our stock selection strategy proved especially effective in the industrials sector, where construction supplies provider Fastenal and aircraft manufacturer Boeing posted gains. Entertainment technology developer Dolby Laboratories ranked as the fund’s top individual performer during the reporting period.
4
The fund encountered disappointments in a handful of individual holdings. Agricultural giant Monsanto lost value due to intensifying competition and pricing pressure in its chemicals business.Biotechnology firm Gilead Sciences reported quarterly financial results that fell slightly short of analysts’ expectations. Telecommunications company QUAL-COMM saw a modest decrease in licensing fees for its widely adopted mobile phone technology.
Finding Opportunities One Stock at a Time
We have maintained a cautious posture with regard to recent volatility in the U.S. stock market. We are especially concerned about the potential impact on U.S. business of ongoing turmoil in Europe, which as of the reporting period’s end is exploring ways to prevent the spread of its debt crisis to additional eurozone nations.
Nonetheless, our stock selection process has continued to find attractive opportunities among individual companies across a variety of market sectors. Indeed, if security selection becomes a more critical determinant of stock market performance, as we believe it will, the fund’s focus on extensive fundamental research could be particularly well suited to the upcoming investment environment.
June 15, 2010
Equity funds are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus. | |
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. Return figures provided reflect the absorption of certain fund expenses by The Dreyfus Corporation pursuant to an undertaking in effect through April 1, 2011, at which time it may be extended, terminated or modified. Had these expenses not been absorbed, the fund’s returns would have been lower. |
2 | SOURCE: LIPPER INC. – Reflects reinvestment of net dividends and, where applicable, capital gain distributions.The Morgan Stanley Capital International USA (MSCI USA) Index is an unmanaged, market capitalization weighted index that is designed to measure the performance of publicly traded stocks issued by companies in the United States. Investors cannot invest directly in any index. |
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 U.S. Equity Fund from December 1, 2009 to May 31, 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 May 31, 2010
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 7.01 | $ 10.75 | $ 5.76 |
Ending value (after expenses) | $1,009.20 | $1,005.20 | $1,010.30 |
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 May 31, 2010
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 7.04 | $ 10.80 | $ 5.79 |
Ending value (after expenses) | $1,017.95 | $1,014.21 | $1,019.20 |
† Expenses are equal to the fund’s annualized expense ratio of 1.40% for Class A, 2.15% for Class C and 1.15% |
for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS
May 31, 2010 (Unaudited)
Common Stocks—89.6% | Shares | Value ($) |
Consumer Discretionary—12.7% | ||
Gymboree | 8,700 a | 387,846 |
McDonald’s | 7,100 | 474,777 |
NIKE, Cl. B | 6,000 | 434,280 |
Panera Bread, Cl. A | 5,100 a | 412,233 |
Starbucks | 17,100 | 442,719 |
TJX Cos. | 10,700 | 486,422 |
2,638,277 | ||
Consumer Staples—7.9% | ||
Colgate-Palmolive | 5,300 | 413,877 |
PepsiCo | 6,800 | 427,652 |
Wal-Mart Stores | 8,000 | 404,480 |
Walgreen | 12,100 | 387,684 |
1,633,693 | ||
Energy—8.4% | ||
Apache | 4,200 | 376,068 |
CARBO Ceramics | 3,300 | 213,510 |
EOG Resources | 3,860 | 404,682 |
Occidental Petroleum | 4,800 | 396,048 |
Schlumberger | 6,450 | 362,168 |
1,752,476 | ||
Health Care—19.8% | ||
Abbott Laboratories | 7,800 | 370,968 |
C.R. Bard | 5,750 | 465,577 |
Celgene | 7,200 a | 379,872 |
Covance | 7,100 a | 374,596 |
Gilead Sciences | 11,000 a | 395,120 |
Johnson & Johnson | 6,300 | 367,290 |
Medtronic | 10,000 | 391,800 |
Resmed | 8,300 a | 521,987 |
Stryker | 8,000 | 424,240 |
Varian Medical Systems | 8,200 a | 410,738 |
4,102,188 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Industrial—12.8% | ||
Boeing | 7,200 | 462,096 |
C.H. Robinson Worldwide | 7,100 | 412,581 |
Donaldson | 10,200 | 440,130 |
Fastenal | 9,300 | 469,092 |
Precision Castparts | 3,960 | 462,132 |
Rockwell Collins | 7,100 | 414,214 |
2,660,245 | ||
Materials—2.7% | ||
Ecolab | 9,500 | 448,685 |
Monsanto | 2,400 | 122,088 |
570,773 | ||
Technology—25.3% | ||
Adobe Systems | 12,800 a | 410,624 |
Amphenol, Cl. A | 11,200 | 474,880 |
Automatic Data Processing | 10,900 | 445,592 |
Cisco Systems | 16,100 a | 372,876 |
Dolby Laboratories, Cl. A | 5,900 a | 389,459 |
FLIR Systems | 16,200 a | 461,538 |
Google, Cl. A | 760 a | 368,737 |
Intel | 20,100 | 430,542 |
MasterCard, Cl. A | 1,770 | 357,133 |
Microsoft | 15,000 | 387,000 |
Oracle | 18,200 | 410,774 |
Paychex | 13,900 | 396,706 |
QUALCOMM | 9,900 | 352,044 |
5,257,905 | ||
Total Common Stocks | ||
(cost $19,119,101) | 18,615,557 |
8
Other Investment—8.8% | Shares | Value ($) |
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $1,837,000) | 1,837,000 b | 1,837,000 |
Total Investments (cost $20,956,101) | 98.4% | 20,452,557 |
Cash and Receivables (Net) | 1.6% | 320,675 |
Net Assets | 100.0% | 20,773,232 |
a Non-income producing security. | ||
b Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Technology | 25.3 | Energy | 8.4 |
Health Care | 19.8 | Consumer Staples | 7.9 |
Industrial | 12.8 | Materials | 2.7 |
Consumer Discretionary | 12.7 | ||
Money Market Investment | 8.8 | 98.4 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 9
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2010 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments: | |||
Unaffiliated issuers | 19,119,101 | 18,615,557 | |
Affiliated issuers | 1,837,000 | 1,837,000 | |
Cash | 982,904 | ||
Receivable for shares of Common Stock subscribed | 1,158,500 | ||
Dividends and interest receivable | 22,267 | ||
Prepaid expenses | 25,004 | ||
22,641,232 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 14,628 | ||
Payable for investment securities purchased | 1,825,781 | ||
Accrued expenses | 27,591 | ||
1,868,000 | |||
Net Assets ($) | 20,773,232 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 21,491,996 | ||
Accumulated undistributed investment income—net | 8,614 | ||
Accumulated net realized gain (loss) on investments | (223,834) | ||
Accumulated net unrealized appreciation | |||
(depreciation) on investments | (503,544) | ||
Net Assets ($) | 20,773,232 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 3,928,284 | 526,451 | 16,318,497 |
Shares Outstanding | 333,753 | 45,221 | 1,385,012 |
Net Asset Value Per Share ($) | 11.77 | 11.64 | 11.78 |
See notes to financial statements. |
10
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2010 (Unaudited)
Investment Income ($): | |
Income: | |
Cash dividends: | |
Unaffiliated issuers | 65,307 |
Affiliated issuers | 532 |
Total Income | 65,839 |
Expenses: | |
Management fee—Note 3(a) | 32,115 |
Auditing fees | 18,912 |
Registration fees | 17,691 |
Shareholder servicing costs—Note 3(c) | 6,094 |
Prospectus and shareholders’ reports | 3,192 |
Distribution fees—Note 3(b) | 2,001 |
Legal fees | 1,472 |
Custodian fees—Note 3(c) | 1,299 |
Directors’ fees and expenses—Note 3(d) | 298 |
Loan commitment fees—Note 2 | 82 |
Miscellaneous | 3,981 |
Total Expenses | 87,137 |
Less—reduction in management fee due to undertaking—Note 3(a) | (30,002) |
Less—reduction in fees due to earnings credits—Note 1(b) | (2) |
Net Expenses | 57,133 |
Investment Income—Net | 8,706 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments | (37,760) |
Net unrealized appreciation (depreciation) on investments | (503,927) |
Net Realized and Unrealized Gain (Loss) on Investments | (541,687) |
Net Decrease in Net Assets Resulting from Operations | (532,981) |
See notes to financial statements. |
The Fund 11
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
May 31, 2010 | Year Ended | |
(Unaudited) | November 30, 2009a | |
Operations ($): | ||
Investment income—net | 8,706 | 16,389 |
Net realized gain (loss) on investments | (37,760) | (120,977) |
Net unrealized appreciation | ||
(depreciation) on investments | (503,927) | 1,289,284 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (532,981) | 1,184,696 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (5,953) | (8,282) |
Class I Shares | (7,079) | (1,800) |
Class T Shares | — | (520) |
Total Dividends | (13,032) | (10,602) |
Capital Stock Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 43,084 | 589,868 |
Class C Shares | 27,800 | 21,427 |
Class I Shares | 15,235,780 | 1,270,836 |
Dividends reinvested: | ||
Class A Shares | 183 | 162 |
Class I Shares | 5,399 | — |
Cost of shares redeemed: | ||
Class A Shares | (25,155) | (163,960) |
Class C Shares | (5) | — |
Class I Shares | (218,382) | (8,622) |
Class T Shares | — | (357,200) |
Increase (Decrease) in Net Assets | ||
from Capital Stock Transactions | 15,068,704 | 1,352,511 |
Total Increase (Decrease) in Net Assets | 14,522,691 | 2,526,605 |
Net Assets ($): | ||
Beginning of Period | 6,250,541 | 3,723,936 |
End of Period | 20,773,232 | 6,250,541 |
Undistributed investment income—net | 8,614 | 12,940 |
12
Six Months Ended | ||
May 31, 2010 | Year Ended | |
(Unaudited) | November 30, 2009a | |
Capital Share Transactions: | ||
Class Ab | ||
Shares sold | 3,450 | 63,854 |
Shares issued for dividends reinvested | 15 | 18 |
Shares redeemed | (2,126) | (17,796) |
Net Increase (Decrease) in Shares Outstanding | 1,339 | 46,076 |
Class C | ||
Shares sold | 2,301 | 1,812 |
Shares redeemed | 0c | — |
Net Increase (Decrease) in Shares Oustanding | 2,301 | 1,812 |
Class I | ||
Shares sold | 1,243,181 | 120,473 |
Shares issued for dividends reinvested | 447 | — |
Shares redeemed | (18,358) | (731) |
Net Increase (Decrease) in Shares Outstanding | 1,225,270 | 119,742 |
Class Tb | ||
Shares redeemed | — | (40,000) |
a Effective as of the close of business on February 4, 2009, the fund no longer offers Class T shares. |
b On the close of business on February 4, 2009, 40,000 Class T shares representing $357,200 were converted to |
40,000 Class A shares. |
c Amount represents less than one share. |
See notes to financial statements.
The Fund 13
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | |||
May 31, 2010 | Year Ended November 30, | ||
Class A Shares | (Unaudited) | 2009 | 2008a |
Per Share Data ($): | |||
Net asset value, beginning of period | 11.68 | 9.14 | 12.50 |
Investment Operations: | |||
Investment income—netb | .01 | .04 | .02 |
Net realized and unrealized | |||
gain (loss) on investments | .10 | 2.53 | (3.38) |
Total from Investment Operations | .11 | 2.57 | (3.36) |
Distributions: | |||
Dividends from investment income—net | (.02) | (.03) | — |
Net asset value, end of period | 11.77 | 11.68 | 9.14 |
Total Return (%)c | .92d | 28.19 | (26.88)d |
Ratios/Supplemental Data (%): | |||
Ratio of total expenses to average net assets | 2.25e | 4.65 | 4.54e |
Ratio of net expenses to average net assets | 1.40e | 1.40 | 1.40e |
Ratio of net investment income | |||
to average net assets | .10e | .42 | .33e |
Portfolio Turnover Rate | 11.29d | 31.79 | 7.98d |
Net Assets, end of period ($ x 1,000) | 3,928 | 3,884 | 2,618 |
a | From May 30, 2008 (commencement of operations) to November 30, 2008. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements.
14
Six Months Ended | |||
May 31, 2010 | Year Ended November 30, | ||
Class C Shares | (Unaudited) | 2009 | 2008a |
Per Share Data ($): | |||
Net asset value, beginning of period | 11.58 | 9.11 | 12.50 |
Investment Operations: | |||
Investment (loss)—netb | (.04) | (.03) | (.02) |
Net realized and unrealized | |||
gain (loss) on investments | .10 | 2.50 | (3.37) |
Total from Investment Operations | .06 | 2.47 | (3.39) |
Net asset value, end of period | 11.64 | 11.58 | 9.11 |
Total Return (%)c | .52d | 27.11 | (27.12)d |
Ratios/Supplemental Data (%): | |||
Ratio of total expenses to average net assets | 3.00e | 5.83 | 6.30e |
Ratio of net expenses to average net assets | 2.15e | 2.15 | 2.14e |
Ratio of net investment (loss) | |||
to average net assets | (.65)e | (.27) | (.41)e |
Portfolio Turnover Rate | 11.29d | 31.79 | 7.98d |
Net Assets, end of period ($ x 1,000) | 526 | 497 | 374 |
a | From May 30, 2008 (commencement of operations) to November 30, 2008. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
See notes to financial statements.
The Fund 15
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | |||
May 31, 2010 | Year Ended November 30, | ||
Class I Shares | (Unaudited) | 2009 | 2008a |
Per Share Data ($): | |||
Net asset value, beginning of period | 11.70 | 9.16 | 12.50 |
Investment Operations: | |||
Investment income—netb | .02 | .05 | .03 |
Net realized and unrealized | |||
gain (loss) on investments | .10 | 2.54 | (3.37) |
Total from Investment Operations | .12 | 2.59 | (3.34) |
Distributions: | |||
Dividends from investment income—net | (.04) | (.05) | — |
Net asset value, end of period | 11.78 | 11.70 | 9.16 |
Total Return (%) | 1.03c | 28.36 | (26.72)c |
Ratios/Supplemental Data (%): | |||
Ratio of total expenses to average net assets | 1.69d | 3.77 | 5.25d |
Ratio of net expenses to average net assets | 1.15d | 1.15 | 1.14d |
Ratio of net investment income | |||
to average net assets | .41d | .54 | .59d |
Portfolio Turnover Rate | 11.29c | 31.79 | 7.98c |
Net Assets, end of period ($ x 1,000) | 16,318 | 1,870 | 366 |
a | From May 30, 2008 (commencement of operations) to November 30, 2008. |
b | Based on average shares outstanding at each month end. |
c | Not annualized. |
d | Annualized. |
See notes to financial statements.
16
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Dreyfus U.S. Equity Fund (the “fund”) is a separate diversified series of Strategic Funds, Inc. (the “Company”) 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 eleven series, including the fund. The fund’s investment objective seeks long-term total return. 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.Walter Scott & Partners Limited (“Walter Scott”), a subsidiary of BNY Mellon and an affiliate of Dreyfus, serves as the fund’s sub-investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares.The fund is authorized to issue 100 million shares of $.001 par value Common Stock in each of the following classes of shares: Class A, Class C and Class I. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) on Class C shares redeemed within one year of purchase. Class I shares are sold primarily to bank trust departments and other financial service providers (including The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus), acting on behalf of customers having a qualified trust or an investment account or relationship at such institution, and bear no distribution or shareholder services fees. Class I shares are offered without a front-end sales char ge or CDSC. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
As of May 31, 2010, MBC Investments Corp., an indirect subsidiary of BNY Mellon, held 320,000 Class A shares and 40,000 Class C shares.
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is 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 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 Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value. When market quotations or offici al
18
closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market),but before the fund calculates its net asset value,the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Directors. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts. For other securities that are fair valued by the Board of Directors, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on dispos ition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price.
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.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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.
The following is a summary of the inputs used as of May 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic† | 18,615,557 | — | — | 18,615,557 |
Mutual Funds | 1,837,000 | — | — | 1,837,000 |
† See Statement of Investments for industry classification
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in
20
the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
(c) Affiliated issuers: Investments in other investment companies advised by Dreyfus are defined as “affiliated” in the Act.
The fund may invest in shares of certain affiliated investment companies also advised or managed by Dreyfus. Investments in affiliated investment companies for the period ended May 31, 2010 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 11/30/2009 ($) | Purchases ($) | Sales ($) | 5/31/2010 ($) Assets (%) | |
Dreyfus | |||||
Institutional | |||||
Preferred | |||||
Plus Money | |||||
Market Fund 186,000 | 11,803,000 | 10,152,000 | 1,837,000 | 8.8 |
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and 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. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended May 31, 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 two-year periods ended November 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $147,556 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to November 30, 2009. If not applied, $47,276 of the carryover expires in fiscal 2016 and $100,280 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended November 30, 2009 was as follows: ordinary income $10,602.The tax character of current year distributions will be determined at the end of the current fiscal year.
22
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended May 31, 2010, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to a management agreement with Dreyfus, the management fee is computed at the annual rate of .75% of the value of the fund’s average daily net assets and is payable monthly. Dreyfus has contractually agreed, until April 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that annual fund operating expenses (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, commitment fees on borrowings and extraordinary expenses) do not exceed 1.15% of the value of the fund’s average daily net assets. The reduction in management fee, pursuant to the undertaking, amounted to $30,002 during the period ended May 31, 2010.
Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Walter Scott, Dreyfus pays Walter Scott a monthly fee at an annual percentage of the fund’s average daily net assets.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
net assets of Class C shares. During the period ended May 31, 2010, Class C shares were charged $2,001, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services.The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class A and Class C shares and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended May 31, 2010, Class A and Class C shares were charged $5,021 and $667, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended May 31, 2010, the fund was charged $224 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended May 31, 2010, the fund was charged $25 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were partially offset by earnings credits of $2.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended May 31, 2010, the fund was charged $1,299 pursuant to the custody agreement.
24
During the period ended May 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $10,015, Rule 12b-1 distribution plan fees $345, shareholder services plan fees $972, custodian fees $800, chief compliance officer fees $3,656 and transfer agency per account fees $96, which are offset against an expense reimbursement currently in effect in the amount of $1,256.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended May 31, 2010, amounted to $14,065,379 and $994,674, respectively.
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.The fund held no derivatives during the period ended May 31, 2010. These disclosures did not impact the notes to the financial statements.
At May 31, 2010, accumulated net unrealized depreciation on investments was $503,544, consisting of $329,640 gross unrealized appreciation and $833,184 gross unrealized depreciation.
At May 31, 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).
The Fund 25
Global Stock Fund
SEMIANNUAL REPORT May 31, 2010
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.
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 |
10 | Statement of Assets and Liabilities |
11 | Statement of Operations |
12 | Statement of Changes in Net Assets |
14 | Financial Highlights |
17 | Notes to Financial Statements |
FOR MORE INFORMATION | |
Back Cover |
Global Stock Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We present this semiannual report for Global Stock Fund, covering the six-month period from December 1, 2009, through May 31, 2010.
Psychology historically has played an important role in how investors—especially individual investors—perceive the financial markets and make asset allocation decisions. Unlike the purely rational investor who, in an ideal world, would seek investments that potentially can deliver the best risk/return characteristics, the everyday investor typically has been influenced by emotions. Currently, investors’ emotions appear to be deeply divided, with a large number still seeking low risk investments (such as cash instruments), and others favoring higher risk investments (such as smaller-cap and emerging market stocks). Meanwhile, investment classes in the middle of the risk spectrum seemingly have been largely avoided.
It is important to note that investor sentiment often lags the economic cycle.That’s why we continue to stress the importance of a long-term, well balanced asset allocation strategy that can help cushion the volatility produced by the emotional swings of the financial markets. If you have not revisited your investment portfolio recently, we urge you to speak with your financial advisor about taking advantage of long-term market fundamentals rather than remaining susceptible to the effects of emotional reactions to short-term developments.
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.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
June 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of December 1, 2009, through May 31, 2010, as provided by Jane Henderson and Roy Leckie of Walter Scott & Partners Limited (Walter Scott), Sub-investment adviser
Fund and Market Performance Overview
For the six-month period ended May 31, 2010, Global Stock Fund’s Class A shares achieved a return of –4.06%, Class C shares returned –4.45% and Class I shares returned –3.88%.1 In comparison, the fund’s benchmark index, the Morgan Stanley Capital International World Index (the “MSCI World Index”), achieved a –4.92% return over the same period.2
Global stock markets gave back a portion of the gains achieved in earlier reporting periods as a sovereign debt crisis in Europe and inflation fears in China raised global economic concerns. The fund produced returns that were modestly better than its benchmark, mainly due to the relative success of our stock selection in Europe and Japan.
The Fund’s Investment Approach
The fund seeks long-term real return by investing in stocks of companies that are located in the world’s developed markets.When selecting stocks, Walter Scott seeks companies with fundamental strengths that indicate the potential for sustainable growth.The firm focuses on individual stock selection through extensive fundamental research. Candidates are initially selected for research if they meet certain broad absolute and trend criteria. Financial statements are analyzed in an effort to identify the nature of their operating margins and to understand the variables that add value to their businesses. Companies meeting the financial criteria are subjected to a detailed investigation of their products, cost and pricing, competition, industry position and outlook.
Global Equity Markets Produced Mixed Results
The reporting period saw the continuation of a worldwide economic recovery that began earlier in 2009. Although unemployment rates
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
remained high in many developed nations, robust economic growth in the emerging markets and, to a lesser extent, the United States supported greater manufacturing activity and rising commodity prices. However, the positive effects of the global economic recovery were offset during the reporting period by a burgeoning sovereign debt crisis in Greece and other parts of Europe. In addition, investors worried that potential inflationary pressures in China might dampen economic growth in Asia, and high unemployment rates continued to weigh on the domestic economic rebound in the United States. As a result, global stock markets generally gave back a portion of the gains made during the rally from early February to mid-April.
As was the case since the global stock market rally began, investors typically continued to search for bargains among lower-quality stocks. Although investors appeared to pay more attention to underlying business fundamentals over the first five months of 2010, this shift proved tentative due to ongoing economic uncertainty.
Stock Selection Strategy Enhanced Fund Returns
In the midst of heightened market volatility, we found relatively few new opportunities meeting our investment criteria in continental Europe, and underweighted exposure to the region helped the fund avoid the brunt of instability there.The fund held particularly light positions in European banks, which generally suffered during the sovereign debt crisis. Conversely, the fund scored success with some European stocks that benefited from company-specific factors. For example pharmaceutical developer Novo Nordisk continues to benefit from the growing market of diabetes patients throughout the developed world, and apparel retailer Hennes & Mauritz demonstrated lower-than-expected sensitivity to economic headwinds as evidenced by improving operating results.The fund also fared relatively well in Japan, where an appreciating yen relative to the euro and U.S. dollar bolstered investment values for U.S. residents.
From a market sector perspective, the fund achieved strong results in the technology sector, where our bottom-up stock selection process identified a number of growing companies selling at attractive valuations. We especially favored larger technology companies with a
4
significant degree of pricing control, including Nintendo, Intel, Canon, Amphenol and Keyence.
The fund produced less favorable results compared to its benchmark in the United States, where some financial stocks we had avoided advanced relatively strongly. Generally underweighted exposure to the stronger-performing U.S. market also dampened relative performance, as did a handful of disappointments among consumer staples companies in the United States, France and the United Kingdom.
Finding Opportunities One Stock at a Time
We have maintained a cautious posture with regard to the world’s developed markets, which have continued to struggle with sub-par economic growth and heavy debt burdens.We are especially concerned about Europe, which as of the reporting period’s end is exploring ways to prevent the spread of its debt crisis to additional markets.
Nonetheless, our stock selection process has continued to find attractive opportunities among individual companies in a variety of regions. Indeed, if security selection becomes a more critical determinant of global market performance, as we believe it will, the fund’s focus on extensive fundamental research could be particularly well suited to the upcoming investment environment.
June 15, 2010
Equity funds are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus. | |
Investing internationally involves special risks, including changes in currency exchange rates, political, economic, and social instability, a lack of comprehensive company information, differing auditing and legal standards, and less market liquidity. | |
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. |
2 | SOURCE: LIPPER INC. — Reflects reinvestment of net dividends and, where applicable, capital gain distributions.The Morgan Stanley Capital International (MSCI) World Index is an unmanaged index of global stock market performance, including the United States, Canada, Europe, Australia, New Zealand and the Far East. Investors cannot invest directly in any index. |
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 Global Stock Fund from December 1, 2009 to May 31, 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 May 31, 2010
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.50 | $ 10.29 | $ 4.69 |
Ending value (after expenses) | $959.40 | $955.50 | $961.20 |
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 May 31, 2010
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.69 | $ 10.60 | $ 4.84 |
Ending value (after expenses) | $1,018.30 | $1,014.41 | $1,020.14 |
† Expenses are equal to the fund’s annualized expense ratio of 1.33% for Class A, 2.11% for Class C and .96% |
for Class I, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS
May 31, 2010 (Unaudited)
Common Stocks—95.2% | Shares | Value ($) |
Australia—3.5% | ||
CSL | 237,500 | 6,365,021 |
Woodside Petroleum | 161,532 | 5,878,395 |
12,243,416 | ||
Brazil—1.9% | ||
Petroleo Brasileiro, ADR | 209,600 | 6,491,312 |
Canada—.9% | ||
Suncor Energy | 99,300 | 3,066,562 |
Denmark—1.8% | ||
Novo Nordisk, Cl. B | 79,000 | 6,091,507 |
France—3.7% | ||
Cie Generale d’Optique | ||
Essilor International | 115,000 | 6,555,099 |
L’Oreal | 66,100 | 6,194,695 |
12,749,794 | ||
Hong Kong—8.6% | ||
China Mobile | 678,000 | 6,416,514 |
CLP Holdings | 940,500 | 6,624,260 |
CNOOC | 3,993,000 | 6,388,800 |
Hong Kong & China Gas | 1,916,255 | 4,232,371 |
Hutchison Whampoa | 899,000 | 5,593,136 |
29,255,081 | ||
Japan—18.5% | ||
Canon | 157,800 | 6,500,506 |
Chugai Pharmaceutical | 371,100 | 6,580,279 |
Daikin Industries | 183,200 | 6,045,540 |
Denso | 174,200 | 4,704,224 |
Fanuc | 64,400 | 6,807,656 |
Honda Motor | 147,900 | 4,506,468 |
HOYA | 180,000 | 4,217,358 |
Keyence | 20,870 | 4,692,364 |
Mitsubishi Estate | 372,000 | 5,691,915 |
Nintendo | 24,300 | 7,184,952 |
Shin-Etsu Chemical | 117,300 | 5,909,515 |
62,840,777 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Spain—1.5% | ||
Inditex | 89,800 | 5,004,623 |
Sweden—1.3% | ||
Hennes & Mauritz, Cl. B | 78,300 | 4,434,794 |
Switzerland—5.2% | ||
Nestle | 150,000 | 6,780,538 |
Novartis | 100,600 | 4,556,159 |
SGS | 5,000 | 6,254,313 |
17,591,010 | ||
United Kingdom—11.0% | ||
BG Group | 455,800 | 6,993,648 |
HSBC Holdings | 734,400 | 6,667,578 |
Reckitt Benckiser Group | 126,000 | 5,912,884 |
Standard Chartered | 289,800 | 6,860,585 |
Tesco | 1,051,000 | 6,255,934 |
WM Morrison Supermarkets | 1,200,500 | 4,586,792 |
37,277,421 | ||
United States—37.3% | ||
Abbott Laboratories | 145,600 | 6,924,736 |
Adobe Systems | 213,700 a | 6,855,496 |
Amphenol, Cl. A | 85,000 | 3,604,000 |
Automatic Data Processing | 145,400 | 5,943,952 |
C.R. Bard | 79,700 | 6,453,309 |
Cisco Systems | 247,100 a | 5,722,836 |
EOG Resources | 35,700 | 3,742,788 |
Fastenal | 105,000 | 5,296,200 |
FLIR Systems | 97,500 a | 2,777,775 |
Gilead Sciences | 178,400 a | 6,408,128 |
Google, Cl. A | 13,900 a | 6,744,002 |
Intel | 300,800 | 6,443,136 |
Johnson & Johnson | 102,700 | 5,987,410 |
MasterCard, Cl. A | 27,400 | 5,528,498 |
Medtronic | 140,600 | 5,508,708 |
Microsoft | 226,000 | 5,830,800 |
NIKE, Cl. B | 94,300 | 6,825,434 |
8
Common Stocks (continued) | Shares | Value ($) |
United States (continued) | ||
Oracle | 273,300 | 6,168,381 |
Precision Castparts | 56,800 | 6,628,560 |
Schlumberger | 103,200 | 5,794,680 |
Wal-Mart Stores | 122,200 | 6,178,432 |
Walgreen | 175,800 | 5,632,632 |
126,999,893 | ||
Total Common Stocks | ||
(cost $316,992,909) | 324,046,190 | |
Other Investment—4.0% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred Plus Money Market Fund | ||
(cost $13,550,000) | 13,550,000 b | 13,550,000 |
Total Investments (cost $330,542,909) | 99.2% | 337,596,190 |
Cash and Receivables (Net) | .8% | 2,729,189 |
Net Assets | 100.0% | 340,325,379 |
ADR—American Depository Receipts | ||
a Non-income producing security. | ||
b Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Technology | 22.9 | Financial Services | 5.6 |
Health Care | 18.1 | Money Market Investment | 4.0 |
Consumer Staples | 12.2 | Utilities | 3.2 |
Energy | 11.3 | Telecommunication Services | 1.9 |
Industrial | 10.8 | Materials | 1.7 |
Consumer Discretionary | 7.5 | 99.2 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 9
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2010 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments: | |||
Unaffiliated issuers | 316,992,909 | 324,046,190 | |
Affiliated issuers | 13,550,000 | 13,550,000 | |
Cash | 498,518 | ||
Cash denominated in foreign currencies | 628,432 | 628,118 | |
Dividends and interest receivable | 1,231,789 | ||
Receivable for shares of Common Stock subscribed | 1,152,182 | ||
Prepaid expenses | 23,579 | ||
341,130,376 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 315,496 | ||
Payable for shares of Common Stock redeemed | 449,929 | ||
Accrued expenses | 39,572 | ||
804,997 | |||
Net Assets ($) | 340,325,379 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 330,364,493 | ||
Accumulated undistributed investment income—net | 2,257,765 | ||
Accumulated net realized gain (loss) on investments | 671,093 | ||
Accumulated net unrealized appreciation (depreciation) | |||
on investments and foreign currency transactions | 7,032,028 | ||
Net Assets ($) | 340,325,379 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 23,443,693 | 7,065,895 | 309,815,791 |
Shares Outstanding | 2,007,600 | 612,956 | 26,263,567 |
Net Asset Value Per Share ($) | 11.68 | 11.53 | 11.80 |
See notes to financial statements. |
10
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2010 (Unaudited)
Investment Income ($): | |
Income: | |
Cash dividends (net of $263,499 foreign taxes withheld at source): | |
Unaffiliated issuers | 3,887,396 |
Affiliated issuers | 9,135 |
Total Income | 3,896,531 |
Expenses: | |
Management fee—Note 3(a) | 1,355,756 |
Custodian fees—Note 3(c) | 96,021 |
Shareholder servicing costs—Note 3(c) | 38,124 |
Professional fees | 27,209 |
Registration fees | 22,899 |
Distribution fees—Note 3(b) | 15,285 |
Directors’ fees and expenses—Note 3(d) | 6,689 |
Prospectus and shareholders’ reports | 5,192 |
Loan commitment fees—Note 2 | 3,685 |
Miscellaneous | 14,662 |
Total Expenses | 1,585,522 |
Less—reduction in fees due to earnings credits—Note 1(c) | (20) |
Net Expenses | 1,585,502 |
Investment Income—Net | 2,311,029 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | 2,256,135 |
Net realized gain (loss) on forward foreign currency exchange contracts | 46,260 |
Net Realized Gain (Loss) | 2,302,395 |
Net unrealized appreciation (depreciation) | |
on investments and foreign currency transactions | (21,353,435) |
Net unrealized appreciation (depreciation) | |
on forward foreign currency exchange contracts | 2,460 |
Net Unrealized Appreciation (Depreciation) | (21,350,975) |
Net Realized and Unrealized Gain (Loss) on Investments | (19,048,580) |
Net Decrease in Net Assets Resulting from Operations | (16,737,551) |
See notes to financial statements. |
The Fund 11
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
May 31, 2010 | Year Ended | |
(Unaudited) | November 30, 2009a | |
Operations ($): | ||
Investment income—net | 2,311,029 | 1,768,472 |
Net realized gain (loss) on investments | 2,302,395 | 1,576,357 |
Net unrealized appreciation | ||
(depreciation) on investments | (21,350,975) | 55,758,267 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (16,737,551) | 59,103,096 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (42,464) | (8,168) |
Class C Shares | (427) | — |
Class I Shares | (1,883,788) | (425,048) |
Total Dividends | (1,926,679) | (433,216) |
Capital Stock Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 18,820,157 | 6,212,436 |
Class C Shares | 6,026,733 | 1,048,689 |
Class I Shares | 81,386,101 | 170,474,722 |
Dividends reinvested: | ||
Class A Shares | 41,282 | 5,829 |
Class C Shares | 288 | — |
Class I Shares | 533,463 | 166,872 |
Cost of shares redeemed: | ||
Class A Shares | (2,092,299) | (2,929,771) |
Class C Shares | (307,844) | (230,707) |
Class I Shares | (19,197,167) | (36,319,067) |
Class T Shares | — | (18,311) |
Increase (Decrease) in Net Assets | ||
from Capital Stock Transactions | 85,210,714 | 138,410,692 |
Total Increase (Decrease) in Net Assets | 66,546,484 | 197,080,572 |
Net Assets ($): | ||
Beginning of Period | 273,778,895 | 76,698,323 |
End of Period | 340,325,379 | 273,778,895 |
Undistributed investment income—net | 2,257,765 | 1,873,415 |
12
Six Months Ended | ||
May 31, 2010 | Year Ended | |
(Unaudited) | November 30, 2009a | |
Capital Share Transactions: | ||
Class Ab | ||
Shares sold | 1,503,459 | 565,715 |
Shares issued for dividends reinvested | 3,318 | 628 |
Shares redeemed | (170,535) | (268,802) |
Net Increase (Decrease) in Shares Outstanding | 1,336,242 | 297,541 |
Class C | ||
Shares sold | 482,362 | 101,758 |
Shares issued for dividends reinvested | 23 | — |
Shares redeemed | (24,687) | (25,194) |
Net Increase (Decrease) in Shares Outstanding | 457,698 | 76,564 |
Class I | ||
Shares sold | 6,406,630 | 16,917,733 |
Shares issued for dividends reinvested | 42,507 | 17,847 |
Shares redeemed | (1,518,143) | (3,682,516) |
Net Increase (Decrease) in Shares Outstanding | 4,930,994 | 13,253,064 |
Class Tb | ||
Shares redeemed | — | (2,220) |
a Effective as of the close of business on February 4, 2009, the fund no longer offers Class T shares. |
b On the close of business on February 4, 2009, 2,220 Class T shares representing $18,311 were converted to 2,026 |
Class A shares. |
See notes to financial statements.
The Fund 13
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||
May 31, 2010 | Year Ended November 30, | |||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007a |
Per Share Data ($): | ||||
Net asset value, beginning of period | 12.23 | 8.91 | 13.73 | 12.50 |
Investment Operations: | ||||
Investment income—netb | .09 | .06 | .05 | .04 |
Net realized and unrealized | ||||
gain (loss) on investments | (.58) | 3.28 | (4.70) | 1.19 |
Total from Investment Operations | (.49) | 3.34 | (4.65) | 1.23 |
Distributions: | ||||
Dividends from investment income—net | (.06) | (.02) | (.08) | — |
Dividends from net realized | ||||
gain on investments | — | — | (.09) | — |
Total Distributions | (.06) | (.02) | (.17) | — |
Net asset value, end of period | 11.68 | 12.23 | 8.91 | 13.73 |
Total Return (%)c | (4.06)d | 37.57 | (34.32) | 9.92d |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | 1.33e | 1.38 | 1.59 | 2.40e |
Ratio of net expenses to average net assets | 1.33e,f | 1.38f | 1.47 | 1.46e |
Ratio of net investment income | ||||
to average net assets | 1.43e | .53 | .44 | .29e |
Portfolio Turnover Rate | 7.33d | 12.75 | 15.54 | 14.53d |
Net Assets, end of period ($ x 1,000) | 23,444 | 8,212 | 3,329 | 5,132 |
a | From December 29, 2006 (commencement of operations) to November 30, 2007. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
14
Six Months Ended | ||||
May 31, 2010 | Year Ended November 30, | |||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007a |
Per Share Data ($): | ||||
Net asset value, beginning of period | 12.07 | 8.83 | 13.64 | 12.50 |
Investment Operations: | ||||
Investment income (loss)—netb | .05 | (.01) | (.04) | (.06) |
Net realized and unrealized | ||||
gain (loss) on investments | (.59) | 3.25 | (4.68) | 1.20 |
Total from Investment Operations | (.54) | 3.24 | (4.72) | 1.14 |
Distributions: | ||||
Dividends from investment income—net | (.00)c | — | — | — |
Dividends from net realized | ||||
gain on investments | — | — | (.09) | — |
Total Distributions | (.00)c | — | (.09) | — |
Net asset value, end of period | 11.53 | 12.07 | 8.83 | 13.64 |
Total Return (%)d | (4.45)e | 36.69 | (34.82) | 9.12e |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | 2.11f | 2.12 | 2.36 | 3.16f |
Ratio of net expenses to average net assets | 2.11f,g | 2.09 | 2.22 | 2.20f |
Ratio of net investment income | ||||
(loss) to average net assets | .81f | (.11) | (.29) | (.46)f |
Portfolio Turnover Rate | 7.33e | 12.75 | 15.54 | 14.53e |
Net Assets, end of period ($ x 1,000) | 7,066 | 1,873 | 695 | 925 |
a | From December 29, 2006 (commencement of operations) to November 30, 2007. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Exclusive of sales charge. |
e | Not annualized. |
f | Annualized. |
g | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
The Fund 15
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||
May 31, 2010 | Year Ended November 30, | |||
Class I Shares | (Unaudited) | 2009 | 2008 | 2007a,b |
Per Share Data ($): | ||||
Net asset value, beginning of period | 12.36 | 8.99 | 13.76 | 12.50 |
Investment Operations: | ||||
Investment income—netc | .09 | .11 | .10 | .07 |
Net realized and unrealized | ||||
gain (loss) on investments | (.56) | 3.31 | (4.76) | 1.19 |
Total from Investment Operations | (.47) | 3.42 | (4.66) | 1.26 |
Distributions: | ||||
Dividends from investment income—net | (.09) | (.05) | (.02) | — |
Dividends from net realized | ||||
gain on investments | — | — | (.09) | — |
Total Distributions | (.09) | (.05) | (.11) | — |
Net asset value, end of period | 11.80 | 12.36 | 8.99 | 13.76 |
Total Return (%) | (3.88)d | 38.22 | (34.12) | 10.08d |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | .96e | .99 | 1.17 | 2.05e |
Ratio of net expenses to average net assets | .96e,f | .99f | 1.15 | 1.18e |
Ratio of net investment income | ||||
to average net assets | 1.46e | 1.05 | .83 | .58e |
Portfolio Turnover Rate | 7.33d | 12.75 | 15.54 | 14.53d |
Net Assets, end of period ($ x 1,000) | 309,816 | 263,694 | 72,656 | 18,312 |
a | From December 29, 2006 (commencement of operations) to November 30, 2007. |
b | Effective June 1, 2007, Class R shares were redesignated as Class I shares. |
c | Based on average shares outstanding at each month end. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
16
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
Global Stock Fund (the “fund”) is a separate diversified series of Strategic Funds, Inc. (the “Company”) 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 eleven series, including the fund. The fund’s investment objective seeks long-term total return.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.Walter Scott & Partners Limited (“Walter Scott”), a subsidiary of BNY Mellon and an affiliate of Dreyfus, serves as the fund’s sub-investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares.The fund is authorized to issue 100 million shares of $.001 par value Common Stock in each of the following classes of shares:Class A,Class C and Class I. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) on Class C shares redeemed within one year of purchase. Class I shares are sold at net asset value per share only to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each cla ss of shares based on its relative net assets.
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 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 Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value.When market quotations or officia l closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market),but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Directors. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures contracts. For other securities that are fair valued by the
18
Board of Directors, certain factors may be considered such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward foreign currency exchange contracts (“forward contracts”) are valued at the forward rate.
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 Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of May 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic† | 126,999,893 | — | — | 126,999,893 |
Equity Securities— | ||||
Foreign† | 92,707,023 | 104,339,274†† | — | 197,046,297 |
Mutual Funds | 13,550,000 | — | — | 13,550,000 |
† | See Statement of Investments for country and industry classification. |
†† | To adjust for the market difference between local market close and the calculation of the net asset |
value, the fund may utilize fair value model prices for international equities provided by an | |
independent service resulting in a Level 2 classification. |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective f or fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
20
(b) Foreign currency transactions: The fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized on securities transactions between trade and settlement date and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments resulting from changes in exchange rates. Foreign currency gains and losses on investments are included with net realized and unrealized gain or loss on investments.
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Investing in foreign markets may involve special risks and considerations not typically associated with investing in the U.S. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
liquid, subject to government ownership controls and delayed settlements, and their prices may be more volatile than those of comparable securities in the U.S.
(d) Affiliated issuers: Investments in other investment companies advised by Dreyfus are defined as “affiliated” in the Act.
The fund may invest in shares of certain affiliated investment companies also advised or managed by Dreyfus. Investments in affiliated investment companies for the period ended May 31, 2010 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 11/30/2009 ($) | Purchases ($) | Sales ($) | 5/31/2010 ($) | Assets (%) |
Dreyfus | |||||
Institutional | |||||
Preferred | |||||
Plus Money | |||||
Market Fund | 7,100,000 | 80,100,000 | 73,650,000 | 13,550,000 | 4.0 |
(e) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and 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. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(f) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended May 31, 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
22
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 three-year period ended November 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $967,165 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to November 30, 2009. If not applied, $955,153 of the carryover expires in fiscal 2016 and $12,012 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended November 30, 2009 was as follows: ordinary income $433,216.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended May 31, 2010, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with Dreyfus, the management fee is computed at the annual rate of .85% of the value of the fund’s average daily net assets and is payable monthly. Dreyfus has
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
contractually agreed, until April 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that annual fund operating expenses (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, commitment fees on borrowings and extraordinary expenses) do not exceed 1.25% of the value of the fund’s average daily net assets. During the period ended May 31, 2010, there was no reduction in management fee pursuant to the undertaking.
During the period ended May 31, 2010, the Distributor retained $13,449 from commissions earned on sales of the fund’s Class A shares.
Pursuant to a sub-investment advisory agreement between Dreyfus and Walter Scott, Dreyfus pays Walter Scott a monthly fee at an annual percentage of the fund’s average daily net assets.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended May 31, 2010, Class C shares was charged $15,285, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class A and Class C shares and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended May 31, 2010, Class A and Class C shares were charged $18,754 and $5,095, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing
24
personnel and facilities to perform transfer agency services for the fund. During the period ended May 31, 2010, the fund was charged $3,003 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended May 31, 2010, the fund was charged $315 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were partially offset by earnings credits of $20.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended May 31, 2010, the fund was charged $96,021 pursuant to the custody agreement.
During the period ended May 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $249,783, Rule 12b-1 distribution plan fees $4,440, shareholder services plan fees $6,244, custodian fees $50,620, chief compliance officer fees $3,656 and transfer agency per account fees $753.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward contracts, during the period ended May 31, 2010, amounted to $99,173,748 and $22,177,265, respectively.
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.The disclosure requirements distinguish between derivatives, which are accounted for as “hedges” and those that do not qualify for hedge accounting.Because investment companies value their derivatives at fair value and recognize changes in fair value through the Statement of Operations, they do not qualify for such accounting.Accordingly, even though a fund’s investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for purposes of this disclosure.
Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy. When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract increases between those dates. Any realized gain or loss which occurred during the period is reflected in the Statement of Operations.The fund is exposed to foreign currency risk as a result of changes in value of underlying financial instruments.
26
The fund is also exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is typically limited to the unrealized gain on each open contract. At May 31, 2010, there were no open forward contracts outstanding.
At May 31, 2010, accumulated net unrealized appreciation on investments was $7,053,281, consisting of $19,622,012 gross unrealized appreciation and $12,568,731 gross unrealized depreciation.
At May 31,2010,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).
The Fund 27
NOTES
International
Stock Fund
SEMIANNUAL REPORT May 31, 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.
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 |
10 | Statement of Assets and Liabilities |
11 | Statement of Operations |
12 | Statement of Changes in Net Assets |
14 | Financial Highlights |
17 | Notes to Financial Statements |
FOR MORE INFORMATION | |
Back Cover |
International
Stock Fund
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We present this semiannual report for International Stock Fund, covering the six-month period from December 1, 2009, through May 31, 2010.
Psychology historically has played an important role in how investors—especially individual investors—perceive the financial markets and make asset allocation decisions. Unlike the purely rational investor who, in an ideal world, would seek investments that potentially can deliver the best risk/return characteristics, the everyday investor typically has been influenced by emotions. Currently, investors’ emotions appear to be deeply divided, with a large number still seeking low risk investments (such as cash instruments), and others favoring higher risk investments (such as smaller-cap and emerging market stocks). Meanwhile, investment classes in the middle of the risk spectrum seemingly have been largely avoided.
It is important to note that investor sentiment often lags the economic cycle.That’s why we continue to stress the importance of a long-term, well balanced asset allocation strategy that can help cushion the volatility produced by the emotional swings of the financial markets. If you have not revisited your investment portfolio recently, we urge you to speak with your financial advisor about taking advantage of long-term market fundamentals rather than remaining susceptible to the effects of emotional reactions to short-term developments.
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.
Jonathan R. Baum
Chairman and Chief Executive Officer
The Dreyfus Corporation
June 15, 2010
2
DISCUSSION OF FUND PERFORMANCE
For the period of December 1, 2009, through May 31, 2010, as provided by Jane Henderson and Roy Leckie of Walter Scott & Partners Limited (Walter Scott), Sub-investment adviser
Fund and Market Performance Overview
For the six-month period ended May 31, 2010, International Stock Fund’s Class A shares achieved a return of –5.05%, Class C shares returned –5.46% and Class I shares returned –4.95%.1 In comparison, the fund’s benchmark index, the Morgan Stanley Capital International Europe,Australasia, Far East Index (the “MSCI EAFE Index”), achieved a –10.90% return over the same period.2
International stock markets gave back a portion of the gains achieved in earlier reporting periods as a sovereign debt crisis in Europe and inflation fears in China raised global economic concerns. The fund produced returns that were better than its benchmark, mainly due to the relative success of our stock selection strategy in Europe and Japan.
The Fund’s Investment Approach
The fund seeks long-term real return by investing in stocks of foreign companies that are located in the world’s developed markets outside of the United States.When selecting stocks,Walter Scott seeks companies with fundamental strengths that indicate the potential for sustainable growth.The firm focuses on individual stock selection through extensive fundamental research. Candidates are initially selected for research if they meet certain broad absolute and trend criteria. Financial statements are analyzed in an effort to identify the nature of their operating margins and to understand the variables that add value to their businesses. Companies meeting the financial criteria are subjected to a detailed investigation of their products, cost and pricing, competition, industry position and outlook.
International Equity Markets Produced Mixed Results
The reporting period saw the continuation of a worldwide economic recovery that began earlier in 2009. Although unemployment rates
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
remained high in many developed nations, robust economic growth in the emerging markets and,to a lesser extent,the United States supported greater manufacturing activity and rising commodity prices. However, the positive effects of the global economic recovery were offset during the reporting period by a burgeoning sovereign debt crisis in Greece and other parts of Europe. In addition, investors worried that potential inflationary pressures in China might dampen economic growth in Asia. As a result, international stock markets generally gave back a portion of the gains made during the rally from early February to mid-April.
As was the case since the global stock market rally began, investors typically continued to search for bargains among lower-quality stocks. Although investors appeared to pay more attention to underlying business fundamentals over the first five months of 2010, this shift proved tentative due to ongoing economic uncertainty.
Stock Selection Strategy Enhanced Fund Returns
In the midst of heightened market volatility,we found relatively few new opportunities meeting our investment criteria in continental Europe, and underweighted exposure to the region helped the fund avoid the brunt of instability there. The fund held particularly light positions in European banks, which generally suffered during the sovereign debt crisis. Conversely, the fund scored success with some European stocks that benefited from company-specific factors. For example pharmaceutical developer Novo Nordisk continues to benefit from the growing market of diabetes patients throughout the developed world, and apparel retailer Hennes & Mauritz demonstrated lower-than-expected sensitivity to economic headwinds as evidenced by improving operating results.The fund also fared relatively well with an overweighted position in Japan, where an appreciating yen relative to the euro and U.S. dollar bolstered investment values for U.S . residents.
From a market sector perspective, the fund achieved strong results in the technology sector, where our bottom-up stock selection process identified a number of growing companies selling at attractive valuations.We especially favored larger technology companies with a significant degree of pricing control, including Japan’s Nintendo, Canon and Keyence.
4
The fund produced less favorable results compared to its benchmark in the consumer staples sector. Disappointments during the reporting period included grocery chainsTesco andWM Morrison Supermarkets in the United Kingdom and food products company Danone and cosmetics producer L’Oreal in France.
Finding Opportunities One Stock at a Time
We have maintained a cautious posture with regard to the world’s developed markets, which have continued to struggle with sub-par economic growth and heavy debt burdens.We are especially concerned about Europe, which as of the reporting period’s end is exploring ways to prevent the spread of its debt crisis to additional countries.
Nonetheless, our stock selection process has continued to find attractive opportunities among individual companies in a variety of regions. Indeed, if security selection becomes a more critical determinant of international stock market performance, as we believe it will, the fund’s focus on extensive fundamental research could be particularly well suited to the upcoming investment environment.
June 15, 2010
Equity funds are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus. | |
Investing internationally involves special risks, including changes in currency exchange rates, political, economic, and social instability, a lack of comprehensive company information, differing auditing and legal standards, and less market liquidity. | |
1 | Total return includes reinvestment of dividends and any capital gains paid, and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charge imposed on redemptions in the case of Class C shares. Had these charges been reflected, returns would have been lower. Past performance is no guarantee of future results. Share price and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. Return figures provided reflect the absorption of certain fund expenses by The Dreyfus Corporation pursuant to an undertaking in effect through April 1, 2011, at which time it may be extended, terminated or modified. Had these expenses not been absorbed, the fund’s returns would have been lower. |
2 | SOURCE: LIPPER INC. – Reflects reinvestment of net dividends and, where applicable, capital gain distributions.The Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE) Index is an unmanaged index composed of a sample of companies representative of the market structure of European and Pacific Basin countries. Returns are calculated on a month-end basis. Investors cannot invest directly in any index. |
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 International Stock Fund from December 1, 2009 to May 31, 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 May 31, 2010
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.51 | $ 10.43 | $ 4.67 |
Ending value (after expenses) | $949.50 | $945.40 | $950.50 |
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 May 31, 2010
Class A | Class C | Class I | |
Expenses paid per $1,000† | $ 6.74 | $ 10.80 | $ 4.84 |
Ending value (after expenses) | $1,018.25 | $1,014.21 | $1,020.14 |
† Expenses are equal to the fund’s annualized expense ratio of 1.34% for Class A, 2.15% for Class C and .96% |
for Class I , multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half |
year period). |
6
STATEMENT OF INVESTMENTS
May 31, 2010 (Unaudited)
Common Stocks—94.2% | Shares | Value ($) |
Australia—4.6% | ||
Cochlear | 74,200 | 4,576,281 |
CSL | 358,200 | 9,599,792 |
Woodside Petroleum | 263,000 | 9,570,970 |
23,747,043 | ||
Belgium—1.9% | ||
Colruyt | 43,000 | 9,772,487 |
Brazil—1.8% | ||
Petroleo Brasileiro, ADR | 294,800 | 9,129,956 |
Canada—1.0% | ||
Suncor Energy | 171,200 | 5,286,963 |
Denmark—1.9% | ||
Novo Nordisk, Cl. B | 127,000 | 9,792,675 |
France—5.8% | ||
Cie Generale d’Optique | ||
Essilor International | 171,000 | 9,747,147 |
Danone | 198,700 | 10,245,888 |
L’Oreal | 104,300 | 9,774,685 |
29,767,720 | ||
Germany—3.8% | ||
Adidas | 191,000 | 9,591,017 |
SAP | 226,800 | 9,799,519 |
19,390,536 | ||
Hong Kong—10.6% | ||
China Mobile | 1,092,000 | 10,334,562 |
CLP Holdings | 1,477,500 | 10,406,533 |
CNOOC | 5,786,000 | 9,257,600 |
Esprit Holdings | 1,561,934 | 9,206,134 |
Hong Kong & China Gas | 2,558,105 | 5,650,004 |
Hutchison Whampoa | 1,602,000 | 9,966,857 |
54,821,690 | ||
Japan—32.4% | ||
Aeon Mall | 521,600 | 10,671,829 |
Canon | 241,700 | 9,956,732 |
Chugai Pharmaceutical | 559,400 | 9,919,182 |
Daikin Industries | 301,800 | 9,959,300 |
Daito Trust Construction | 202,100 | 10,215,042 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) |
Japan (continued) | ||
Denso | 402,800 | 10,877,505 |
Fanuc | 91,200 | 9,640,656 |
Hirose Electric | 93,000 | 8,828,402 |
Honda Motor | 234,500 | 7,145,144 |
HOYA | 397,200 | 9,306,303 |
INPEX | 1,500 | 9,437,906 |
Keyence | 43,100 | 9,690,507 |
Komatsu | 556,600 | 10,463,419 |
Mitsubishi Estate | 633,000 | 9,685,436 |
Nintendo | 36,400 | 10,762,644 |
Shimamura | 80,100 | 7,295,435 |
Shin-Etsu Chemical | 179,800 | 9,058,233 |
Tokio Marine Holdings | 162,200 | 4,547,880 |
167,461,555 | ||
Singapore—.4% | ||
DBS Group Holdings | 217,500 | 2,164,564 |
Spain—1.9% | ||
Inditex | 174,000 | 9,697,153 |
Sweden—2.0% | ||
Hennes & Mauritz, Cl. B | 179,640 | 10,201,995 |
Switzerland—8.9% | ||
Nestle | 230,000 | 10,416,667 |
Nobel Biocare Holding | 110,000 | 2,063,923 |
Novartis | 221,900 | 10,049,819 |
Roche Holding | 19,000 | 2,758,540 |
SGS | 8,290 | 10,369,651 |
Synthes | 96,840 | 10,116,739 |
45,775,339 | ||
United Kingdom—17.2% | ||
BG Group | 680,700 | 10,444,442 |
Burberry Group | 529,000 | 5,282,426 |
Cairn Energy | 1,332,800 a | 7,765,624 |
Centrica | 2,511,400 | 9,980,372 |
HSBC Holdings | 1,086,900 | 9,867,906 |
Reckitt Benckiser Group | 197,000 | 9,244,747 |
8
Common Stocks (continued) | Shares | Value ($) |
United Kingdom (continued) | ||
Smith & Nephew | 1,063,000 | 9,630,935 |
Standard Chartered | 406,200 | 9,616,182 |
Tesco | 1,616,000 | 9,619,020 |
WM Morrison Supermarkets | 1,945,000 | 7,431,329 |
88,882,983 | ||
Total Common Stocks | ||
(cost $498,080,592) | 485,892,659 | |
Other Investment—4.9% | ||
Registered Investment Company; | ||
Dreyfus Institutional Preferred | ||
Plus Money Market Fund | ||
(cost $25,400,000) | 25,400,000 b | 25,400,000 |
Total Investments (cost $523,480,592) | 99.1% | 511,292,659 |
Cash and Receivables (Net) | .9% | 4,668,237 |
Net Assets | 100.0% | 515,960,896 |
ADR—American Depository Receipts | ||
a Non-income producing security. | ||
b Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Health Care | 15.2 | Industrials | 9.8 |
Consumer Discretionary | 13.4 | Utilities | 5.0 |
Consumer Staples | 12.9 | Money Market Investment | 4.9 |
Energy | 11.8 | Telecommunication Services | 2.0 |
Technology | 11.3 | Materials | 1.8 |
Financial Services | 11.0 | 99.1 | |
† Based on net assets. | |||
See notes to financial statements. |
The Fund 9
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2010 (Unaudited)
Cost | Value | ||
Assets ($): | |||
Investments in securities—See Statement of Investments: | |||
Unaffiliated issuers | 498,080,592 | 485,892,659 | |
Affiliated issuers | 25,400,000 | 25,400,000 | |
Cash | 1,081,089 | ||
Cash denominated in foreign currencies | 1,103,894 | 1,101,696 | |
Dividends and interest receivable | 2,411,768 | ||
Receivable for shares of Common Stock subscribed | 595,643 | ||
Prepaid expenses | 23,987 | ||
516,506,842 | |||
Liabilities ($): | |||
Due to The Dreyfus Corporation and affiliates—Note 3(c) | 454,736 | ||
Payable for shares of Common Stock redeemed | 37,796 | ||
Accrued expenses | 53,414 | ||
545,946 | |||
Net Assets ($) | 515,960,896 | ||
Composition of Net Assets ($): | |||
Paid-in capital | 543,044,448 | ||
Accumulated undistributed investment income—net | 3,000,509 | ||
Accumulated net realized gain (loss) on investments | (17,844,983) | ||
Accumulated net unrealized appreciation (depreciation) | |||
on investments and foreign currency transactions | (12,239,078) | ||
Net Assets ($) | 515,960,896 | ||
Net Asset Value Per Share | |||
Class A | Class C | Class I | |
Net Assets ($) | 55,227,080 | 5,101,166 | 455,632,650 |
Shares Outstanding | 4,895,747 | 457,681 | 40,163,029 |
Net Asset Value Per Share ($) | 11.28 | 11.15 | 11.34 |
See notes to financial statements. |
10
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2010 (Unaudited)
Investment Income ($): | |
Income: | |
Cash dividends (net of $526,613 foreign taxes withheld at source): | |
Unaffiliated issuers | 6,274,640 |
Affiliated issuers | 15,442 |
Interest | 173 |
Total Income | 6,290,255 |
Expenses: | |
Management fee—Note 3(a) | 1,893,141 |
Custodian fees—Note 3(c) | 143,932 |
Shareholder servicing costs—Note 3(c) | 72,168 |
Registration fees | 32,951 |
Professional fees | 29,204 |
Directors’ fees and expenses—Note 3(d) | 12,871 |
Distribution fees—Note 3(b) | 10,520 |
Prospectus and shareholders’ reports | 4,925 |
Loan commitment fees—Note 2 | 4,597 |
Miscellaneous | 19,339 |
Total Expenses | 2,223,648 |
Less—reduction in fees due to earnings credits—Note 1(c) | (34) |
Net Expenses | 2,223,614 |
Investment Income—Net | 4,066,641 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | |
Net realized gain (loss) on investments and foreign currency transactions | 3,695,030 |
Net realized gain (loss) on forward foreign currency exchange contracts | (36,428) |
Net Realized Gain (Loss) | 3,658,602 |
Net unrealized appreciation (depreciation) on | |
investments and foreign currency transactions | (38,895,231) |
Net unrealized appreciation (depreciation) | |
on forward foreign currency exchange contracts | 2,044 |
Net Unrealized Appreciation (Depreciation) | (38,893,187) |
Net Realized and Unrealized Gain (Loss) on Investments | (35,234,585) |
Net (Decrease) in Net Assets Resulting from Operations | (31,167,944) |
See notes to financial statements. |
The Fund 11
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||
May 31, 2010 | Year Ended | |
(Unaudited) | November 30, 2009a | |
Operations ($): | ||
Investment income—net | 4,066,641 | 2,396,899 |
Net realized gain (loss) on investments | 3,658,602 | (14,951,731) |
Net unrealized appreciation | ||
(depreciation) on investments | (38,893,187) | 85,132,414 |
Net Increase (Decrease) in Net Assets | ||
Resulting from Operations | (31,167,944) | 72,577,582 |
Dividends to Shareholders from ($): | ||
Investment income—net: | ||
Class A Shares | (142,971) | (14,326) |
Class C Shares | (4,254) | (315) |
Class I Shares | (3,306,609) | (1,438,410) |
Class T Shares | — | (959) |
Total Dividends | (3,453,834) | (1,454,010) |
Capital Stock Transactions ($): | ||
Net proceeds from shares sold: | ||
Class A Shares | 47,991,087 | 16,902,665 |
Class C Shares | 4,771,614 | 946,149 |
Class I Shares | 169,208,408 | 228,631,789 |
Dividends reinvested: | ||
Class A Shares | 141,708 | 13,684 |
Class C Shares | 2,712 | 233 |
Class I Shares | 1,027,427 | 430,172 |
Class T Shares | — | 551 |
Cost of shares redeemed: | ||
Class A Shares | (7,190,041) | (1,905,577) |
Class C Shares | (478,339) | (112,519) |
Class I Shares | (23,709,551) | (78,185,632) |
Class T Shares | — | (20,033) |
Increase (Decrease) in Net Assets | ||
from Capital Stock Transactions | 191,765,025 | 166,701,482 |
Total Increase (Decrease) in Net Assets | 157,143,247 | 237,825,054 |
Net Assets ($): | ||
Beginning of Period | 358,817,649 | 120,992,595 |
End of Period | 515,960,896 | 358,817,649 |
Undistributed investment income—net | 3,000,509 | 2,387,702 |
12
Six Months Ended | ||
May 31, 2010 | Year Ended | |
(Unaudited) | November 30, 2009a | |
Capital Share Transactions: | ||
Class Ab | ||
Shares sold | 3,977,929 | 1,545,517 |
Shares issued for dividends reinvested | 11,750 | 1,512 |
Shares redeemed | (602,257) | (172,304) |
Net Increase (Decrease) in Shares Outstanding | 3,387,422 | 1,374,725 |
Class C | ||
Shares sold | 396,601 | 90,996 |
Shares issued for dividends reinvested | 227 | 26 |
Shares redeemed | (42,642) | (11,194) |
Net Increase (Decrease) in Shares Outstanding | 354,186 | 79,828 |
Class I | ||
Shares sold | 13,837,377 | 22,570,720 |
Shares issued for dividends reinvested | 84,841 | 47,481 |
Shares redeemed | (1,965,232) | (8,544,986) |
Net Increase (Decrease) in Shares Outstanding | 11,956,986 | 14,073,215 |
Class Tb | ||
Shares issued for dividends reinvested | — | 64 |
Shares redeemed | — | (2,414) |
Net Increase (Decrease) in Shares Outstanding | — | (2,350) |
a Effective as of the close of business on February 4, 2009, the fund no longer offers Class T shares. |
b On the close of business on February 4, 2009, 2,414 Class T shares representing $20,033 were converted to 2,316 |
Class A shares. |
See notes to financial statements.
The Fund 13
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated. All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | ||||
May 31, 2010 | Year Ended November 30, | |||
Class A Shares | (Unaudited) | 2009 | 2008 | 2007a |
Per Share Data ($): | ||||
Net asset value, beginning of period | 11.97 | 8.43 | 13.72 | 12.50 |
Investment Operations: | ||||
Investment income—netb | .11 | .05 | .09 | .07 |
Net realized and unrealized | ||||
gain (loss) on investments | (.71) | 3.58 | (5.28) | 1.15 |
Total from Investment Operations | (.60) | 3.63 | (5.19) | 1.22 |
Distributions: | ||||
Dividends from investment income—net | (.09) | (.09) | (.02) | — |
Dividends from net realized | ||||
gain on investments | — | — | (.08) | — |
Total Distributions | (.09) | (.09) | (.10) | — |
Net asset value, end of period | 11.28 | 11.97 | 8.43 | 13.72 |
Total Return (%)c | (5.05)d | 43.33 | (38.07) | 9.76d |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | 1.34e | 1.43 | 1.43 | 1.75e |
Ratio of net expenses to average net assets | 1.34e,f | 1.42 | 1.41 | 1.47e |
Ratio of net investment income | ||||
to average net assets | 1.90e | .50 | .79 | .50e |
Portfolio Turnover Rate | 5.16d | 21.67 | 13.18 | 13.34d |
Net Assets, end of period ($ x 1,000) | 55,227 | 18,059 | 1,126 | 1,396 |
a | From December 29, 2006 (commencement of operations) to November 30, 2007. |
b | Based on average shares outstanding at each month end. |
c | Exclusive of sales charge. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
14
Six Months Ended | ||||
May 31, 2010 | Year Ended November 30, | |||
Class C Shares | (Unaudited) | 2009 | 2008 | 2007a |
Per Share Data ($): | ||||
Net asset value, beginning of period | 11.83 | 8.32 | 13.64 | 12.50 |
Investment Operations: | ||||
Investment income (loss)—netb | .08 | (.01) | .00c | (.04) |
Net realized and unrealized | ||||
gain (loss) on investments | (.72) | 3.53 | (5.24) | 1.18 |
Total from Investment Operations | (.64) | 3.52 | (5.24) | 1.14 |
Distributions: | ||||
Dividends from investment income—net | (.04) | (.01) | — | — |
Dividends from net realized | ||||
gain on investments | — | — | (.08) | — |
Total Distributions | (.04) | (.01) | (.08) | — |
Net asset value, end of period | 11.15 | 11.83 | 8.32 | 13.64 |
Total Return (%)d | (5.46)e | 42.31 | (38.58) | 9.04e |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | 2.15f | 2.25 | 2.24 | 2.50f |
Ratio of net expenses to average net assets | 2.15f,g | 2.22 | 2.20 | 2.21f |
Ratio of net investment income | ||||
(loss) to average net assets | 1.30f | (.13) | .03 | (.31)f |
Portfolio Turnover Rate | 5.16e | 21.67 | 13.18 | 13.34e |
Net Assets, end of period ($ x 1,000) | 5,101 | 1,224 | 197 | 445 |
a | From December 29, 2006 (commencement of operations) to November 30, 2007. |
b | Based on average shares outstanding at each month end. |
c | Amount represents less than $.01 per share. |
d | Exclusive of sales charge. |
e | Not annualized. |
f | Annualized. |
g | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
The Fund 15
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||
May 31, 2010 | Year Ended November 30, | |||
Class I Shares | (Unaudited) | 2009 | 2008 | 2007a,b |
Per Share Data ($): | ||||
Net asset value, beginning of period | 12.04 | 8.47 | 13.76 | 12.50 |
Investment Operations: | ||||
Investment income—netc | .11 | .12 | .14 | .11 |
Net realized and unrealized | ||||
gain (loss) on investments | (.70) | 3.57 | (5.30) | 1.15 |
Total from Investment Operations | (.59) | 3.69 | (5.16) | 1.26 |
Distributions: | ||||
Dividends from investment income—net | (.11) | (.12) | (.05) | — |
Dividends from net realized | ||||
gain on investments | — | — | (.08) | — |
Total Distributions | (.11) | (.12) | (.13) | — |
Net asset value, end of period | 11.34 | 12.04 | 8.47 | 13.76 |
Total Return (%) | (4.95)d | 43.98 | (37.82) | 10.08d |
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assets | .96e | 1.01 | 1.03 | 1.38e |
Ratio of net expenses to average net assets | .96e,f | 1.01f | 1.02 | 1.16e |
Ratio of net investment income | ||||
to average net assets | 1.82e | 1.18 | 1.19 | .81e |
Portfolio Turnover Rate | 5.16d | 21.67 | 13.18 | 13.34d |
Net Assets, end of period ($ x 1,000) | 455,633 | 339,535 | 119,650 | 69,201 |
a | From December 29, 2006 (commencement of operations) to November 30, 2007. |
b | Effective June 1, 2007, Class R shares were redesignated as Class I shares. |
c | Based on average shares outstanding at each month end. |
d | Not annualized. |
e | Annualized. |
f | Expense waivers and/or reimbursements amounted to less than .01%. |
See notes to financial statements.
16
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1—Significant Accounting Policies:
International Stock Fund (the “fund”) is a separate diversified series of Strategic Funds, Inc. (the “Company”) 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 eleven series, including the fund. The fund’s investment objective seeks long-term total return.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.Walter Scott & Partners Limited (“Walter Scott”), a subsidiary of BNY Mellon and an affiliate of Dreyfus, serves as the fund’s sub-investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares.The fund is authorized to issue 100 million shares of $.001 par value Common Stock in each of the following classes of shares:Class A,Class C and Class I. Class A shares are subject to a sales charge imposed at the time of purchase. Class C shares are subject to a contingent deferred sales charge (“CDSC”) on Class C shares redeemed within one year of purchase. Class I shares are sold at net asset value per share only to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each cla ss of shares based on its relative net assets.
The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
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 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 Company enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value. When market quotations or offici al closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market),but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the Board of Directors. Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and futures contracts. For other securities that are fair valued by the Board of Directors, certain factors may be considered such as: fundamental analytical data, the
18
nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Financial futures are valued at the last sales price. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. Forward foreign currency exchange contracts (“forward contracts”) are valued at the forward rate.
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.
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The following is a summary of the inputs used as of May 31, 2010 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable | Unobservable | ||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Foreign+ | 237,697,807 | 248,194,852†† | — | 485,892,659 |
Mutual Funds | 25,400,000 | — | — | 25,400,000 |
† | See Statement of Investments for country and industry classification. |
†† | To adjust for the market difference between local market close and the calculation of the net asset |
value, the fund may utilize fair value model prices for international equities provided by an | |
independent service resulting in a Level 2 classification. |
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective f or fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the fund’s financial statement disclosures.
(b) Foreign currency transactions: The fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
20
Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized on securities transactions between trade and settlement date and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments resulting from changes in exchange rates. Foreign currency gains and losses on investments are included with net realized and unrealized gain or loss on investments.
(c) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
The fund has arrangements with the custodian and cash management bank whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
Investing in foreign markets may involve special risks and considerations not typically associated with investing in the U.S. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls and delayed settlements, and their prices may be more volatile than those of comparable securities in the U.S.
(d) Affiliated issuers: Investments in other investment companies advised by Dreyfus are defined as “affiliated” in the Act.
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
The fund may invest in shares of certain affiliated investment companies also advised or managed by Dreyfus. Investments in affiliated investment companies for the period ended May 31, 2010 were as follows:
Affiliated | |||
Investment | Value | Value | Net |
Company | 11/30/2009 ($) Purchases ($) | Sales ($) 5/31/2010 ($) | Assets (%) |
Dreyfus | |||
Institutional | |||
Preferred | |||
Plus Money | |||
Market | |||
Fund | 11,800,000 139,400,000 | 125,800,000 25,400,000 | 4.9 |
(e) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and 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. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(f) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended May 31, 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 three-year period ended November 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
22
The fund has an unused capital loss carryover of $17,053,730 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to November 30, 2009. If not applied, $1,939,230 of the carryover expires in fiscal 2016 and $15,114,500 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended November 30, 2009 was as follows: ordinary income $1,454,010. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $225 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended May 31, 2010, the fund did not borrow under the Facilities.
NOTE 3—Management Fee, Sub-Investment Advisory Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement with Dreyfus, the management fee is computed at the annual rate of .85% of the value of the fund’s average daily net assets and is payable monthly. Dreyfus has contractually agreed, until April 1, 2011, to waive receipt of its fees and/or assume the expenses of the fund so that annual fund operating expenses (excluding Rule 12b-1 fees, shareholder services fees, taxes, interest, brokerage commissions, commitment fees on borrowings and extraordinary expenses) do not exceed 1.25% of the value of the fund’s average daily
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
net assets. During the period ended May 31, 2010, there was no reduction in management fee pursuant to the undertaking.
During the period ended May 31, 2010, the Distributor retained $19,927 from commissions earned on sales of the fund’s Class A shares.
Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Walter Scott, Dreyfus pays Walter Scott a monthly fee at an annual percentage of the fund’s average daily net assets.
(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class C shares pay the Distributor for distributing its shares at an annual rate of .75% of the value of the average daily net assets of Class C shares. During the period ended May 31, 2010, Class C shares were charged $10,520, pursuant to the Plan.
(c) Under the Shareholder Services Plan, Class A and Class C shares pay the Distributor at an annual rate of .25% of the value of their average daily net assets for the provision of certain services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding Class A and Class C shares and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended May 31, 2010, Class A and Class C shares were charged $40,957 and $3,507, respectively, pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended May 31, 2010, the fund was charged
24
$4,915 pursuant to the transfer agency agreement, which is included in Shareholder servicing costs in the Statement of Operations.
The fund compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended May 31, 2010, the fund was charged $541 pursuant to the cash management agreement, which is included in Shareholder servicing costs in the Statement of Operations. These fees were partially offset by earnings credits of $34.
The fund also compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended May 31, 2010, the fund was charged $143,932 pursuant to the custody agreement.
During the period ended May 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: management fees $373,440, Rule 12b-1 distribution plan fees $3,245, shareholder services plan fees $12,234, custodian fees $60,061, chief compliance officer fees $3,656 and transfer agency per account fees $2,100.
(d) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
(e) A 2% redemption fee is charged and retained by the fund on certain shares redeemed within sixty days following the date of issuance, including redemptions made through the use of the fund’s exchange privilege. During the period ended May 31, 2010, redemption fees charged and retained by the fund amounted to $35,341.
The Fund 25
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward contracts, during the period ended May 31, 2010, amounted to $196,497,272 and $21,906,503, respectively.
The provisions of ASC Topic 815 “Derivatives and Hedging” require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The disclosure requirements distinguish between derivatives, which are accounted for as “hedges” and those that do not qualify for hedge accounting. Because investment companies value their derivatives at fair value and recognize changes in fair value through the Statement of Operations, they do not qualify for such accounting. Accordingly, even though a fund’s investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for purposes of this disclosure.
Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy. When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed.The fund realizes
26
a gain if the value of the contract increases between those dates. Any realized gain or loss which occurred during the period is reflected in the Statement of Operations.The fund is exposed to foreign currency risk as a result of changes in value of underlying financial instruments. The fund is also exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is typically limited to the unrealized gain on each open contract. At May 31, 2010, there were no open forward contracts outstanding.
At May 31, 2010, accumulated net unrealized depreciation on investments was $12,187,933, consisting of $22,905,653 gross unrealized appreciation and $35,093,586 gross unrealized depreciation.
At May 31, 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).
The Fund 27
NOTES
Item 2. | Code of Ethics. |
Not applicable. | |
Item 3. | Audit Committee Financial Expert. |
Not applicable. | |
Item 4. | Principal Accountant Fees and Services. |
Not applicable. | |
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. [CLOSED END FUNDS ONLY] | |
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) Not applicable.
(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.
Strategic Funds, Inc.
By: | /s/ Bradley J. Skapyak, |
Bradley J. Skapyak, | |
President | |
Date: | July 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: | July 23, 2010 |
By: | /s/ James Windels |
James Windels, | |
Treasurer | |
Date: | July 23, 2010 |
EXHIBIT INDEX |
(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)